Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
  FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2013
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 001-35008
 
  GAIN CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
20-4568600
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
Bedminster One
135 Route 202/206
Bedminster, New Jersey
 
07921
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (908) 731-0700
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ý   Yes     ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)     ý   Yes     ¨   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
¨
Accelerated filer
ý
Non-accelerated filer
 
¨   (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     ý   No
As of November 11, 2013, the registrant had 39,610,053 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents

GAIN Capital Holdings, Inc.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2013
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 
EXHIBIT INDEX
 

2
Table of Contents

PART I – FINANCIAL INFORMATION
GAIN CAPITAL HOLDINGS, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except share data)
 
 
As of September 30, 2013
 
As of December 31, 2012
ASSETS:
 
 
 
Cash and cash equivalents
$
28,323

 
$
36,820

Cash and securities held for customers
684,071

 
446,311

Short term investments, at fair value
804

 
1,437

Receivables from banks and brokers, ($10,606) and $810, respectively, at fair value
186,438

 
89,916

Property and equipment, net of accumulated depreciation
18,631

 
11,023

Prepaid assets
11,188

 
7,704

Goodwill
11,406

 
9,030

Intangible assets, net
36,313

 
9,868

Other assets, net
34,970

 
17,153

Total assets
$
1,012,144

 
$
629,262

LIABILITIES AND SHAREHOLDERS’ EQUITY:
 
 
 
Liabilities
 
 
 
Payables to customers, brokers, dealers, FCMs and other regulated entities
$
684,071

 
$
446,311

Accrued compensation and benefits
11,188

 
6,055

Accrued expenses and other liabilities
56,032

 
12,585

Income tax payable
4,801

 
1,481

Loan payable
33,200

 
—

Total liabilities
789,292

 
466,432

GAIN Capital Holdings, Inc. shareholders’ equity
 
 
 
Common stock ($0.00001 par value; 60 million shares authorized; 41,331,924 shares issued and 39,548,179 shares outstanding as of September 30, 2013; 36,486,036 shares issued and 34,924,095 shares outstanding as of December 31, 2012)
—

 
—

Accumulated other comprehensive income
1,366

 
1,249

Additional paid-in capital
124,439

 
85,089

Treasury stock, at cost (1,783,745 shares at September 30, 2013 and 1,561,941 at December 31, 2012, respectively)
(9,267
)
 
(8,280
)
Retained earnings
106,314

 
84,772

Total GAIN Capital Holdings, Inc. shareholders’ equity
222,852

 
162,830

Total liabilities and shareholders’ equity
$
1,012,144

 
$
629,262

The accompanying notes are an integral part of these condensed consolidated financial statements.

3
Table of Contents

GAIN CAPITAL HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
REVENUE:
 
 
 
 
 
 
 
Trading revenue
$
50,919

 
$
34,316

 
$
143,708

 
$
104,590

Commission revenue
12,662

 
5,435

 
37,749

 
13,523

Other revenue
(3,010
)
 
157

 
1,700

 
825

Total non-interest revenue
60,571

 
39,908

 
183,157

 
118,938

Interest revenue
207

 
119

 
629

 
405

Interest expense
180

 
42

 
428

 
428

Total net interest revenue/(expense)
27

 
77

 
201

 
(23
)
Net revenue
60,598

 
39,985

 
183,358

 
118,915

EXPENSES:
 
 
 
 
 
 
 
Employee compensation and benefits
16,222

 
11,905

 
45,028

 
35,424

Selling and marketing
5,713

 
5,748

 
15,858

 
20,116

Trading expenses and commissions
18,026

 
8,927

 
51,075

 
26,862

General and administrative
5,710

 
5,261

 
16,669

 
14,694

Depreciation and amortization
1,852

 
1,126

 
5,234

 
3,234

Purchased intangible amortization
486

 
565

 
1,687

 
3,450

Communications and technology
2,249

 
1,891

 
6,503

 
5,607

Bad debt provision
807

 
46

 
1,193

 
248

Acquisition expense
451

 
85

 
1,456

 
85

Restructuring
439

 
—

 
439

 
634

Total
51,955

 
35,554

 
145,142

 
110,354

INCOME BEFORE INCOME TAX EXPENSE
8,643

 
4,431

 
38,216

 
8,561

Income tax expense
3,043

 
1,210

 
11,172

 
2,152

NET INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC.
5,600

 
3,221

 
27,044

 
6,409

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
3,983

 
210

 
117

 
638

NET COMPREHENSIVE INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC.
$
9,583

 
$
3,431

 
$
27,161

 
$
7,047

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.09

 
$
0.76

 
$
0.18

Diluted
$
0.14

 
$
0.08

 
$
0.69

 
$
0.16

Weighted average common shares outstanding used in computing earnings per common share:
 
 
 
 
 
 
 
Basic
36,062,659

 
35,250,404

 
35,563,701

 
34,893,622

Diluted
39,730,857

 
38,560,657

 
38,722,667

 
38,927,673

 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
Table of Contents

GAIN CAPITAL HOLDINGS, INC.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Unaudited)
(in thousands, except share data)
 
 
 
Common Stock
 
Treasury
Stock
 
Additional
Paid in
Capital
 
Accumulated
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(loss)
 
Total
 
Shares
 
Amount
 
BALANCE—December 31, 2012
34,924,095

 
$
—

 
$
(8,280
)
 
$
85,089

 
$
84,772

 
$
1,249

 
$
162,830

Exercise of options
864,834

 
—

 
—

 
1,524

 
—

 
—

 
1,524

Issuance of common stock
3,625,721

 
—

 
—

 
35,079

 
—

 
—

 
35,079

Conversion of restricted stock into common stock
303,074

 
—

 
—

 
—

 
—

 
—

 
—

Shares issued under employee stock purchase plan
52,259

 
—

 
—

 
181

 
—

 
—

 
181

Repurchase of shares
(221,804
)
 
—

 
(987
)
 
—

 
—

 
—

 
(987
)
Stock compensation expense
—

 
—

 
—

 
2,272

 
—

 
—

 
2,272

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
—

 
117

 
117

Tax benefit of stock options exercises
—

 
—

 
—

 
373

 
—

 
—

 
373

Other
—

 
—

 
—

 
(79
)
 
(154
)
 
—

 
(233
)
Dividend declared ($0.05 dividend per share)
—

 
—

 
—

 
—

 
(5,348
)
 
—

 
(5,348
)
Net income
—

 
—

 
—

 
—

 
27,044

 
—

 
27,044

BALANCE—September 30, 2013
39,548,179

 
$
—

 
$
(9,267
)
 
$
124,439

 
$
106,314

 
$
1,366

 
$
222,852

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
Table of Contents

GAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
27,044

 
$
6,409

Adjustments to reconcile net income to cash provided by operating activities
 
 
 
Gain on foreign currency exchange rates
2,243

 
1,908

Depreciation and amortization
6,921

 
6,684

Deferred taxes
2,076

 
(1,080
)
Amortization of deferred financing costs
—

 
51

Bad debt provision
1,193

 
216

Loss on disposal of fixed assets
—

 
34

Stock compensation expense
2,272

 
2,623

Changes in operating assets and liabilities:
 
 
 
Cash and securities held for customers
(13,173
)
 
(10,760
)
Receivables from banks and brokers
(37,952
)
 
1,000

Prepaid assets
(1,617
)
 
1,637

Other assets
(5,494
)
 
(150
)
Payables to customers, brokers, dealers, FCMs and other regulated entities
13,173

 
10,512

Accrued compensation and benefits
5,130

 
(97
)
Accrued expenses and other liabilities
5,364

 
61

Income tax payable
3,190

 
46

Cash provided by operating activities
10,370

 
19,094

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(4,351
)
 
(6,486
)
Purchases of Treasury Bills
—

 
(44,954
)
Sale of Treasury Bills
606

 
—

Acquisition and funding of OEC, net of cash acquired
—

 
(6,813
)
Acquisition and funding of GFT, net of cash acquired
(4,219
)
 
—

Cash used for investing activities
(7,964
)
 
(58,253
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Contractual payments for acquired assets
(2,420
)
 
(1,818
)
Principal payment on revolving line of credit
—

 
(7,875
)
Proceeds from exercise of stock options
1,524

 
1,873

Proceeds from employee stock purchase plan
181

 
216

Purchase of treasury stock
(987
)
 
(1,439
)
Tax benefit from employee stock option exercises
373

 
(24
)
Dividend payment
(5,348
)
 
(5,212
)
Cash used for financing activities
(6,677
)
 
(14,279
)
Effect of exchange rate changes on cash and cash equivalents
(4,226
)
 
868

DECREASE IN CASH AND CASH EQUIVALENTS
(8,497
)
 
(52,570
)
CASH AND CASH EQUIVALENTS—Beginning of period
36,820

 
60,221

CASH AND CASH EQUIVALENTS—End of period
$
28,323

 
$
7,651

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
Cash (paid) / received during the year for:
 
 
 
Interest
$
(190
)
 
$
(189
)
Taxes
$
(5,540
)
 
$
3,279

Non-cash investing activities:
 
 
 
Purchase of fixed assets in accrued expense and other liabilities
$
—

 
$
835

Additional payment for OEC Accrued expenses and other liabilities
$
—

 
$
(2,593
)
Non-cash financing activities:
 
 
 
Common stock issued as consideration for GFT
$
(35,079
)
 
$
—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

GAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
GAIN Capital Holdings, Inc., together with its subsidiaries (the “Company”) is a Delaware corporation formed and incorporated on March 24, 2006. GAIN Holdings, LLC is a wholly-owned subsidiary of GAIN Capital Holdings, Inc., and owns all outstanding membership units in GAIN Capital Group, LLC (“Group, LLC”), the primary regulated entity in the United States of America.
Group, LLC is a retail foreign exchange dealer (“RFED”) and a registered Futures Commission Merchant (“FCM”) with the Commodity Futures Trading Commission (“CFTC”). As such, it is subject to the regulations of the CFTC, an agency of the U.S. Government, and the rules of the National Futures Association (“NFA”), an industry self-regulatory organization.
The following list includes each of the Company’s significant U.S. and international regulated subsidiaries:
GAIN Capital Group, LLC
GAIN Capital-Forex.com U.K., Ltd.
Forex.com Japan Co., Ltd.
GAIN Capital Forex.com Australia Pty. Ltd.
GAIN Capital-Forex.com Hong Kong Ltd.
GAIN Capital-Forex.com Canada, Ltd.
GAIN GTX, LLC
Global Futures & Forex, Ltd.
GFT Global Markets UK Ltd.
GFT Global Markets Asia Pte., Ltd.
In September 2013, the Company purchased all of the outstanding share capital of Global Futures & Forex, Ltd., a Michigan corporation ("GFT"). See Note 5 "Acquisitions" for further details related to this acquisition.
During 2012, the Company purchased all of the outstanding shares of capital stock of Paragon Futures Group, Inc., a Delaware corporation. Paragon owned all of the membership interests of Open E Cry, LLC (together “OEC”), an internet based futures business subject to the regulations of the CFTC. In November 2012, OEC was merged into Group, LLC. See Note 5 "Acquisitions" for further details related to this acquisition.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements reflect all adjustments, all of which are normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements for the interim periods. The unaudited condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission ("SEC") for interim financial statements, and, in accordance with SEC rules, omit or condense certain information and footnote disclosures. Results for the interim periods are not necessarily indicative of results to be expected for any other interim period or for the full year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013 (the “2012 Form 10-K”). There have been no changes in the significant accounting policies from those included in the 2012 Form 10-K. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, after the elimination of inter-company transactions and balances.

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company identified an error in the income tax provision recorded in the year ended December 31, 2010, and in the corresponding recognized tax assets and liabilities. The Company considered guidance in ASC 250, including ASC 250-10-S99 SEC, formerly Staff Accounting Bulletin Release Topic 1.M, Materiality (“SAB 99”), and SEC Staff Accounting Bulletin Release Topic 1.N, Considering the Effect of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), and concluded that the error did not constitute a material change to its previously issued consolidated financial statements. However, in order to accurately reflect the tax charge in the appropriate period, the Company has restated the Other assets, net, Income tax payable and Retained earnings balances as of December 31, 2012 to reflect the adjustment as if it had been made in the correct period. The correction of this error had no impact on amounts presented on the Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows presented herein.

7


The table below describes the impact on the Consolidated Balance Sheet of the changes described above:
 
As of December 31,
 
Restated 2012
As reported 2012
Other assets, net
17,153

17,804

Income tax payable
1,481

1,275

Retained earnings
84,772

85,629

In the three and nine months ended September 30, 2012, the Company presented certain revenue related to its securities business in “ Other revenue” on the Condensed Consolidated Statements of Operations and Comprehensive Income. However, due to the expansion of the Company’s institutional business in recent periods, and the addition of the exchange based business, OEC, the Company has reclassified revenue from these businesses from “ Institutional trading revenue ” and “ Other Revenue ” respectively to “ Commission Revenue ” in the Condensed Consolidated Statements of Operations and Comprehensive Income presented herein. The change in presentation had no effect on the total non-interest revenue or total net revenue.
Previously, the Company presented separately certain administrative expense related items. In an effort to align the presentation of expenses with competitors in the industry in order to enable easier comparisons, the Company has consolidated certain captions. The Company has presented amounts previously presented in “ Bank fees”, “Occupancy and equipment”, “Professional fees” and “Other” under the new caption of “ General and administrative”. Additionally, the Company has presented amounts previously presented in “ Communications and data processing” and “ Product development, software and maintenance” under the new caption “Communications and technology”. The change in presentation had no effect on the total expenses.
Previously, the Company presented certain acquisition expenses in "General and administrative ". To provide greater transparency over these costs and enable easier comparison of operating performance, the Company has reclassified these costs to "Acquisition expense ". The change in presentation has no effect on the total expenses.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2013, the Financial Accounting Standards Board, ("FASB") issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . ASU 2011-13 requires presenting unrecognized tax benefits netted against deferred tax assets if such assets are sufficient and expected to replace cash payment, should an uncertain tax position not be sustained. This update is effective for annual periods beginning on or after December 15, 2013, and interim periods within those annual periods. Entities can choose to apply the update retrospectively. Management has not adopted this update early and continues to evaluate it’s effect on the Company's condensed consolidated financial statements in anticipation of the effective date.
In February 2013, the issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . This guidance requires an entity to present information about significant items reclassified out of Accumulated Other Comprehensive Income (AOCI) by component and for items reclassified out of AOCI and into net income, an entity must disclose the effect of such items on the affected net income line item. ASU No. 2013-02 is effective for annual periods beginning on or after December 15, 2012 and interim periods within those annual periods and must be applied retrospectively. The adoption of ASU 2013-02 had no impact on the Company's condensed consolidated financial statements.
In December 2011, FASB issued Accounting Standards Update, or ASU 2011-11 Balance Sheet: Disclosures about Offsetting Assets and Liabilities . The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. In January 2013, the FASB issued ASU 2013-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities . This update addresses implementation issues of ASU 2011-11. The adoption of ASU 2011-11 and ASU 2013-01 had no impact on the Company’s condensed consolidated statement of operations and comprehensive income and condensed consolidated balance sheet.

8

3. ADDITIONAL FINANCIAL INFORMATION
Fair Value Measurement
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis during the period and the related hierarchy levels (amounts in thousands):
 
 
Fair Value Measurements on a Recurring Basis
as of September 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets/(Liabilities):
 
 
 
 
 
 
 
Money market accounts
$
1,058

 
$
—

 
$
—

 
$
1,058

Open contracts and other positions
—

 
(10,739
)
 
—

 
(10,739
)
CIBC treasury bills
721

 
—

 
—

 
721

Certificates of deposit
82

 
—

 
—

 
82

Investment in gold
133

 
—

 
—

 
133

Customer and broker open contracts and other positions
—

 
123,121

 
—

 
123,121

Total
$
1,994

 
$
112,382

 
$
—

 
$
114,376

 
 
Fair Value Measurements on a Recurring Basis
as of December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Money market accounts
$
12,064

 
$
—

 
$
—

 
$
12,064

Open contracts and other positions
810

 
—

 
—

 
810

U.S. treasury bills
29,998

 
—

 
—

 
29,998

CIBC treasury bills
1,355

 
—

 
—

 
1,355

Certificates of deposit
82

 
—

 
—

 
82

Investment in gold
168

 
—

 
—

 
168

Customer and broker open contracts and other positions
74,943

 
—

 
—

 
74,943

Total
$
119,420

 
$
—

 
$
—

 
$
119,420

The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period. The Company has included Open contracts and other positions and Customer and broker open contracts and other positions as Level 2 as of September 30, 2013 as these represent the fair value of the derivative contracts which are indexed to securities and commodities with quoted prices in active markets.
Level 1 Financial Assets
The Company has money market accounts, certificates of deposit, CIBC treasury bills and an investment in gold that are Level 1 financial instruments that are recorded based upon listed or quoted market rates. The money market accounts are recorded in Cash and cash equivalents and Cash and securities held for customers , the treasury bills are recorded in Cash and cash equivalents and Short term investments , based upon their maturity, the certificates of deposit are recorded in Short term investments and the investment in gold is recorded in Receivables from banks and brokers.
Level 2 Financial Assets and Liabilities
The Company has open contracts and other positions that are Level 2 financial instruments that are recorded in Receivables from banks and brokers.
The Company has customer and broker open contracts and other positions that are Level 2 financial instruments that are recorded in Payable to customers, brokers, dealers, FCMs and other regulated entities.
These Level 2 financial instruments are based upon directly observable values for underlying instruments.

9

Financial Instruments Not Measured at Fair Value
The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value in the Condensed Consolidated Balance Sheet (amounts in thousands). The carrying values of Receivables from banks and brokers not measured at fair value approximate fair value because of the relatively short period of time between their origination and expected maturity. The carrying values of Payables to customers, brokers, dealers, FCMs, and other regulated entities include amounts deposited by these financial institutions in order for the Company to act as a clearing broker. The carrying value of Payables to customers, brokers, dealers, FCMs, and other regulated entities are based on observable market prices and approximate fair value. The carrying value of Loan payable represents the term loan entered into as part of the GFT acquisition (see note 6). The loan is at a market rate and therefore the carrying value is deemed to be the fair value. The carrying value of Accrued expense and other liabilities includes $20.0 million , referred to as the Holdback Amount, to be paid net of an amount required to settle certain liabilities of GFT after the closing date of the acquisition (see note 5). The carrying values of Accrued expense and other liabilities not measured at fair value approximate fair value because of the relatively short period of time between their origination and expected settlement date.
In April 2011, the Company acquired customer account balances and effective customer agreements from Deutsche Bank AG, relating to Deutsche Bank’s “dbFX” business, for an upfront payment and additional contractual future payments to be made to Deutsche Bank based upon volume generated from the acquired customers over a two-year period following the closing of the acquisition. In accordance with ASC 835-30, Interest , the Company accounted for the payments due to dbFX as a note payable. As such, the total payments due to dbFX under the agreement were discounted to their present value using an imputed rate of interest.   This liability was settled during July 2013.
 
As of September 30, 2013
 
Fair Value Measurements using:
 
Carrying Value
 
Fair Value
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Receivables from banks and brokers
$
197,044

 
$
197,044

 
—

 
$
197,044

 
—

Financial Liabilities:
 
 
 
 
 
 
 
 
 
Payables to customers, brokers, dealers, FCMs and other regulated entities
807,192

 
807,192

 
—

 
807,192

 
—

Loan payable
$
33,200

 
$
33,200

 
 
 
$
33,200

 
 
Accrued expense and other liabilities
$
20,000

 
$
20,000

 
 
 
$
20,000

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Fair Value Measurements using:
 
Carrying Value
 
Fair Value
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
 
 
 
 
 
 
 
 
 
Receivables from banks and brokers
$
89,106

 
$
89,106

 
—

 
$
89,106

 
—

Financial Liabilities:
 
 
 
 
 
 
 
 
 
Payables to customers, brokers, dealers, FCMs and other regulated entities
$
371,368

 
$
371,368

 
—

 
$
371,368

 
—

Payable to dbFX
$
2,386

 
$
2,392

 
—

 
—

 
$
2,392

The Company’s investment in Kapitall, Inc., recorded in Other assets , is carried at cost. It is not practical to estimate the fair value of the Kapitall, Inc. stock as Kapitall, Inc. is a privately held company and there is no available market transaction data.

10

Receivables from Banks and Brokers
Amounts receivable from banks and brokers consisted of the following as of (amounts in thousands):  
 
September 30, 2013
 
December 31, 2012
Required collateral
$
119,298

 
$
47,595

Cash in excess of required collateral
77,746

 
41,343

Open positions
(10,739
)
 
810

Investment in spot gold
133

 
168

 
$
186,438

 
$
89,916

The Company has posted funds with banks and brokers as collateral required by agreements for holding trading positions. In addition, the Company has deposited with such banks and brokers cash in excess of required collateral. These amounts are reflected as Receivables from banks and brokers on the Condensed Consolidated Balance Sheets.
Derivatives
The Company's contracts with its customers and its liquidity providers are deemed to be derivative instruments. The table below represents the fair values of the Company’s derivative instruments reported within Receivables from banks and brokers and Payables to customers, brokers, dealers, FCMs and other regulated entities on the accompanying Condensed Consolidated Balance Sheet (amounts in thousands):
 
 
September 30, 2013
 
Gross amounts of
assets for
derivative open
positions at fair
value
 
Gross amount of
liabilities for
derivative open
positions at fair
value
 
Net amounts of
assets/liabilities
for derivative
open positions at
fair value
Derivative Instruments:
 
 
 
 
 
Foreign currency exchange contracts
$
134,088

 
$
29,000

 
$
105,088

CFD contracts
29,595

 
28,210

 
1,385

Metals contracts
10,038

 
4,129

 
5,909

Total
$
173,721

 
$
61,339

 
$
112,382

 
 
 
 
 
 
 
September 30, 2013
 
Cash Collateral
 
Net amounts of
assets/liabilities
for derivative
open positions at
fair value
 
Net amounts of
assets/liabilities
presented in the
balance sheet
Derivative Assets/Liabilities:
 
 
 
 
 
Receivables from bank and brokers
$
197,044

 
$
(10,739
)
 
$
186,438

Payables to customers, brokers, dealers, FCMs and other regulated entities
$
807,192

 
$
123,121

 
$
684,071

The Company’s derivatives include different contract types, which vary in price. Foreign exchange contracts typically have prices less than two dollars, while certain metals contracts and contracts for difference can be considerably higher priced. The table below represents the notional values of the Company’s derivative instruments reported within Receivables from banks and brokers and Payables to customers, brokers, dealers, FCMs and other regulated entities on the accompanying Condensed Consolidated Balance Sheet (amounts in millions):
 
September 30, 2013
 
Notional amounts
of derivative open
long positions
 
Notional amounts
of derivative open
short positions
Derivative Instruments:
 
 
 
Foreign currency exchange contracts
$
2,805

 
$
3,713

CFD contracts
331

 
62

Metals contracts
1

 
—

Total
$
3,137

 
$
3,775


11


The Company did not designate any of its derivatives as hedging instruments. Net gains/(losses) with respect to derivative instruments reflected in Trading Revenue in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income for the nine months ended September 30, 2013 were as follows (amounts in thousands):  

Derivative Instruments:
 
Foreign currency exchange contracts
$
88,111

CFD contracts
11,324

Metals contracts
44,273

Total
$
143,708

Property and Equipment
Property and equipment, including leasehold improvements and capitalized software development costs, consisted of the following as of (amounts in thousands):
 
 
September 30, 2013
 
December 31, 2012
Software
$
24,157

 
$
19,757

Computer equipment
6,634

 
5,248

Leasehold improvements
6,518

 
1,863

Telephone equipment
725

 
725

Office equipment
1,944

 
1,471

Furniture and fixtures
1,107

 
241

Web site development costs
654

 
654

 
41,739

 
29,959

Less: Accumulated depreciation and amortization
(23,108
)
 
(18,936
)
Property and equipment, net
$
18,631

 
$
11,023

As mentioned in Note 1 above, in September 2013, the Company purchased all of the outstanding share capital of GFT. The allocation of the preliminary purchase price to property and equipment is detailed below in Note 5, “Acquisition”.
Depreciation and amortization expense for property and equipment was $1.9 million and $1.1 million for the three months ended September 30, 2013 and 2012 , respectively, and $5.2 million and $3.2 million for the nine months ended September 30, 2013 and 2012 , respectively.
Intangible Assets
The Company's various finite-lived intangible assets consisted of the following as of (amounts in thousands):  
 
September 30, 2013
 
December 31, 2012
 
Cost
 
Accumulated
Amortization
 
Cost
 
Accumulated
Amortization
Customer list
$
21,974

 
$
(13,237
)
 
$
19,356

 
$
(12,138
)
Technology
26,860

 
(352
)
 
1,560

 
(37
)
Trademark
750

 
(14
)
 
430

 
(14
)
Non-compete agreement
—

 
—

 
1,859

 
(1,510
)
 
$
49,584

 
$
(13,603
)
 
$
23,205

 
$
(13,699
)
As mentioned in Note 1 above, in September 2013, the Company purchased all of the outstanding share capital of GFT. The allocation of the preliminary purchase price to intangible assets is detailed below in Note 5, “Acquisition”.
In 2003, the Company acquired the Forex.com domain name for $0.3 million , and in 2004, the foreignexchange.com domain name was purchased for $0.1 million . Because the rights to use these domain names require the payment of a nominal annual renewal fee, management determined that there was no legal, regulatory or technological limitation on their useful lives. Accordingly, these indefinite-lived assets are not amortized. In accordance with ASC 350-10, the Company tests intangible assets for impairment on an annual basis in the fourth quarter and on an interim basis when conditions indicate impairment may have occurred.

12

Amortization expense for the purchased intangibles was $0.5 million and $0.6 million for the three months ended September 30, 2013 and 2012 , respectively and $1.7 million and $3.4 million for the nine months ended September 30, 2013 and 2012 , respectively. Intangibles arising on the GFT acquisition contributed seven days of amortization expense amounting to $0.1 million .
Goodwill
Goodwill is calculated as the difference between the cost of acquisition and the fair value of the net identifiable assets of an acquired business. As of September 30, 2013 and December 31, 2012 , the Company had recorded goodwill of approximately $11.4 million and $9.0 million , respectively.
Goodwill increased $1.7 million as a result of the acquisition of GFT. In addition, during the nine months ended September 30, 2013, the finalization of the fair value of assets acquired as a result of the OEC acquisition in 2012 resulted in an increase of $0.7 million to goodwill.
Other Assets
Other assets consisted of the following as of (amounts in thousands):  
 
September 30, 2013
 
December 31, 2012
Vendor and security deposits
$
3,508

 
$
3,647

Current tax receivable
7,125

 
5,549

Deferred tax assets
3,338

 
4,968

Investment in Kapitall, Inc.
500

 
500

Indemnification asset
12,077

 
—

Miscellaneous receivables
8,422

 
2,489

 
$
34,970

 
$
17,153


The Company has recorded a liability of $12.3 million in Accrued expenses and other liabilities . This represents the Company's best estimate for the settlement of certain liabilities that were incurred as a result of ordinary course of operations in GFT prior to its acquisition. The actual amount required to settle these liabilities may vary from this estimate.

Under the terms of the acquisition of GFT, the selling stockholder of GFT has agreed to indemnify the Company for these liabilities that are expected to be settled after September 24, 2013. Based on the Company's best estimate of the amounts necessary to settle such liabilities, the Company recorded an indemnification asset of $12.1 million at September 30, 2013. This is included within Other current assets in the preliminary purchase price allocation of GFT, refer to note 5.

4. RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company have personal funds on deposit in customer accounts with the Company, which are recorded in Payables to customers, brokers, dealers, FCMs and other regulated entities on the Condensed Consolidated Balance Sheets. The aggregate amount of these funds was $2.6 million and $2.4 million at September 30, 2013 and December 31, 2012 , respectively.
Scivantage, Inc. provides hosting services to GAIN Capital Securities, Inc., (“GCSI”) under a one-year agreement dated December 1, 2010, which automatically renews for successive one-year terms, in which Scivantage provides the technology infrastructure hosting facility for GCSI, who provides brokerage securities services. Two members of the Company’s board of directors, Messrs. Calhoun and Sugden, are members of the board of directors of Scivantage.

5. ACQUISITIONS

Global Futures & Forex, Ltd

On September 24, 2013, GAIN Capital Holdings, Inc., entered into an Amended and Restated Stock Purchase Agreement with Gary L. Tilkin, a natural person (the “Seller”), and GFT, pursuant to which the Company purchased all of the issued and outstanding share capital of GFT from the Seller. The acquisition was made as part of the Company's strategy to increase its offering of products and to expand its retail and institutional businesses into new markets and geographies.

The preliminary purchase price of GFT was derived as follows (amounts in thousands):

13

 
 
Cash
$
40,000

Loan payable
33,200

Common Stock issued
35,079

Total purchase price
$
108,279

The preliminary purchase price of GFT was allocated to the fair value of various assets and liabilities as follows (amounts in thousands):  
 
 
Cash and cash equivalents acquired
$
15,781

Cash and cash equivalents held for customers acquired
228,419

Receivable from brokers
61,028

Property and equipment
7,515

Other current assets
18,928

Total tangible assets
331,671

Total liabilities assumed
253,558

Net assets
78,113

Consideration less net assets
30,165

Identifiable intangible assets:
 
  Software
25,300

  Customer relationships
3,150

Intangible assets, net
28,450

Goodwill
1,715

The foregoing purchase price allocation is preliminary. This is due to the proximity of the closing date of the acquisition to the period end. The final allocation will be based on final analyses of identifiable intangible assets, property and equipment, contingent liabilities and income taxes and will be finalized after the data necessary to complete the analyses of fair values of assets and liabilities is obtained and analyzed.
Acquisition expenses of $0.5 million and $1.5 million for the three months ended September 30, 2013 and the nine months ended September 30, 2013 respectively, were incurred. These are recorded in Acquisition expenses.
For the seven day period from acquisition to September 30, 2013, revenues generated by GFT were $2.8 million and expenses were $2.1 million generating a profit before taxes of $0.7 million .

OEC
On June 27, 2012, Group, LLC and optionsXpress Holdings, Inc., a subsidiary of The Charles Schwab Corporation, entered into a Stock Purchase Agreement whereby the Company acquired Paragon Futures Group, Inc., which owned all membership interests of OEC, an online futures broker, for a purchase price of $12.0 million . This acquisition was made as part of the Company’s plan to offer additional products to its customers and diversify its revenue streams. The transaction was completed on August 31, 2012. In addition to the $12.0 million paid at the closing, there was an additional payment made in the fourth quarter of 2012 of $2.7 million based on a contractual working capital adjustment.
The purchase price of OEC was derived as follows (amounts in thousands):  
 
 
Cash paid
$
12,000

Working capital adjustment
2,691

Total purchase price
$
14,691



The purchase price of OEC was allocated to the fair value of various assets and liabilities as follows (amounts in thousands):  

14

 
 
Cash and cash equivalents acquired
$
5,187

Cash and securities held for customers acquired
109,042

Receivables from brokers acquired
815

Other assets acquired
98

Total tangible assets acquired
$
115,142

Total liabilities assumed
(109,960
)
Identifiable intangible assets:
 
Trademark
650

Technology
1,630

Customer relationships
630

Goodwill
6,599

 
 
Acquisition expenses of $0.1 million for the three months ended September 30, 2012 and the nine months ended September 30, 2012 , were incurred. These are recorded in "Acquisition expenses".
Pro Forma Information:
The following unaudited pro forma operating data are presented as if the acquisition of GFT had occurred on January 1 st of the respective fiscal years for which comparative information is presented . Additionally, the acquisition of OEC (which was consummated in August 2012) is presented as if it had consummated on January 1, 2012 for the purposes of the comparative periods. The unaudited pro forma data does not include the impact of forecasted operating expense synergies
The unaudited pro forma data is provided for informational purposes only and may not necessarily be indicative of future results of operations or what the results of operations would have been had the Company and GFT and OEC operated as a combined entity for the periods presented.
Unaudited pro forma income statement line items for the three and nine months ended September 30, 2013 and 2012, were as follows (amounts in thousands):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
REVENUE:
 
 
 
 
 
 
 
Total non-interest revenue
$
81,195

 
$
66,504

 
$
270,027

 
$
203,838

Interest revenue
215

 
231

 
735

 
838

Interest Expense
843

 
724

 
2,333

 
2,351

Total net interest revenue/(expense)
(628
)
 
(493
)
 
(1,598
)
 
(1,513
)
Net revenue
80,567

 
66,011

 
268,429

 
202,325

EXPENSES:
 
 
 
 
 
 
 
Depreciation and amortization
2,519

 
2,100

 
7,536

 
6,082

Purchased intangible amortization
1,215

 
1,444

 
3,997

 
6,057

Acquisition expense
451

 
85

 
1,456

 
85

Restructuring
439

 
—

 
439

 
634

Other expense items*
70,902

 
64,435

 
230,221

 
200,559

Total
75,526

 
68,064

 
243,649

 
213,417

INCOME BEFORE INCOME TAX EXPENSE
5,041

 
(2,053
)
 
24,780

 
(11,092
)
Income tax expense
1,890

 
(770
)
 
9,293

 
(4,159
)
Net income / (loss)
$
3,151

 
$
(1,283
)
 
$
15,487

 
$
(6,933
)
* Other expense items for the nine month period ended September 30, 2013 included a one-time, non-recurring expense of $8.8 million relating to a GFT accrual for certain liabilities to third parties.

15

6. TERM LOAN AND REVOLVER
As part of the acquisition of GFT, the Company's previously outstanding revolving line of credit was repaid in full, and a Loan and Security Agreement was entered into with the selling stockholder of GFT providing for a $33.2 million term loan to the Company. The loan will mature on the date that is five years from September 24, 2013, the closing date of the acquisition, and will bear interest at a rate of 8.0%  per annum, payable quarterly. The Company will also make minimum quarterly payments of principal in an amount of $1.5 million per quarter, although no payments, other than scheduled interest payments, are required to be made until 80% of certain assumed liabilities of GFT are settled. Please see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - GFT Transaction" for more information about the Loan and Security Agreement.
7. SHARE BASED COMPENSATION
During the nine months ended September 30, 2013 , 0.8 million shares of restricted stock and approximately 0.5 million options to purchase common stock, valued at $3.6 million and $0.6 million , respectively, were granted to employees and non-employee members of the Board of Directors, compared to 0.6 million shares of restricted stock and 0.3 million options to purchase common stock, valued at $3.1 million and $0.7 million , respectively during the nine months ended September 30, 2012 .
The Company determines the fair value of restricted stock units and awards at the date of grant based on the value of the Company’s common stock. The Company determines the fair value of our stock option awards at the date of grant using a Black-Scholes valuation model. This model requires assumptions and judgments on the expected volatility, dividend yield, the risk-free interest rate and the expected term of the stock options. The following assumptions were used for stock options granted in the period:  
 
For the Nine Months Ended September 30,
 
2013
 
2012
Valuation Assumptions
 
 
 
Risk-free rate
0.8%
 
0.9%
Expected volatility
48.8%
 
48.5%
Expected term (years)
4.75
 
4.75
Dividend yield
4.9%
 
—%
8. EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the determinants of basic net income per share and, in addition, gives effect to the potential dilution that would occur if securities or other contracts to issue common stock were exercised, vested or converted into common stock, unless they are anti-dilutive. Diluted weighted average common shares include vested and unvested stock options, vested restricted stock units which are to be delivered as soon as administratively practicable on or after December 31, 2014, unvested restricted stock units and unvested restricted stock awards. Approximately 0.6 million and 0.3 million stock options were excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2013 and the nine months ended September 30, 2012 , respectively, as they were anti-dilutive.
The following table sets forth the computation of earnings per share (amounts in thousands except share and per share data):
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net income applicable to GAIN Capital Holdings, Inc.
$
5,600

 
$
3,221

 
$
27,044

 
$
6,409

Adjustment(1)
—

 
—

 
154

 
—

Net income applicable to GAIN common shareholders
$
5,600

 
$
3,221

 
$
26,890

 
$
6,409

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
36,062,659

 
35,250,404

 
35,563,701

 
34,893,622

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
1,620,851

 
1,382,802

 
1,244,009

 
1,764,568

RSUs/RSAs
2,047,347

 
1,927,451

 
1,914,957

 
2,269,483

Diluted weighted average common shares outstanding
39,730,857

 
38,560,657

 
38,722,667

 
38,927,673

Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.09

 
$
0.76

 
$
0.18

Diluted
$
0.14

 
$
0.08

 
$
0.69

 
$
0.16

 
(1)
During the period an adjustment to retained earnings was made, reflecting the amounts deemed uncollectible associated with previously issued preferred stock, which was converted to common stock immediately prior to the IPO.
9. LEGAL
From time to time the Company becomes involved in legal proceedings and in each case the Company assesses the likely liability and/or the amount of damages as appropriate. Where available information indicates that it is probable a liability had been incurred at the date of the condensed consolidated financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to income. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss.
For certain legal proceedings, the Company can estimate possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued. For certain other legal proceedings, the Company cannot reasonably estimate such losses, if any, since the Company cannot predict if, how or when such proceedings will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues must be developed, including the need to discover and determine important factual matters and the need to address novel or unsettled legal questions relevant to the proceedings in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any proceeding.
Litigation
On February 16, 2012, the Company received a Letter of Claim on behalf of certain individuals who had lost money in an investment scheme operated by a third-party money management firm, incorporated in the United Kingdom, which has since been closed down by the United Kingdom’s Financial Services Authority. The investment firm, Cameron Farley Ltd, had opened a corporate account with the Company and invested the individuals’ money, representing such funds as its own, while operating a fraudulent scheme. Though a complaint has been filed and served on the Company, the claimants requested, and the Company agreed, to follow the United Kingdom’s Pre-Action Protocol, a pre-litigation process intended to resolve matters without the need to engage in formal litigation. The Company submitted a Response to the Letter before Claim on July 4, 2012. On July 5, 2012 the Company received a substantially similar Letter of Claim on behalf of further individuals. Subsequently, the parties agreed to consolidate claims by those other similarly situated individuals with the pending Pre-Action Protocol process. The parties agreed it would be more appropriate for the proceedings to be dealt with in the Commercial Court and the matters were transferred pursuant to Consent Orders dated March 14, 2013. The Company subsequently filed an application for strike out and/or summary judgment in respect of all claims on March 15, 2013. The claimants filed an answer to the Company's motion on June 2, 2013 and subsequently the Company filed a response to this answer on July 15, 2013. A hearing was held on the Company's application for strike out and/or summary judgment on September 18 and 19, 2013.  After the hearing, the judge asked the claimants to respond in writing to his additional questions from the hearing.  The complaints had until October 11, 2013 to provide answers and the Company was given until November 1, 2013 to respond.  The Company is now waiting for the judge’s ruling on the motion.  The Company can provide no assurances that this matter will be successfully

16

resolved. This matter is currently pending. At this time, a potential loss or a potential range of loss cannot be reasonably estimated.
Through the Company’s acquisition of OEC, the Company became the subject of a patent infringement lawsuit originally filed against OEC on February 9, 2010 in the U.S. District Court for the Northern District of Illinois by Trading Technologies International, Inc. seeking injunctive relief and unspecified damages. As reflected in a Second Amended Complaint filed on June 15, 2011, plaintiff alleges infringement of 12 patents relating to real-time display of price quotes and market depth on OEC’s electronic trading interfaces. The case was consolidated with 11 related cases in February 2011, and the parties have exchanged infringement, non-infringement and invalidity contentions for several of the disputed patents. In June 2011 the court stayed discovery to allow summary judgment briefing on the ramifications of a recent Federal Circuit decision. On February 9, 2012, the court issued an order, which granted OEC’s motions for summary judgment, resulting in a substantial narrowing of the scope of plaintiff’s claims. Plaintiff filed a motion for reconsideration of that ruling on March 8, 2012. Plaintiff also filed a motion for certification of judgment for interlocutory appeal. The court denied plaintiff’s motion for reconsideration but granted plaintiff’s motion for certification of judgments of patent invalidity with respect to four of the asserted patents. On August 30, 2013, the Federal Circuit issued its opinion vacating the district court’s judgment of patent invalidity regarding four of the asserted patents.  On September 30, 2013, certain of the appellees filed a petition for rehearing and rehearing en banc with the Federal Circuit.  Since the district court’s certification of judgments ruling, the court has continued its stay of discovery. Plaintiff’s complaint does not specify the amount of damages sought. At this time, a potential loss or a potential range of loss cannot be reasonably estimated.
10. INCOME TAXES
The Company’s provision for income taxes was approximately $3.0 million and $1.2 million for the three months ended September 30, 2013 and the three months ended September 30, 2012 , respectively. These amounts reflect effective tax rates of 35.2% and 27.3% , respectively.
The Company’s provision for income taxes for the nine months ended September 30, 2013 and the nine months ended September 30, 2012 was $11.2 million and $2.2 million respectively.
The Company’s effective tax rates of 29.2% and 25.1% for the nine months ended September 30, 2013 and the nine months ended September 30, 2012 , respectively, reflect the Company’s estimate of the annual effective tax rate, adjusted for certain discrete items. The primary reason for the difference in the effective tax rate for the nine months ended September 30, 2013 compared to the U.S. federal statutory income tax rate is due to the mix of earnings across foreign jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company’s net deferred tax assets are included in Other assets on the Condensed Consolidated Balance Sheet.
11. REGULATORY REQUIREMENTS
The following table illustrates the minimum regulatory capital our subsidiaries were required to maintain as of September 30, 2013 and the actual amounts of capital that were maintained (amounts in millions):
 
Entity Name
Minimum
Regulatory
Capital
Requirements
Capital
Levels
Maintained
Excess
Net
Capital
Percent  of
Requirement
Maintained
GFT Global Markets UK Ltd.
$
40.4

$
51.9

$
11.5

128
%
GAIN Capital Group, LLC
24.8

44.1

19.3

178
%
GAIN Capital-Forex.com U.K., Ltd.
20.9

50.5

29.6

242
%
Forex.com Japan Co., Ltd.
3.5

10.8

7.3

309
%
GAIN Capital-Forex.com Hong Kong, Ltd.
1.9

3.8

1.9

200
%
GFT Global Markets Asia Pte., Ltd.
1.6

1.8

0.2

113
%
Global Futures & Forex, Ltd.
1.0

1.6

0.6

160
%
GAIN Capital Forex.com Australia, Pty. Ltd.
0.4

2.7

2.3

675
%
GAIN Capital-Forex.com Canada Ltd.
0.2

1.9

1.7

950
%
GAIN Capital Securities, Inc.
0.1

0.2

0.1

200
%
GAIN Global Markets, Inc.
0.1

0.3

0.2

300
%
Total
$
94.9

$
169.6

$
74.7

179
%
Regulatory requirements have remained substantially the same as those disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 18, 2013 with the exception of the requirements of GAIN Capital Forex.com Australia, Pty. Ltd. (“GCAU”). GCAU holds an Australian Financial Services License issued by the Australian Securities & Investments Commission (“ASIC”). As of January 31, 2013, the ASIC implemented changes to the Regulatory Guide 166. As a result of these changes, GCAU is required to maintain a minimum capital requirement of $0.5 million (AUD 0.5 million ) or 5% of the average revenue. This change did not have a material impact on the Company or GCAU.
12. SEGMENT INFORMATION
ASC 280, Disclosures about Segments of an Enterprise and Related Information , establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision making group, in deciding how to allocate resources and in assessing performance. Reportable segments are defined as an operating segment that either (a) exceeds 10% of revenue, or (b) reported profit or loss in absolute amount exceeds 10% of profit of all operating segments that did not report a loss or (c) exceeds 10% of the combined assets of all operating segments. The Company’s operations relate to global trading services and solutions. Based on the Company’s management strategies, and common production, marketing, development and client coverage teams, the Company has concluded that it operates in a single operating segment.
For the nine months ended September 30, 2013 and the nine months ended September 30, 2012 , no single customer accounted for more than 10% of the Company’s trading revenue. Although the Company allocates revenue to geographic regions for income tax purposes, the Company does not utilize this method for operational or internal reporting purposes and therefore the Company has no geographic regions for segment reporting.
13. SUBSEQUENT EVENTS

The Company has evaluated events subsequent to September 30, 2013 to assess the need for potential recognition or disclosure in these consolidated financial statements. Such events were evaluated through November 12, 2013, the date these consolidated financial statements were issued.
In October 2013, the Company announced the payment of a $ 0.05 dividend per share of Common Stock payable on December 20, 2013 to stockholders of record on December 12, 2013 .

In July 2013, GAIN Securities, an indirect wholly-owned subsidiary of the Company that principally offers equity products, entered into an agreement to transfer substantially all of its customer accounts to TradeKing, LLC. This transaction closed in October 2013.


17

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
In this Quarterly Report on Form 10-Q, the words “GAIN”, the “Company”, “our”, “we” and “us” refer to GAIN Capital Holdings, Inc. and, except as otherwise specified herein, to GAIN’s subsidiaries. Our fiscal quarter ended on September 30, 2013 .
The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and the Condensed Consolidated Financial Statements and Notes thereto contained in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s current beliefs and assumptions. Any statements contained herein (including, without limitation, statements to the effect that we “believe”, “expect”, “anticipate”, “plan” and similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this report and the discussion below. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Such factors include those set forth in the section entitled “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, and discussed elsewhere in this Quarterly Report on Form 10-Q. The risks and uncertainties described therein and herein are not the only ones we face. Additional risks and uncertainties, including those not presently known to us or that we currently deem immaterial, may also impair the business. We expressly disclaim any obligation to update any forward-looking statements, except as may be required by law.

OVERVIEW

We are a global provider of trading services and solutions, facilitating market access across multiple asset classes to a diverse client base of retail and institutional investors. Founded in 1999, we have customers in more than 180 countries worldwide and conduct business from our offices in New York, New York; Bedminster, New Jersey; Grand Rapids, Michigan; Chicago, Illinois; Powell, Ohio; London, England; Tokyo, Japan; Sydney, Australia; Beijing, China; Hong Kong and Singapore.

Through our retail trading business we offer self-directed individuals access to a wide variety of financial markets and asset classes, including spot foreign exchange, or forex, and precious metals; “contracts-for-difference”, or CFDs, which are investment products with returns linked to the performance of an underlying commodity, equity index, interest rate product or individual security; options on forex, and exchange-traded products, including futures and options on futures. Our retail clients primarily access their accounts and trade online through our globally recognized FOREX.com brand using a suite of trading tools that we provide, including native applications for mobile and tablet devices. With the goal of delivering quality service, we also offer our retail customers access to market research and information, trader education and 24-hour customer support.
Our institutional trading business, GTX, launched in March 2010 to serve institutional market participants, including hedge funds and financial institutions. GTX offers electronic access to spot foreign exchange markets via a proprietary Electronic Communications Network, or ECN, and also facilitates more complex client orders in offline transactions via a team of execution consultants.
In September 2013, we completed our acquisition of Global Futures & Forex, Ltd., or GFT, a global provider of retail forex and derivatives trading. With the acquisition of GFT, we are able to offer customers an expanded product range totaling more than 12,500 financial products and have gained access to GFT’s extensive network of partners, through which we intend to further expand our retail and institutional businesses into new markets and geographies. Please see "GFT Transaction" below and Note 5 "Acquisitions" to our condensed consolidated financial statements for more information about the acquisition.

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Market Overview
Overall market conditions improved in the nine months ended September 30, 2013 , due in part to higher levels of volatility as compared to the multi-year lows experienced in 2012. While volatility levels in the quarter were still well below 2008-2011 averages, we saw increased engagement from clients in the quarter, resulting in higher trading volumes.
GFT Transaction
On September 24, 2013, we entered into an Amended and Restated Stock Purchase Agreement with Gary L. Tilkin and GFT pursuant to which we agreed to purchase all of the issued and outstanding shares of common stock of GFT from Mr. Tilkin. The transaction closed on September 24, 2013.
Pursuant to the terms of the Stock Purchase Agreement, we purchased the shares of GFT for an aggregate purchase price consisting of (i) $20.0 million in cash to be paid upon the closing date of the transaction, (ii) up to $20.0 million in cash, referred to as the Holdback Amount, to be paid upon the settlement of certain liabilities of GFT after the closing date, (iii) 3,625,721 shares of our common stock and (iv) a term loan from Mr. Tilkin in an amount equal to approximately $33.2 million. Under the terms of the Stock Purchase Agreement, Mr. Tilkin has agreed to indemnify us for certain liabilities of GFT that are expected to be settled after the closing date. Mr. Tilkin's indemnification obligation for these liabilities shall first be settled out of the Holdback Amount, with any amounts in excess of the Holdback Amount being settled directly by Mr. Tilkin or by reduction of the outstanding term loan. Upon settlement of 80% of these liabilities, the remaining Holdback Amount, if any, will be paid to Mr. Tilkin, subject to certain conditions and terms.
In connection with the closing of the acquisition, on September 24, 2013 we also entered into an Amended and Restated Stockholders' Agreement with Mr. Tilkin, pursuant to which Mr. Tilkin agreed to customary restrictions on transfer of his common stock. Among other restrictions, Mr. Tilkin may not transfer his shares of common stock until the later of (i) the six month anniversary of the closing date or (ii) the settlement of 65% of the liabilities described above, after which time Mr. Tilkin may transfer up to 16.67% of his shares every three months, subject to compliance with Rule 144 in a manner that avoids directed and block sales.
On the closing date, we also entered into a Loan and Security Agreement with Mr. Tilkin providing for the term loan. The term loan will mature five years from the closing date and will bear interest at a rate of 8.0% per annum, payable quarterly. The term loan provides that we will also make quarterly payments of principal in an amount of $1.5 million per quarter, plus additional payments of principal based on (i) certain EBITDA thresholds, (ii) excess available capital due to the elimination of regulatory requirements and (iii) availability of net cash proceeds in connection with liquidity events, subject to de minimis thresholds and certain reinvestment rights, although no payments, other than scheduled interest payments, are required to be made until 80% of the liabilities described above are settled. The Loan and Security Agreement also requires us to comply with a minimum debt service coverage ratio and a maximum total funded debt ratio, along with other customary negative covenants. Our obligations under the Loan and Security Agreement are secured by substantially all of our assets, including our ownership interests in Gain Holdings, LLC, but excluding any intellectual property.
The foregoing descriptions of the Stock Purchase Agreement, the Stockholders' Agreement and the Loan and Security Agreement do not purport to be complete, and are qualified in their entirety by reference to the full text of those agreements, The Stock Purchase Agreement was filed as an exhibit to our Current Report on Form 8-K, filed with the SEC on September 25, 2013, and the Stockholders' Agreement and the Loan and Security Agreement are filed as exhibits to this Quarterly Report on Form 10-Q. The representations, warranties and covenants contained in the Stock Purchase Agreement, the Stockholders' Agreement and the Loan and Security Agreement have been made solely for purposes of those agreements and as of specific dates and are not intended as statements of fact to be relied upon by any party other than the parties to those agreements.
Key Income Statement Line Items and Key Operating Metrics
The following table sets forth key financial metrics for our business for the periods indicated:  
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Net revenue
$
60,598

 
$
39,985

 
$
183,358

 
$
118,915

Net income
$
5,600

 
$
3,221

 
$
27,044

 
$
6,409

Revenue

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We generate revenue from trading revenue, commission revenue, other revenue and interest income.
Trading Revenue
Trading revenue is our largest source of revenue and is generated in our retail business. Trading revenue represented 84.0% and 78.4% of our total net revenue for the three months and nine months ended September 30, 2013 , respectively, and 85.8% and 88.0% of our total net revenue for the three months and nine months ended September 30, 2012 , respectively.
We generate trading revenue as follows:
•
for trades that are naturally hedged against an offsetting trade from another customer, we receive the entire retail bid/offer spread we offer our customers on the two offsetting transactions;
•
for trades that are hedged with one of our wholesale forex trading partners, we receive the difference between the retail bid/offer spread we offer our customers and the wholesale bid/offer spread we receive from the wholesale forex trading partners; and
•
with respect to the remaining customer trades, which we refer to as our net exposure, we receive the net gains or losses generated through changes in the market value of the currencies held in our net exposure.
For the three months and nine months ended September 30, 2013 , approximately 94.8 % and 96.8 % of our average daily retail trading volume was either naturally hedged or hedged by us with one of our wholesale forex trading partners, respectively, and the remaining 5.2 % and 3.2 % of our average daily retail trading volume consisted of our net exposure, compared to average daily retail trading volume hedged of 94.6 % and 94.3 % for the three months and nine months ended September 30, 2012 , respectively.
We manage our net exposure by applying position and exposure limits established under our risk-management policies and by continuous, active monitoring by our traders. Based on our risk management policies and procedures, over time a portion of our net exposure may be hedged with our wholesale forex trading partners. Although we do not actively initiate proprietary directional market positions in anticipation of future movements in the relative prices of the products we offer, through our net exposure we are likely to have open positions in various currencies at any given time. In the event of unfavorable market movements, we may experience a loss on such positions.
Commission Revenue
Commission revenue has historically been comprised of revenue from our GTX institutional business, revenue from our futures business, OEC, and revenue from GAIN Securities, our securities business. In October 2013, GAIN Securities transferred substantially all of its customer accounts to TradeKing, LLC.
GTX, OEC, and GAIN Securities generate revenue by earning a commission on each transaction, which is recorded under commission revenue. We act as an agent for the trades executed on the GTX platform and, therefore, do not assume any market or credit risk. Commission revenue received through GTX, OEC and GAIN Securities generally generates a lower profit margin compared to what we have historically experienced in our retail forex trading business.
Other Revenue
Other revenue is comprised of account management, transaction and performance fees related to customers who have assigned trading authority to our subsidiary Gain Capital Asset Management, or GCAM, inactivity and training fees charged to customer accounts, foreign currency transaction gains and losses and other miscellaneous items from each of our businesses.
For the three months and nine months ended September 30, 2013 , other revenue was $(3.0) million and $1.7 million , respectively, compared to $0.2 million and $0.8 million for the three months and nine months ended September 30, 2012 , respectively.
Net Interest Revenue / Expense
Net interest revenue/expense consists primarily of the revenue generated by our cash and customer cash held by us at banks, in money market funds, in treasury bills and on deposit as collateral with our wholesale forex trading partners, less interest expense on our term loan and contractual payments for acquired assets. A customer’s net account value equals cash on deposit plus the marking to market of open positions as of the measurement date.
Our cash and customer cash is generally invested in money market funds, which primarily invest in short-term U.S. government securities or treasury bills. Such deposits and investments earned interest at an average effective rate of approximately 0.1% for the three months ended September 30, 2013 and 2012. Interest paid to customers varies among customer accounts primarily due to the net value of a customer account. From time to time, we also make available interest

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promotions pursuant to which we may pay certain customers higher levels of interest than that which is paid to other customers. Interest income and interest expense are recorded when earned and incurred, respectively. Net interest revenue was $0.2 million and $0.1 million for the three months ended September 30, 2013 and 2012 , respectively.
Expenses
Our expenses are primarily comprised of employee compensation and benefits, selling and marketing, trading expenses and commissions, general and administrative, depreciation and amortization, purchased intangible amortization and communications and technology.
Employee Compensation and Benefits
Employee compensation and benefits includes salaries, bonuses, stock-based compensation, contributions to benefit programs and other related employee costs.
Selling and Marketing
Our marketing strategy employs a combination of direct marketing and focused branding programs, with the primary goal of raising awareness and attracting clients to our retail OTC business, FOREX.com. For the three months and nine months ended September 30, 2013 , selling and marketing expense was $5.7 million and $15.9 million , respectively, compared to $5.7 million and $20.1 million for the three months and nine months ended September 30, 2012 , respectively. The decrease in sales and marketing expenses for the nine month period was partly due to a decline in TV advertising costs, as well as due to the continued optimization of our direct marketing efforts and the realignment of marketing expenses to regions which have lower customer acquisition costs.
Trading Expense and Commissions
Trading expense and commissions consists of compensation paid to our white label partners and introducing brokers in connection with our retail foreign exchange and futures businesses, as well as fees paid to prime brokers in connection with our institutional GTX business. We generally provide white label partners with the platform, systems and back-office services necessary for them to offer forex trading services to their customers. Introducing brokers identify and direct potential trading customers to us. White label partners and introducing brokers generally handle marketing and the other expenses associated with attracting customers. Accordingly, we do not incur any incremental sales and marketing expense in connection with trading revenue generated by customers provided through our white label partners and introducing brokers. We do, however, pay a portion of this trading revenue to our white label partners and introducing broker partners and record this payment under trading expense and commissions. This expense is largely variable and changes principally based on the level of customer trading volume directed to us from our white label partners and introducing brokers, the specific terms of our agreements with the white label partners and introducing brokers, which vary on a partner-by-partner and regional basis, and the relative percentage of trading volume generated from particular relationships in any given period. The majority of our white label and introducing broker partners are paid based on the trading volume generated by the customers they introduce, directly or indirectly, to us. As such, during periods in which their customers’ trading activity is not profitable for us, if the associated trading volume remains high, we may be required to make larger payments to these partners despite the lower revenue generated from their customers. Our indirect business accounted for 35.5 % and 34.6 % of retail trading volume in the three months and nine months ended September 30, 2013 and 36.9 % and 37.4 % for the three months and nine months ended September 30, 2012 , respectively.
General and Administrative
General and administrative expenses consist of bank fees, professional fees, occupancy and equipment and other miscellaneous expenses.
Depreciation and Amortization
Depreciation and amortization consists of the recognition of expense for physical assets and software purchased for use over several years and of the amortization of internally developed software.
Purchased Intangible Amortization
Purchased intangible amortization consists of amortization related to intangible assets we acquired in connection with our acquisition of customer accounts in several transactions we executed during these periods. The principal intangible assets acquired were customer assets and a non-compete agreement. These intangible assets have useful lives ranging from one year to six years.

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Communications and Technology
Communications and technology consists of communications fees, data fees, product development, software and maintenance expenses.
Operating Metrics
The following table sets forth key operating metrics for our business for the periods indicated:  
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Funded Accounts
131,068

 
82,411

 
131,068

 
82,411

Active OTC Accounts
105,536

 
59,166

 
105,536

 
59,166

Futures DARTs
12,483

 
12,350

 
13,364

 
12,350

OTC Trading Volume (billions)
$
394.8

 
$
278.7

 
$
1,294.0

 
$
1,004.7

OTC Average Daily Volume (billions)
$
6.0

 
$
4.3

 
$
6.7

 
$
5.2

Client Assets (millions)
$
684.1

 
$
426.6

 
$
684.1

 
$
426.6

Institutional Trading Volume (billions)
$
901.3

 
$
503.6

 
$
2,857.0

 
$
1,414.1

Institutional Average Daily Volume (billions)
$
13.7

 
$
7.7

 
$
14.7

 
$
7.6


We believe that our customer trading volumes are driven by ten main factors. Six of these factors are broad external factors outside of our control that generally impact the market for forex trading, as well as customer trading volumes, and include:
•
changes in the financial strength of market participants;
•
economic and political conditions;
•
trends in business and finance;
•
changes in the supply, demand and volume of foreign currency transactions;
•
legislative changes; and
•
regulatory changes.
Many of the above factors impact the volatility of foreign currency rates, which has generally been positively correlated with forex trading volume. Our customer trading volume is also affected by the following additional factors:
•
the effectiveness of our sales activities;
•
the competitiveness of our various offerings;
•
the effectiveness of our customer service team; and
•
the effectiveness of our marketing activities.
In order to increase customer trading volume, we focus our marketing and our customer service and education activities on attracting new customers and increasing overall customer trading activity.
Funded Accounts
Funded accounts represent retail customers who maintain cash balances with us. We believe the number of funded retail accounts is an important indicator of our ability to attract new retail customers that can potentially lead to trading volume and revenue in the future; however, it does not represent actual trades executed.
Active OTC Accounts
Active OTC accounts represents customers who executed at least one trade during the prior twelve month period. We believe active OTC accounts is an important operating metric because it correlates to our trading volume and revenue.
Futures DARTs, or Daily Average Revenue Trades
DARTs represents the number of futures or options on futures trades in a given period over the number of trading days in the period.
OTC Trading Volume
OTC trading volume is the U.S. dollar equivalent of the aggregate notional value of OTC trades executed by our retail customers. Approximately 30.5% and 31.2% of our customer trading volume for the three months and nine months ended

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September 30, 2013 , respectively, was generated by our retail businesses, compared to 35.6% and 41.5% for the three months and nine months ended September 30, 2012 , respectively.
Average Daily Volume
Average daily volume is the U.S. dollar equivalent of the aggregate notional value of trades executed by our customers in a given period over the number of trading days in the period.
Client Assets
Client assets represent amounts due to clients, including customer deposits and unrealized gains or losses arising from open positions.
Institutional Trading Volume
Trading volume is the U.S. dollar equivalent of the aggregate notional value of OTC trades executed by our institutional customers. Approximately 69.5% and 68.8% of our customer trading volume for the three months and nine months ended September 30, 2013 , respectively, was generated by our institutional trading business, compared to 64.4% and 58.5% for the three months and nine months ended September 30, 2012 , respectively.
RESULTS OF OPERATIONS
Revenue  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
REVENUE:
 
 
 
 
 
 
 
Trading revenue
$
50,919

 
$
34,316

 
$
143,708

 
$
104,590

Commission revenue
12,662

 
5,435

 
37,749

 
13,523

Other revenue
(3,010
)
 
157

 
1,700

 
825

Total non-interest revenue
60,571

 
39,908

 
183,157

 
118,938

Interest revenue
207

 
119

 
629

 
405

Interest expense
180

 
42

 
428

 
428

Total net interest revenue / (expense)
27

 
77

 
201

 
(23
)
Net revenue
$
60,598

 
$
39,985

 
$
183,358

 
$
118,915

Our total net revenue increased $20.6 million , or 51.6% , for the three months ended September 30, 2013 , compared to the three months ended September 30, 2012 . Our total net revenue increased $64.4 million , or 54.2% , for the nine months ended September 30, 2013 , compared to the nine months ended September 30, 2012 . Trading volumes increased for the three months ended September 30, 2013 and nine months ended September 30, 2013 compared to the same periods in 2012, as a result of improvements in overall market conditions, particularly levels of volatility that were higher than the multi-year lows experienced during the year ended December 31, 2012, although still well below 2008-2011 averages.
Trading revenue increased $16.6 million , or 48.4% , for the three months ended September 30, 2013 , compared to the three months ended September 30, 2012 . Trading revenue increased $39.1 million , or 37.4% , for the nine months ended September 30, 2013 , compared to the nine months ended September 30, 2012 .
Our commission revenue increased $7.2 million , or 133.0% , for the three months ended September 30, 2013 , compared to the three months ended September 30, 2012 . This increase in commission revenue was comprised of increases of $2.7 million from our institutional business and $4.5 million from our futures business, which was acquired in August 2012. Commission revenue increased $24.2 million , or 179.2% , for the nine months ended September 30, 2013 , compared to the same period last year. This increase in commission revenue was comprised of $8.6 million from our institutional business and $15.6 million from our futures business.
Our other revenue decreased $3.2 million for the three months ended September 30, 2013 , compared to the three months ended September 30, 2012 , and $0.9 million for the nine months ended September 30, 2013 , compared to the nine months ended September 30, 2012 . The decreases were primarily due to losses on foreign exchange translation.


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Expenses
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Total expenses
$
51,955

 
$
35,554

 
$
145,142

 
$
110,354

As a percentage of net revenue
85.7
%
 
88.9
%
 
79.2
%
 
92.8
%
Our total expenses for the three months ended September 30, 2013 increased $16.4 million , or 46.1% , compared to the three months ended September 30, 2012. The increase was primarily due to an increase of $9.1 million in trading expenses and commissions and an increase of $4.3 million in employee compensation and benefits.
Total expenses for the nine months ended September 30, 2013 increased $34.8 million , or 31.5% , compared to the nine months ended September 30, 2012 , respectively. The increase was primarily due to an increase of $24.2 million in trading expenses and commissions, an increase of $9.6 million in employee compensation and benefits, an increase of $2.0 million in general and administrative expenses and an increase of $2.0 million in depreciation and amortization, which were partially offset by a $4.3 million decrease in selling and marketing expenses and a $1.8 million decrease in purchased intangible asset amortization.
The changes in key expense items are described below.
Trading Expenses and Commissions  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Trading expenses and commissions
$
18,026

 
$
8,927

 
$
51,075

 
$
26,862

As a percentage of net revenue
29.7
%
 
22.3
%
 
27.9
%
 
22.6
%
Trading expenses and commissions for the three months and nine months ended September 30, 2013 increased $9.1 million , or 101.9% , and $24.2 million , or 90.1% , compared to the three months and nine months ended September 30, 2012 , respectively. These increases were primarily due to the increase in volumes in our retail and institutional trading businesses, as well as the acquisition of OEC in August 2012, which contributed only one month of expense in the comparable periods of 2012. This expense is largely variable and is directly associated with the levels of customer trading volume directed to us from our white label partners and introducing brokers.
Employee Compensation and Benefits  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Employee compensation and benefits
$
16,222

 
$
11,905

 
$
45,028

 
$
35,424

As a percentage of net revenue
26.8
%
 
29.8
%
 
24.6
%
 
29.8
%
Employee compensation for the three months and nine months ended September 30, 2013 increased $4.3 million , or 36.3% , and $9.6 million , or 27.1% , compared to the three months and nine months ended September 30, 2012 , respectively. The increases were driven by higher bonus expense resulting from our improved operating results, as well as the hiring of members of senior management, additional institutional sales employees and employees related to the acquisition of OEC in August 2012.

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Table of Contents

General and Administrative  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
General and administrative
$
5,710

 
$
5,261

 
$
16,669

 
$
14,694

As a percentage of net revenue
9.4
%
 
13.2
%
 
9.1
%
 
12.4
%
General and administrative expenses for the three months and nine months ended September 30, 2013 increased $0.4 million , or 8.5% , and $2.0 million , or 13.4% , compared to the three months and nine months ended September 30, 2012 , respectively. These increases were primarily due to an increase in bank fees, driven by an increase in trading volumes.

Selling and Marketing Expense  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Selling and marketing
$
5,713

 
$
5,748

 
$
15,858

 
$
20,116

As a percentage of net revenue
9.4
%
 
14.4
%
 
8.6
%
 
16.9
%
Selling and marketing expenses for the three months ended September 30, 2013 were consistent with the three months ended September 30, 2012, although these expenses as a percentage of net revenue were 5% lower. Selling and marketing expense for the nine months ended September 30, 2013 decreased $4.3 million , or 21.2% , compared to the nine months ended September 30, 2012 . The decrease in sales and marketing expenses for the nine month period was partly due to a decline in TV advertising costs, as well as due to the continued optimization of our direct marketing efforts and the realignment of marketing expenses to regions which have lower customer acquisition costs.
Purchased Intangible Amortization  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Purchase intangible amortization
$
486

 
$
565

 
$
1,687

 
$
3,450

As a percentage of net revenue
0.8
%
 
1.4
%
 
0.9
%
 
2.9
%
Purchased intangible amortization for the three months and nine months ended September 30, 2013 decreased $0.1 million , or 14.1% , and $1.8 million , or 51.1% , compared to the three months and nine months ended September 30, 2012 , respectively. The decreases were due to the purchased intangible assets acquired from Capital Market Services, LLC in October 2010 becoming fully amortized during the second quarter of 2012, partially offset by additional amortization related to the acquisition of OEC.

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Table of Contents

Depreciation and Amortization  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Depreciation and amortization
$
1,852

 
$
1,126

 
$
5,234

 
$
3,234

As a percentage of net revenue
3.1
%
 
2.8
%
 
2.9
%
 
2.7
%
Depreciation and amortization for the three months and nine months ended September 30, 2013 increased $0.7 million , or 64.3% , and $2.0 million , or 61.8% , compared to the three months and nine months ended September 30, 2012 , respectively. The increases were due to additional depreciation related to software capitalized during 2012.
Acquisition Expense
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Acquisition expense
$
451

 
$
85

 
$
1,456

 
$
85

As a percentage of net revenue
0.7
%
 
0.2
%
 
0.8
%
 
0.1
%
The acquisition expenses are costs directly attributable to the acquisitions of GFT in 2013 and OEC in 2012, primarily consisting of legal, accounting and other professional advisory fees.
Restructuring
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(amounts in thousands)
 
(amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Restructuring
$
439

 
$
—

 
$
439

 
$
634

As a percentage of net revenue
0.7
%
 
—
%
 
0.2
%
 
0.5
%
The restructuring expenses reflect a $0.4 million and $0.6 million increase in compensation and benefits expense which arose in connection with headcount reductions implemented in the three months ended September 30, 2013 and June 30, 2012 respectively.
Liquidity and Capital Resources
We have historically financed our liquidity and capital needs primarily through the use of funds generated from operations, the issuance of preferred stock and access to secured lines of credit. We plan to finance our future operating liquidity and regulatory capital needs from our operations. We may also seek funds from future equity or debt financings. We expect that our capital expenditures for the next twelve months will be consistent with our historical annual spend.
We primarily hold and invest our cash at various financial institutions in various investments, including cash held at banks, deposits at our wholesale forex trading partners and money market funds, which invest in short-term U.S. government securities. In general, we believe all of our investments and deposits are of high credit quality and we have adequate liquidity to conduct our businesses.
As a holding company, nearly all of our funds from operations are generated by our operating subsidiaries. Historically, we have accessed these funds through receipt of dividends from these subsidiaries. The following table shows the amount of cash held by our non-U.S. operating subsidiaries and the level of undistributed earnings (amounts in thousands) at September 30, 2013 :  

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Entity Name
Cash
 
Undistributed
Earnings
GFT Global Markets UK Ltd.
$
230,923

 
$
1,074

GAIN Capital-Forex.com U.K., Ltd.
154,048

 
49,072

Forex.com Japan Co., Ltd.
61,115

 
—

GAIN Capital Forex.com Australia, Pty. Ltd.
10,596

 
—

GFT Global Markets Asia Pte., Ltd.
10,213

 
11

GAIN Capital-Forex.com Hong Kong, Ltd.
4,021

 
—

GAIN Capital-Forex.com Canada Ltd.
3,167

 
—

GAIN GTX Singapore Pte. Ltd.
459

 
35

GAIN Capital-Forex.com Singapore Ltd.
223

 
—

GAIN Global Markets, Inc.
67

 
—

Island Traders (Cayman) Limited
10

 
—

Total
$
474,842

 
$
50,192

At September 30, 2013 , as reflected in the table above, we had approximately $50.2 million of undistributed earnings of our foreign subsidiaries indefinitely invested outside the United States. These amounts are expected to be reinvested in the working capital and other business needs of the foreign subsidiaries and, accordingly, no provision has been made for foreign taxes associated with these earnings. If these earnings had been repatriated into the United States as of September 30, 2013 , in the form of dividends or otherwise, the Company would have been subject to additional income taxes of approximately $6.3 million.
Some of our operating subsidiaries are subject to requirements of various regulatory bodies, including the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) in the United States, the Financial Conduct Authority in the United Kingdom, the Japan Ministry of Economy, Trade and Industry, the Financial Services Agency and the Japan Ministry of Agriculture, Forestry and Fisheries in Japan, or the Securities and Futures Commission in Hong Kong, the Australian Securities and Investments Commission in Australia (“ASIC”), the Cayman Islands Monetary Authority in the Cayman Islands and the Monetary Authority of Singapore in Singapore, relating to liquidity and capital standards, which limit funds available for the payment of dividends to GAIN Capital Holdings, Inc. As a result, we may be unable to access funds which are generated by our operating subsidiaries when we need them.
Regulatory requirements have remained substantially the same as those disclosed in our Annual Report on Form 10-K filed with the SEC on March 18, 2013 with the exception of the requirements of GAIN Capital Forex.com Australia, Pty. Ltd. (“GCAU”). GCAU holds an Australian Financial Services License issued by the ASIC. As of January 31, 2013, the ASIC implemented changes to the Regulatory Guide 166. As a result of these changes, GCAU is required to maintain a minimum capital requirement of $0.5 million (AUD 0.5 million) or 5% of the average revenue. This change did not have a material impact on us.

The following table illustrates the minimum regulatory capital our subsidiaries were required to maintain as of September 30, 2013 and the actual amounts of capital that were maintained on that date (amounts in millions):  

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Minimum Regulatory
 
Capital Levels
 
Excess Net
Entity Name
Capital Requirements
 
Maintained
 
Capital
GFT Global Markets UK Ltd.
40.4

 
51.9

 
11.5

GAIN Capital Group, LLC
$
24.8

 
$
44.1

 
$
19.3

GAIN Capital-Forex.com U.K., Ltd.
20.9

 
50.5

 
29.6

Forex.com Japan Co., Ltd.
3.5

 
10.8

 
7.3

GAIN Capital-Forex.com Hong Kong, Ltd.
1.9

 
3.8

 
1.9

GFT Global Markets Asia Pte., Ltd.
1.6

 
1.8

 
0.2

Global Futures & Forex, Ltd.
1.0

 
1.6

 
0.6

GAIN Capital Forex.com Australia, Pty. Ltd.
0.4

 
2.7

 
2.3

GAIN Capital-Forex.com Canada Ltd.
0.2

 
1.9

 
1.7

GAIN Global Markets, Inc.
0.1

 
0.3

 
0.2

GAIN Capital Securities, Inc.
0.1

 
0.2

 
0.1

Total
$
94.9

 
$
169.6

 
$
74.7


Our futures commission merchant and forex dealer subsidiary, GAIN Capital Group, LLC, is subject to the CFTC Net Capital Rule (Rule 1.17) and NFA Financial Requirements Sections 11 and 12. Under applicable provisions of these rules, GAIN Capital Group, LLC is required to maintain adjusted net capital of $20.0 million plus 5.0% of the total payables to customers over $10.0 million, as these terms are defined under applicable rules. Net capital represents our current assets less total liabilities as defined by CFTC Rule 1.17. Our current assets consist primarily of cash and cash equivalents reported on our balance sheet as cash, receivables from brokers and trading securities, which primarily consist of short-term U.S. government securities. Our total liabilities include payables to customers, accrued expenses, accounts payable, sales and marketing expense payable, introducing broker fees payable and other liabilities. From net capital we take certain percentage deductions against assets held based on factors required by the Commodity Exchange Act to calculate adjusted net capital. Our net capital and adjusted net capital changes from day to day. As of September 30, 2013 , GAIN Capital Group, LLC had net capital of approximately $50.9 million , adjusted net capital of $44.1 million and net capital requirements of $24.8 million . As of September 30, 2013 , the excess net capital of GAIN Capital Group, LLC was $19.3 million . We believe that we currently have sufficient capital to satisfy these on-going minimum net capital requirements.

Our futures commission merchant, Global Futures & Forex, Ltd, is subject to the CFTC Net Capital Rule (Rule 1.17) and NFA Financial Requirements Sections 11 and 12. Under applicable provisions of these rules, Global Futures & Forex, Ltd is required to maintain adjusted net capital of $1.0 million, as these terms are defined under applicable rules. Net capital represents our current assets less total liabilities as defined by CFTC Rule 1.17. Our current assets consist primarily of cash and cash equivalents reported on our balance sheet as cash, receivables from brokers and trading securities. Our total liabilities include payables to customers, accrued expenses, accounts payable, sales and marketing expense payable, introducing broker fees payable and other liabilities. From net capital we take certain percentage deductions against assets held based on factors required by the Commodity Exchange Act to calculate adjusted net capital. Our net capital and adjusted net capital change from day to day. As of September 30, 2013, Global Futures & Forex, Ltd had net capital of approximately $2.8 million, adjusted net capital of $1.6 million and net capital requirements of $1.0 million. As of September 30, 2013, the excess net capital of GAIN Capital Group, LLC was $0.6 million. We believe that we currently have sufficient capital to satisfy these on-going minimum net capital requirements.   
In addition to our regulatory requirements, we are required to maintain cash on deposit with our wholesale forex trading partners in order to conduct our trading activities. As of September 30, 2013 , we posted $186.4 million in cash with wholesale forex trading partners, of which $119.3 million was required as collateral pursuant to our agreements for holding foreign exchange positions with such institutions, and the remaining $77.7 million represented available cash in excess of required collateral. As of September 30, 2013 , total client assets were $684.1 million . Total client assets represent amounts due to clients, including deposits and unrealized gains or losses arising from our clients’ open positions. The table set forth below provides information regarding our total available liquidity as of September 30, 2013 and as of December 31, 2012. We use this non-GAAP measure to evaluate our business operations and our ability to continue to grow through acquisitions (amounts in millions):  

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As of September 30, 2013
 
As of December 31, 2012
Cash & cash equivalents
$
28.3

 
$
36.8

Cash & securities held for customers
684.1

 
446.3

Short term investments(1)
0.8

 
1.4

Receivable from banks & brokers(2)
186.4

 
89.9

Total operating cash
899.6

 
574.4

Less: Cash & securities held for customers
(684.1
)
 
(446.3
)
Net operating cash
215.5

 
128.1

Less: Minimum regulatory capital requirements
(94.9
)
 
(45.6
)
Free cash available(3)
120.6

 
82.5

 
(1)
Reflects cash that would be received upon the liquidation of short term investments. We estimate that all short term investments as of the date indicated could be liquidated within one to two business days.
(2)
Reflects cash that would be received from brokers following the close-out of all open positions. We estimate that liquidation of all open positions as of the date indicated could be completed within one to two business days.
(3)
Excludes current liabilities of $72.0 million and $20.1 million at September 30, 2013 and December 31, 2012 , respectively.
Cash Flow
The following table sets forth a summary of our cash flow for the nine months ended September 30, 2013 and the nine months ended September 30, 2012 (amounts in thousands):  
 
For the Nine Months Ended September 30,
 
2013
 
2012
Cash provided by operating activities
$
10,370

 
$
19,094

Cash used for investing activities
(7,964
)
 
(58,253
)
Cash used for financing activities
(6,677
)
 
(14,279
)
Effect of exchange rate changes on cash and cash equivalents
(4,226
)
 
868

Decrease in cash and cash equivalents
$
(8,497
)
 
$
(52,570
)
The primary drivers of our cash flow provided by operating activities are net income, amounts posted as collateral with wholesale forex trading partners and amounts paid to fund our operations.
Amounts posted as collateral with wholesale foreign exchange trading partners are classified on our balance sheet as receivables from brokers and represent collateral required to be deposited with our wholesale forex trading partners in order for us to hold spot foreign exchange positions, as well as the cash posted with wholesale forex trading partners in excess of required collateral. We post cash with wholesale forex trading partners in excess of required collateral to allow for adverse currency price moves relative to our positions, which would raise our level of required collateral. We receive interest on amounts we have posted as collateral with wholesale forex trading partners. The amount of collateral required by our wholesale forex trading partners in the future will be commensurate with the amount of spot foreign exchange positions that they hold on our behalf. The amount of cash posted with wholesale forex trading partners in excess of required collateral is discretionary and may increase or decrease in future periods as we determine the most efficient uses of our cash.
Our largest operating expenses are employee compensation and benefits, selling and marketing expenses, trading expenses and commissions. Employee compensation and benefits include salaries, bonuses and other employee related costs. Selling and marketing expenses include online and search engine advertising and print and television advertising. Trading expenses and commissions consist primarily of compensation paid to our white label partners and introducing brokers.

Unrealized gains and losses on cash positions revalued at prevailing foreign currency exchange rates are included in trading revenue but have no direct impact on cash flow from operations. Gains and losses become realized and impact cash flow from operations when customer transactions are liquidated. To some extent, our net deposit activity is influenced by unrealized gains and losses because our customers’ trading positions are impacted by unrealized gains and losses and our customers may be required to post additional funds to maintain open positions or may choose to withdraw excess funds on open positions.

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Cash provided by operating activities was $10.4 million for the nine months ended September 30, 2013 , compared to cash provided by operating activities of $19.1 million for the nine months ended September 30, 2012 . The primary reason for the decrease in cash provided by operating activities was a decrease in receivables from bank and brokers of $38.0 million, offset by an increase of $20.1 million in net income.
Cash used for investing activities was $8.0 million for the nine months ended September 30, 2013 , compared to cash used by investing activities of $58.3 million for the nine months ended September 30, 2012 . The reduction was a result of $45.0 million used to purchase treasury bills in 2012.
Cash used by financing activities was $6.7 million for the nine months ended September 30, 2013 , compared to cash used by financing activities of $14.3 million for the nine months ended September 30, 2012 . The decrease in cash used by financing activities was due to a $7.9 million payment on the Silicon Valley Bank loan payable in 2012.
Capital Expenditures
Capital expenditures were $4.4 million for the nine months ended September 30, 2013 , compared to $6.5 million for the nine months ended September 30, 2012 . Capital expenditures for both periods primarily related to the development of our trading platforms and websites.
Contractual Obligations
For the nine months ended September 30, 2013 , there were no significant changes to our vendor obligations from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2012. The following table sets forth our contractual obligations for operating leases as of September 30, 2013 (amounts in thousands):  
 
Total
 
Less than
1  Year
 
1-3
Years
 
3-5
Years
 
More than
5 Years
Operating lease obligations
$
23,538

 
$
1,429

 
$
11,087

 
$
2,812

 
$
8,210

Off-Balance-Sheet Arrangements
At September 30, 2013 and December 31, 2012 , we did not have any off-balance-sheet arrangements.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on the information currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur periodically could materially impact the financial statements. While our significant accounting policies are described in more detail in the notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, we believe the following accounting policies to be critical to the estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements.
Revenue Recognition
Foreign exchange contracts generally involve the exchange of two currencies at market rates on a specified date; these contracts usually require the exchange of currencies to occur within two business days of the contract date. Customer transactions and related revenue and expenses are recorded on a trade-date basis. Gains or losses are realized when customer transactions are liquidated. Unrealized gains or losses on cash positions revalued at prevailing foreign currency exchange rates (the difference between contract price and market price) at the date of the balance sheet are included in Receivables from banks and brokers and Payables to customers , brokers, dealers, FCMs and other regulated entities on the Condensed Consolidated Balance Sheet. Changes in net unrealized gains or losses are recorded in Trading revenue on the Condensed Consolidated Statements of Operations and Comprehensive Income.


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Allowance for Doubtful Accounts
We must make estimates of the uncollectibility of accounts receivable. The allowance for doubtful accounts, which is netted against Other assets on our Condensed Consolidated Balance Sheet, totaled approximately $1.2 million at September 30, 2013 and $0.1 million at December 31, 2012, respectively. We record an increase in the allowance for doubtful accounts when the prospect of collecting a specific account balance becomes doubtful. Management specifically analyzes accounts receivable and historical bad debt experience when evaluating the adequacy of the allowance for doubtful accounts. Should any of these factors change, the estimates made by management may also change, which could affect the level of our future provision for doubtful accounts.
Specifically, if the financial condition of our customers were to deteriorate, adversely affecting their ability to make payments, an additional provision for doubtful accounts may be required, and such provision may be material.

Income Taxes
We account for income taxes in accordance with Financial Accounting Standards Board Accounting Standards Codification, or ASC, 740-10, Income Taxes . Income tax expenses are provided using the asset and liability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the consolidated financial statements and the income tax basis, using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our Consolidated Statements of Operations and Comprehensive Income in the period of enactment. We routinely evaluate all deferred tax assets to determine the likelihood of their realization.
We use estimates in determining income tax positions under ASC 740-10-25, Income Taxes . Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment and is subject to audit by tax authorities in the ordinary course of business.
To the extent we are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement could require use of our cash and result in an increase in our effective income tax rate in the period of resolution.

Share Based Payments
ASC 718-10, Compensation – Stock Compensation , requires measurement of share based payment arrangements at fair value and recognition of compensation cost over the service period, net of estimated forfeitures. The fair value of restricted stock units and restricted stock awards is determined based on the number of units granted and the grant date fair value of our common stock.
We measure the fair value of stock options on the date of grant using the Black-Scholes option pricing model which requires the use of several estimates, including:
•
The volatility of our stock price;
•
The expected life of the option;
•
Risk free interest rates; and
•
Expected dividend yield.
The use of different assumptions in the Black-Scholes pricing model would result in different amounts of stock-based compensation expense. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted.
The expected volatility is calculated based upon the volatility of public companies in similar industries or financial service companies. The average risk free rate is based upon the five year bond rate converted to a continuously compounded interest rate.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Property, Plant and Equipment , we periodically evaluate the carrying value of long-lived assets when events and circumstances warrant such review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such an asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized in the amount by which the carrying value exceeds the fair market value of the long-lived asset.
Goodwill and Intangible Assets
ASC 350-30, General Intangibles , requires a purchased intangible asset other than goodwill to be amortized over its useful life unless the useful life is determined to be indefinite. If the asset is determined to have a finite life in the future, we will amortize

31
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the carrying value over the remaining useful life at that time. In accordance with ASC 350-30, our URLs (foreignexchange.com and forex.com) are indefinite life intangible assets and are, therefore, not amortized. We compare the recorded value of the indefinite life intangible assets and goodwill to their fair value on an annual basis and whenever circumstances arise that indicate that impairment may have occurred.
Treasury Shares
In accordance with ASC 505-30, Equity – Treasury Stock , we treat the cost of shares purchased as a deduction from shareholders’ equity and as a reduction of the total shares outstanding when calculating adjusted earnings per share.
Accrued Compensation
We make significant estimates in determining our quarterly and annual accrued non-share based compensation. A significant portion of our employee incentive compensation programs are discretionary. Each quarter and year-end we determine the amount of discretionary cash bonus pools. We also review compensation throughout the year to determine how overall performance compares to management’s expectations. We take these and other factors, including historical performance and our performance relative to budget, into account in reviewing accrued discretionary cash compensation estimates on a quarterly basis and adjusting accrual rates as appropriate. Changes to these factors could cause a material increase or decrease in the amount of compensation expense that we report in a particular period.

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Table of Contents

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will impact our financial statements. Our net interest expense is directly affected by the spread between the short-term interest rates we pay our customers on their balances and the short-term interest rates we earn from re-investing their cash. These spreads can widen or narrow when interest rates change. In addition, a portion of our interest income relates to customer balances on which we do not pay interest and, therefore, is directly affected by the absolute level of short-term interest rates. As a result, a portion of our interest income will decline if interest rates fall, regardless of the interest rate spreads that affect the remaining portion of our interest income. Short-term interest rates are highly sensitive to factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. Our cash and customer cash held is held in cash and cash equivalents including cash at banks, deposits at wholesale forex trading partners and in money market funds, which invest in short-term U.S. government securities. The interest rates earned on these deposits and investments affects our interest revenue. In addition, the interest we pay on our notes payable is based on the prime rate plus interest of 0.5%. We estimate that as of September 30, 2013 , a 100 basis point increase in short-term interest rates would result in approximately $6.4 million more in annual pretax income.
Foreign Currency Exposures
Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of our assets denominated in foreign currencies as well as our earnings due to the translation of the balance sheets and income statements of our foreign subsidiaries from local currencies to United States dollars. We currently have limited exposure to currency risk. For the nine months ended September 30, 2013 , 88.4% of our assets, 85.8% of our liabilities, 91.2% of our revenue and 78.3% of our expenses were denominated in U.S. dollars. We currently do not take proprietary directional positions to mitigate our exposure to changes in foreign currency exchange rates.
Credit Risk
Our trading operations require a commitment of our capital and involve risk of loss because of the potential that a customer’s losses may exceed the amount of cash in their account. As a result, we require that each trade must be collateralized in accordance with our margin policies described below. Each customer is required to have minimum funds in their account for opening positions, which we refer to as the initial margin, and for maintaining positions, which we refer to as maintenance margin, depending on the currency pair being traded. Margin requirements are expressed as a percentage of the customer’s total position in that currency, and the customer’s total margin requirement is based on the aggregate margin requirement across all of the positions that a customer holds at any one moment in time. Each net position in a particular currency pair is margined separately. Accordingly, we do not net across different currency pairs, thereby following a fairly conservative margin policy. Our systems automatically monitor each customer’s margin requirements in real time, and we confirm that each of our customers has sufficient cash collateral in his or her account before we execute their trades. If at any point in time a customer has “negative equity” because his or her trading position does not comply with the applicable margin requirement, the position may be automatically liquidated, in part or in full, in accordance with our margin policies and procedures. This policy protects both us and the customer. The incidence of negative equity in customer accounts has been immaterial to our operations in the nine months ended September 30, 2013 and 2012 , which we believe was attributable to our real-time margining and liquidation policies and procedures. Our margin and liquidation policies are set forth in our customer agreements.
We are also exposed to potential credit risk relating to the counter parties with which we hedge our trades and the financial institutions with which we deposit cash. We mitigate these risks by allocating our funds across several of the largest financial institutions in the market. Additionally, we have policies in place which limit the funds we hold at any given institution. In the event that our access to one or more financial institutions becomes limited, our ability to hedge may be impaired.
Market Risk
We are exposed to market risk in connection with our retail trading activities. Because we act as counter party to our retail customers’ transactions, we are exposed to risk on each trade that the market price of our position will decline. Accordingly, accurate and efficient management of our net exposure is a high priority, and as such we have developed both automated and manual policies and procedures to manage our exposure. These risk-management policies and procedures are established and reviewed regularly by the Risk Committee of our Board of Directors. Our risk-management policies require quantitative analyses by currency pair, as well as assessment of a range of market inputs, including trade size, dealing rate, customer margin and market liquidity. Our risk-management procedures require our team of senior traders to monitor risk exposure on a continuous basis and update senior management both informally over the course of the trading day and formally through

33
Table of Contents

intraday and end of day reporting. A key component of our approach to managing market risk is that we do not take proprietary directional market positions and, therefore, do not initiate market positions for our own account in anticipation of future movements in the relative prices of the products we offer. To facilitate our risk-management activities, we maintain levels of capital in excess of those currently required under applicable regulations. As of September 30, 2013 , we maintained capital levels of $169.6 million , which represented approximately 1.8 times the capital we were required to hold.
Cash Liquidity Risk
In normal conditions, our market making business of providing online forex trading and related services is self-financing as we generate sufficient cash flows to pay our expenses as they become due. As a result, we generally do not face the risk that we will be unable to raise cash quickly enough to meet our payment obligations as they arise. Our cash flows, however, are influenced by customer trading volume, currency volatility and liquidity in foreign currency pairs in which we have positions. These factors are directly impacted by domestic and international market and economic conditions that are beyond our control. In an effort to manage this risk, we have secured a substantial liquidity pool by establishing trading relationships with nine financial institutions. These relationships provide us with sufficient access to liquidity to allow us to consistently execute significant trades in varying market conditions at the notional amounts our customers desire by providing us with as much as 50:1 leverage on the notional amounts of the available collateral we have on deposit with such financial institutions. We generally maintain collateral on deposit, which includes our funds and our customer’s funds. Collateral on deposit ranged from $123.3 million to $187.8 million in the aggregate for the nine months ended September 30, 2013 .
In addition, our forex trading operations involve the risk of losses due to the potential failure of our customers to perform their obligations under the transactions we enter into with them, which increases our exposure to cash liquidity risk. To reduce this risk, our margin policy requires that we mark our customers’ accounts to market each time the market price of a position in their portfolio changes and provides for automatic liquidation of positions, as described above.

Operational Risk
Our operations are subject to a variety of risks including those resulting from technological interruptions, failures or capacity constraints in addition to risks involving human error or misconduct. Regarding technological risks, we are heavily dependent on the capacity and reliability of the computer and communications systems supporting our operations. We have established a program to monitor our computer systems, platforms and related technologies and to promptly address issues that arise. We have also established disaster recovery facilities in strategic locations to ensure that we can continue to operate with limited interruptions in the event that our primary systems are damaged. As with our technological systems, we have established policies and procedures designed to monitor and prevent both human error, such as clerical mistakes and incorrectly placed trades, as well as human misconduct, such as unauthorized trading, fraud and negligence. In addition, we seek to mitigate the impact of any operational issues by maintaining insurance coverage for various contingencies.
Regulatory Capital Risk
Various domestic and foreign government bodies and self-regulatory organizations responsible for overseeing our business activities require that we maintain specified minimum levels of regulatory capital in our operating subsidiaries. If not properly monitored or adjusted, our regulatory capital levels could fall below the required minimum amounts set by our regulators, which could expose us to various sanctions ranging from fines and censure to imposing partial or complete restrictions on our ability to conduct business. To mitigate this risk, we continuously evaluate the levels of regulatory capital at each of our operating subsidiaries and adjust the amounts of regulatory capital in each operating subsidiary as necessary to ensure compliance with all regulatory capital requirements. These requirements may increase or decrease as required by regulatory authorities from time to time. We also maintain excess regulatory capital to provide liquidity during periods of unusual or unforeseen market volatility, and we intend to continue to follow this policy. In addition, we monitor regulatory developments regarding capital requirements so that we may be prepared for increases in the required minimum levels of regulatory capital that may occur from time to time in the future.
Regulatory Risk
We operate in a highly regulated industry and are subject to the risk of sanctions from U.S., federal and state, and international authorities if we fail to comply adequately with regulatory requirements. Failure to comply with applicable regulations could result in financial, operational and other penalties and our authority to conduct business could be suspended or revoked. In addition, efforts to comply with applicable regulations may increase our costs or limit our ability to pursue certain business opportunities. Furthermore, federal and state regulations significantly limit the types of activities in which we may engage.

 

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Table of Contents

ITEM 4.
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure.
Management of the Company, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective.
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the nine months ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
For the nine months ended September 30, 2013 , we incorporate herein by reference the discussions set forth under “Legal Proceedings” in Part I, Item 3 of our Form 10-K for the year ended December 31, 2012, filed on March 18, 2013. The following supplements and amends those discussions.

As previously disclosed, on February 16, 2012, we received a Letter of Claim on behalf of certain individuals who had lost money in an investment scheme operated by a third-party money management firm, incorporated in the United Kingdom, which has since been closed down by the United Kingdom’s Financial Services Authority. The investment firm, Cameron Farley Ltd, had opened a corporate account with us and invested the individuals’ money, representing such funds as its own, while operating a fraudulent scheme. Though a complaint has been filed and served on us, the claimants requested, and we agreed, to follow the United Kingdom’s Pre-Action Protocol, a pre-litigation process intended to resolve matters without the need to engage in formal litigation. We submitted a Response to the Letter before Claim on July 4, 2012. On July 5, 2012, we received a substantially similar Letter of Claim on behalf of further individuals. Subsequently, the parties agreed to consolidate claims by those other similarly situated individuals with the pending Pre-Action Protocol process. The parties agreed it would be more appropriate for the proceedings to be dealt with in the Commercial Court and the matters were transferred pursuant to Consent Orders dated March 14, 2013. We subsequently filed an application for strike out and/or summary judgment in respect of all claims on March 15, 2013. The claimants filed an answer to our motion on June 2, 2013 and subsequently we filed a response to this answer on July 15, 2013. A hearing was held on our application for strike out and/or summary judgment on September 18 and 19, 2013.  After the hearing, the judge asked the claimants to respond in writing to his additional questions from the hearing.  The complaints had until October 11, 2013 to provide answers and we were given until November 1, 2013 to respond.  We now are waiting for the judge’s ruling on the motion.  We can provide no assurances that this matter will be successfully resolved. This matter is currently pending. At this time, a potential loss or a potential range of loss cannot be reasonably estimated.
As previously disclosed, through our acquisition of OEC, we became the subject of a patent infringement lawsuit originally filed against OEC on February 9, 2010 in the U.S. District Court for the Northern District of Illinois by Trading Technologies International, Inc. seeking injunctive relief and unspecified damages. As reflected in a Second Amended Complaint filed on June 15, 2011, plaintiff alleges infringement of 12 patents relating to real-time display of price quotes and market depth on OEC’s electronic trading interfaces. The case was consolidated with 11 related cases in February 2011, and the parties have exchanged infringement, non-infringement and invalidity contentions for several of the disputed patents. In June 2011, the court stayed discovery to allow summary judgment briefing on the ramifications of a recent Federal Circuit decision. On February 9, 2012, the court issued an order, which granted Defendants’ motions for summary judgment, resulting in a substantial narrowing of the scope of plaintiff’s claims. Plaintiff filed a motion for reconsideration of that ruling on March 8, 2012. Plaintiff also filed a motion for certification of judgment for interlocutory appeal. The court denied plaintiff’s motion for reconsideration but granted plaintiff’s motion for certification of judgments of patent invalidity with respect to four of the asserted patents. On August 30, 2013, the Federal Circuit issued its opinion vacating the district court’s judgment of patent invalidity regarding four of the asserted patents.  On September 30, 2013, certain of the appellees filed a petition for rehearing and rehearing en banc with the Federal Circuit.  Since the district court’s certification of judgments ruling, the court has

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Table of Contents

continued its stay of discovery. Plaintiff’s complaint does not specify the amount of damages sought. At this time, a potential loss or a potential range of loss cannot be reasonably estimated.
ITEM 1A.
RISK FACTORS
Various important risk factors facing our business are described in (i) Part I, Item 1A under the heading “Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and (ii) Part II, Item 1A under the heading "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. There have been no material changes from the risk factors disclosed in those sections of our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, each of which is incorporated herein by reference.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Unregistered Sales of Equity Securities
We reported information relating to the issuance of 3,625,721 shares of our common stock to Gary Tilkin in connection with the acquisition of Global Futures & Forex, Ltd. in Item 3.02 of our Current Report on Form 8-K, filed with the SEC on September 25, 2013.
(b) Purchase of Equity Securities by the Issuer
The following table presents information regarding our purchases of our common stock in the nine months ended September 30, 2013 :  
Period (1)
Total Number
of  Shares
Purchased  (1)
 
Average Price
Paid  per Share  (1)
 
Total Number of  Shares
Purchased as Part of
Publicly Announced
Plans or Programs  (1)
 
Approximate  Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs  (1)(2)
January 1, 2013—January 31, 2013
75,000

 
$
4.20

 
75,000

 
$
1,404,436

February 1, 2013—February 28, 2013
12,706

 
$
4.24

 
12,706

 
$
1,350,443

March 1, 2013—March 31, 2013
63,390

 
$
4.20

 
63,390

 
$
1,084,020

April 1, 2013—April 30, 2013
14,999

 
$
4.23

 
14,999

 
$
1,020,339

May 1, 2013—May 31, 2013
31,398

 
$
4.74

 
31,398

 
$
15,870,742

June 1, 2013—June 30, 2013
—

 
$
—

 
—

 
$
15,870,742

July 1, 2013—July 31, 2013
—

 
$
—

 
—

 
$
15,870,742

August 1, 2013—August 31, 2013
24,311

 
$
5.63

 
24,311

 
$
15,733,478

September 1, 2013—September 30, 2013
—

 
$
—

 
—

 
$
15,733,478

 
(1) On May16, 2011, the Company announced that its Board of Directors approved a share repurchase plan, which authorizes the expenditure of up to $10.0 million for the purchase of the Company’s common stock. On May 6, 2013, the Company announced that the Board of Directors approved to increase the total amount available for the purchase of the Company's common stock by $15.0 million.
(2) Transaction fees related to the share purchases are deducted from the total remaining allowable expenditure amount.

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Table of Contents

ITEM 6.
EXHIBITS
 
Exhibit
No.
Description
 
 
2.1
Amended and Restated Stock Purchase Agreement, dated as of September 24, 2013, by and among GAIN Capital Holdings, Inc., Gary J. Tilkin and Global Futures & Forex, Ltd. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed on September 25, 2013, No. 001-35008).
 
 
10.1
Amended and Restated Stockholders’ Agreement, dated as of September 24, 2013, by and between GAIN Capital Holdings, Inc. and Gary J. Tilkin.*
 
 
10.2
Loan and Security Agreement, dated as of September 24, 2013, by and between GAIN Capital Holdings, Inc. and Gary J. Tilkin.*
 
 
31.1
Certification of Chief Executive Officer pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
31.2
Certification of Chief Financial Officer pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
32.1
Certification of Chief Executive Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
32.2
Certification of Chief Financial Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
101.INS+
XBRL Instance
 
 
101.SCH+
XBRL Taxonomy Extension Schema
 
 
101.CAL+
XBRL Taxonomy Extension Calculation
 
 
101.DEF+
XBRL Taxonomy Extension Definition
 
 
101.LAB+
XBRL Taxonomy Extension Labels
 
 
101.PRE+
XBRL Taxonomy Extension Presentation
*
Filed herewith. All exhibits and schedules have been removed from Exhibit 10.2 in accordance with Item 601(b) of Regulation S-K. A copy of any omitted exhibits or schedules will be furnished to the Securities and Exchange Commission upon request.
+
XBRL (Extensible Business Reporting Language) information is furnished and not filed, and is not a part of a registration statement or prospectus, for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

37
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Date: November 12, 2013
 
/s/ Glenn H. Stevens
 
 
Glenn H. Stevens
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
Date: November 12, 2013
 
/s/ Jason Emerson
 
 
Jason Emerson
 
 
Chief Financial Officer

38
Table of Contents

Exhibit Index
Exhibit
No.
Description
 
 
2.1
Amended and Restated Stock Purchase Agreement, dated as of September 24, 2013, by and among GAIN Capital Holdings, Inc., Gary J. Tilkin and Global Futures & Forex, Ltd. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed on September 25, 2013, No. 001-35008).
 
 
10.1
Amended and Restated Stockholders’ Agreement, dated as of September 24, 2013, by and between GAIN Capital Holdings, Inc. and Gary J. Tilkin.*
 
 
10.2
Loan and Security Agreement, dated as of September 24, 2013, by and between GAIN Capital Holdings, Inc. and Gary J. Tilkin.*
 
 
31.1
Certification of Chief Executive Officer pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
31.2
Certification of Chief Financial Officer pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
32.1
Certification of Chief Executive Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
32.2
Certification of Chief Financial Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
101.INS+
XBRL Instance
 
 
101.SCH+
XBRL Taxonomy Extension Schema
 
 
101.CAL+
XBRL Taxonomy Extension Calculation
 
 
101.DEF+
XBRL Taxonomy Extension Definition
 
 
101.LAB+
XBRL Taxonomy Extension Labels
 
 
101.PRE+
XBRL Taxonomy Extension Presentation
*
Filed herewith. All exhibits and schedules have been removed from Exhibit 10.2 in accordance with Item 601(b) of Regulation S-K. A copy of any omitted exhibits or schedules will be furnished to the Securities and Exchange Commission upon request.
+
XBRL (Extensible Business Reporting Language) information is furnished and not filed, and is not a part of a registration statement or prospectus, for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.


39

Exhibit 10.1
EXECUTION VERSION
AMENDED AND RESTATED

STOCKHOLDERS’ AGREEMENT

dated as of

September 24, 2013

among

GAIN CAPITAL HOLDINGS, INC.

and

GARY L. TILKIN







TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
Section 1.01 . Definitions
2
Section 1.02 . Other Definitional and Interpretative Provisions
4
ARTICLE 2
VOTING
Section 2.01 . Stockholder Voting Obligations
5
Section 2.02 . Stockholder Standstill
6
ARTICLE 3
RESTRICTIONS ON TRANSFER
Section 3.01 . General Restrictions on Transfer
7
Section 3.02 . Legends
7
Section 3.03 . Permitted Transferees
7
Section 3.04 . Restrictions on Transfers by the Stockholder
8
Section 3.05 . Notices Of Transfer
8
Section 3.06 . Right Of First Refusal
8
Section 3.07 . Cooperation by the Company
9
ARTICLE 4
CERTAIN COVENANTS AND AGREEMENTS
Section 4.01 . Termination
10
ARTICLE 5
MISCELLANEOUS
Section 5.01 . Successors and Assigns
10
Section 5.02 . Notices
10
Section 5.03 . Amendments and Waivers
12
Section 5.04 . Governing Law
12
Section 5.05 . Jurisdiction
12
Section 5.06 . WAIVER OF JURY TRIAL
12
Section 5.07 . Specific Enforcement
12
Section 5.08 . Counterparts; Effectiveness; Third-Party Beneficiaries
13
Section 5.09 . Entire Agreement
13
Section 5.10 . Severability
13




PAGE

Exhibit A    Joinder Agreement


ii



AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT dated as of September 24, 2013 (this “ Agreement ”) among Gain Capital Holdings, Inc., a Delaware corporation (the “ Company ”) and Gary Tilkin (the “ Stockholder ”). If the Stockholder shall have Transferred any of his Company Securities to any of his Permitted Transferees (as such terms are defined below), the term “Stockholder” shall include such Permitted Transferees, taken together.
W I T N E S S E T H :
WHEREAS, the Company and the Stockholder are parties to (i) that certain Stock Purchase Agreement dated as of April 24, 2013 (the “ Original Stock Purchase Agreement ”) by and among the Company, the Stockholder and Global Futures & Forex, Ltd., a Michigan corporation and (ii) that certain Stockholders’ Agreement dated as of April 24, 2013 (the “ Original Stockholders’ Agreement ”), by and between the parties hereto;
WHEREAS, the parties to the Original Stock Purchase Agreement have entered into an Amended and Restated Stock Purchase Agreement, dated as of the date hereof (the “ Stock Purchase Agreement ”) (capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement);
WHEREAS, in connection with the transactions contemplated by the Stock Purchase Agreement, the Stockholder will acquire 3,625,721 shares of common stock, par value $0.00001 per share, of the Company (together with any stock into which such shares may thereafter be converted or changed, the “ Common Stock ”); and
WHEREAS, the parties desire to amend and restate the Original Stockholders’ Agreement in its entirety by entering into this Agreement, in order to make certain agreements relating to the ownership and voting of the Company Common Stock owned by the Stockholder and certain other matters;
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree as follows:
Article 1
DEFINITIONS
Section 1.01. Definitions. (a) As used herein, the following terms have the following meanings:
“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person;





provided that no securityholder of the Company shall be deemed an Affiliate of any other securityholder solely by reason of any investment in the Company. For the purpose of this definition, the term “ control ” (including, with correlative meanings, the terms “ controlling ”, “ controlled by ” and “ under common control with ”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“ Board ” means the Company’s Board of Directors.
“ Business Day ” means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.
“ Closing ” shall have the meaning set forth in the Stock Purchase Agreement.
“ Company Securities ” means (i) the Company’s common stock par value $0.00001 per share, (ii) securities convertible into or exchangeable for such common stock, (iii) any other equity or equity-linked security issued by the Company and (iv) options, warrants or other rights to acquire such common stock or any other equity or equity-linked security issued by the Company.
“ Finally Settled ” shall have the meaning set forth in the Stock Purchase Agreement.
“ Governmental Authority ” means any transnational, domestic or foreign, federal, state or local governmental authority, department, court, agency or official, including any political subdivision thereof.
“ Initial Ownership ” means the 3,625,721 shares of Common Stock acquired by the Stockholder at the Closing.
“ Permitted Transferee ” means
(i)     (A) any Person to whom Company Securities are Transferred from the Stockholder (1) by will or the laws of descent and distribution or (2) by gift without consideration of any kind; provided that, in the case of clauses (1) and (2), such transferee is an immediate family member or the lineal descendant, executor, administrator or testamentary trustee of the Stockholder, (B) a trust or partnership that is for the exclusive benefit of the Stockholder or his Permitted Transferees under clause (A), (C) a business entity that is wholly-owned by the Stockholder, or (D) a financial or banking institution pursuant to a bona fide pledge ( provided that (i) the loan, note or other agreement secured by such pledge provides for full recourse against the Stockholder and (ii) the fair market

2



value of the Company Securities so pledged as of the date of such loan, note or other agreement is greater than or equal to 200% of the principal amount of the loan, note or other agreement secured by such pledge); and
(ii)    any other Person with respect to which the Company shall have provided its consent.
“ Person ” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a Governmental Authority.
“ Rule 144 ” means Rule 144 (or any successor provisions) under the Securities Act.
“ Settlement Reference Date ” shall mean the date on which 65% of the aggregate amount of all Shared Liabilities are Finally Settled (determined by reference to the aggregate estimate of Shared Liabilities set forth on Schedule 2.06(a) to the Stock Purchase Agreement).
“ Shared Liabilities ” shall have the meaning set forth in the Stock Purchase Agreement.
“ Subsidiary ” means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company.
“ Transfer ” means, with respect to any Company Securities, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, lend, encumber, hypothecate or otherwise transfer such Company Securities or any economic participation or interest therein (including through hedging or other derivative transactions), whether directly or indirectly, or agree, offer or commit to do any of the foregoing (including by contract, option or other agreement or arrangement) and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, loan, encumbrance, hypothecation or other transfer of such Company Securities or any participation or interest therein (including through a hedging or other derivative transaction) or any agreement, offer or commitment to do any of the foregoing (including by contract, option or other agreement or arrangement).
“ Voting Securities ” means, at any time, any class of Company Securities then entitled to vote generally in the election of directors, including all shares of Common Stock now owned or subsequently acquired by the Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise.

3



(b)      Each of the following terms is defined in the Section set forth opposite such term:
Term
Section
Agreement
Preamble
Company
Preamble
Common Stock
Recitals
e-mail
5.02
Fundamental Transaction
2.01
Initial Lock-Up Expiration Date
3.04(b)
Offer
3.06(b)
Offer Notice
3.06(b)
Offer Price
3.06(b)
Offered Securities
3.06(b)
Original Stock Purchase Agreement
Recitals
Original Stockholders’ Agreement
Recitals
Standstill Period
2.02
Stockholder
Preamble
Stock Purchase Agreement
Recitals

Section 1.02. Other Definitional and Interpretative Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively.

4



ARTICLE 2     
VOTING
Section 2.01 .      Stockholder Voting Obligations. (a) From the date hereof until the Stockholder ceases to own Common Stock in an amount equal to at least 20% of the Initial Ownership the Stockholder agrees that, except with respect to a Fundamental Transaction (as defined below), at any time the Stockholder is then entitled to vote on any matter in his capacity as a stockholder of the Company, the Stockholder shall vote his Voting Securities pro rata in accordance with the vote of the other stockholders of the Company. The term “ Fundamental Transaction ” means (i) any merger, share purchase, reorganization, consolidation or other business combination involving the Company (whether in a single transaction or a series of related or substantially contemporaneous transactions) in which, as a result of such transaction, (1) Company Securities are converted into or exchanged for, or the holders of Company Securities immediately before such transaction receive, cash, property, rights, securities or other consideration (other than voting stock with substantially the same rights and privileges in the Company or in such other Person surviving such transaction or that is the issuer of the capital stock into which the Company Securities are converted into or exchanged for) or (2) the holders of Voting Securities immediately before such transaction possess less than 50% of the outstanding voting power of the Company or such other Person surviving such transaction, (ii) any tender offer for more than 50% of the outstanding Company Securities or (iii) a sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the assets of the Company (whether in a single transaction or a series of related or substantially contemporaneous transactions).
(b)      If the Stockholder fails to vote his Voting Securities in accordance with Section 2.01(a), the Stockholder shall, upon such failure to so vote, be deemed immediately to have granted to the Company a proxy to vote the Stockholder’s Voting Securities solely for the matter then presented to the Company’s stockholders. The Stockholder acknowledges that each such proxy granted hereby, including any successive proxy, if necessary, is being given to secure the performance of an obligation hereunder, is coupled with an interest, and shall be irrevocable until such obligation is performed.
Section 2.02 .      Stockholder Standstill .
(a)      The Stockholder agrees that until the earlier of (x) the date on which the Stockholder ceases to own Common Stock in an amount equal to at least 20% of the Initial Ownership and (y) the date that is five years from the date hereof (the “ Standstill Period ”), the Stockholder will not, directly or indirectly, (i) subject to the rights of the Stockholder to vote his Voting Securities to the extent permitted by Section 2.01, enter into or agree, offer, propose or seek to enter into, or otherwise be involved in or part of, any Fundamental Transaction, (ii) make, or

5



in any way participate in, any “solicitation” of “proxies” (as such terms are defined under Regulation 14A of the Exchange Act) to vote, or seek to advise or influence any Person other than a Permitted Transferee with respect to the voting of, any Voting Securities, (iii) form, join or otherwise participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any Voting Securities, (iv) except (A) pursuant to his right (subject to Section 2.01) to vote the Voting Securities held by the Stockholder or (B) in connection with actions taken by him in his capacity as a shareholder communicating with management or the Board on an individual basis and in a manner not reasonably expected to require public disclosure by the Company or the Stockholder, seek, propose or otherwise act in concert with others to influence or control the management, Board or policies of the Company, (v) enter into any discussions, negotiations, arrangements or understandings with any other Person with respect to any of the foregoing activities or propose any of such activities to any other Person, (vi) advise, assist, knowingly encourage, act as a financing source for or otherwise invest in any Person in connection with any of the foregoing activities or (vii) disclose any intention, plan or arrangement inconsistent with any of the foregoing. The Stockholder agrees that it shall promptly advise the Company of any inquiry or proposal made to the Stockholder with respect to any of the foregoing.
(b)      The Stockholder agrees that, during the Standstill Period, it will not, directly or indirectly, (i) request that the Company amend or waive any provision of this Section 2.02 (including this sentence) or (ii) take any initiative with respect to the Company that, in each case, would reasonably be expected to require the Company to make a public announcement regarding (A) any of the activities referred to in Section 2.02(a) or (B) the possibility of the Stockholder or any other Person acquiring control of the Company, whether by means of a Fundamental Transaction or otherwise.
(c)      For purposes of Section 2.02, the “Company” shall be deemed to include the Company, any successor to or person in control of the Company, or any division thereof or of any such successor or controlling person.
ARTICLE 3     
RESTRICTIONS ON TRANSFER
Section 3.01 . General Restrictions on Transfer . (d) The Stockholder agrees that he shall not Transfer any Company Securities (or solicit any offers in respect of any Transfer of any Company Securities) in contravention of the terms and conditions of this Agreement. In addition, the Stockholder agrees that he shall not Transfer any Common Stock (or solicit any offers in respect of any Transfer of any Common Stock) (i) unless there is an effective registration statement under the Securities Act covering such Common Stock, the sale is made in accordance with Rule 144 under the Securities Act, or such Transfer is exempt

6



from registration requirements of the Securities Act or (ii) if such Transfer (or solicitation of an offer of a Transfer) would violate any other applicable securities or “blue sky” laws.
(e)      Any attempt to Transfer any Company Securities in violation of this Agreement shall be null and void, and the Company shall not, and shall cause any transfer agent not to, give any effect in the Company’s stock records to such attempted Transfer.
Section 3.02 . Legends. (a) In addition to any other legend that may be required, each certificate for Common Stock issued to the Stockholder shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY NON-U.S. OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS’ AGREEMENT DATED AS OF SEPTEMBER 24, 2013, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM GAIN CAPITAL HOLDINGS, INC. OR ANY SUCCESSOR THERETO.
(b)      If any shares of Common Stock cease to be subject to any and all restrictions on Transfer set forth in this Agreement, the Company, upon the written request of the Stockholder as holder thereof, shall issue to the Stockholder a new certificate evidencing such Common Stock without all or part of the legend required by Section 3.02(a) (unless part of such legend is required by applicable law) endorsed thereon.
Section 3.03 . Permitted Transferees . Notwithstanding anything in this Agreement to the contrary, the Stockholder may at any time Transfer any or all of his Company Securities to one or more of his Permitted Transferees without the consent of the Board so long as (i) such Permitted Transferee shall have agreed in writing to be bound by the terms of this Agreement in the form of Exhibit A attached hereto and (ii) the Transfer shall not be in violation of Section 3.01(a).
Section 3.04 . Restrictions on Transfers by the Stockholder . (a) Prior to the second anniversary of the Initial Lock Up Expiration Date (as defined below), the Stockholder shall not, without the Company’s prior written consent, Transfer any Company Securities, except (i) to one or more of his Permitted Transferees in accordance with Section 3.03, (ii) pursuant to Section 3.04(b) or (iii) into a tender offer for the Company’s outstanding common stock on a pro rata basis with all other stockholders of the Company.

7



(b)      Notwithstanding the restrictions of Section 3.04(a) but subject to Section 3.06, the Stockholder may Transfer 16.67% of the Initial Ownership every three months following the later of (i) the six month anniversary of the Closing or (ii) the Settlement Reference Date (such date, the “ Initial Lock Up Expiration Date ”), plus any unsold allotment pursuant to this sentence which is not sold during any prior three month period; provided , however , that prior to the second anniversary of the Initial Lock Up Expiration Date, such Transfers must be made in compliance with the requirements of Rule 144 applicable to affiliates of the Company (even if the Stockholder is not an affiliate of the Company at the time of such Transfer).
Section 3.05. Notices Of Transfer. The Stockholder shall give the Company prompt written notice of any Transfer of Company Securities prior to the second anniversary of the Initial Lock Up Expiration Date, and specify in such notice in reasonable detail (i) the number of Company Securities so transferred and (ii) in the event the number of Company Securities so transferred exceeds 1% of the outstanding Company Securities, the identity of the transferee.
Section 3.06. Right Of First Refusal .
(a)      Following the second anniversary of the Initial Lock Up Expiration Date and continuing until the Stockholder ceases to own Common Stock in an amount equal to at least 20% of the Initial Ownership, the Stockholder shall not Transfer any Common Stock except for Transfers (i) made in compliance with the requirements of Rule 144 applicable to affiliates of the Company (even if the Stockholder is not an affiliate of the Company at the time of such Transfer) or (ii) made in compliance with this Section 3.06.
(b)      In the event the Stockholder receives from or otherwise negotiates with a third party an offer to purchase any or all of the Company Securities owned or held by the Stockholder (an “ Offer ”) and the Stockholder intends to pursue the Transfer of such Company Securities to such third party, the Stockholder shall give notice (an “ Offer Notice ”) to the Company that it desires to accept the Offer and that sets forth the number and kind of Company Securities (the “ Offered Securities ”), the price per share that the Stockholder proposes to be paid for such Offered Securities (the “ Offer Price ”) and all other material terms and conditions of the Offer.
(c)      The giving of an Offer Notice to the Company shall constitute an offer by the Stockholder to Transfer the Offered Securities, in whole and not in part, to the Company at the Offer Price and on the other terms set forth in the Offer Notice. Such offer shall be irrevocable for 20 Business Days after receipt of such Offer Notice by the Company. The offer may be accepted by the Company by giving an irrevocable notice of acceptance to the Stockholder prior to the expiration of such 20 Business-Day period.

8



(d)      If the Company accepts the offer to purchase all the Offered Securities, the Company shall purchase and pay, by wire transfer of immediately available funds to an account designated by the Stockholder, for all Offered Securities within 20 Business Days after the date on which all such Offered Securities have been accepted.
(e)      Upon the earlier to occur of (i) full rejection of the offer by the Company, (ii) the expiration of the 20 Business Day period without the Company accepting the offer to purchase all of the Offered Securities and, (iii) the failure to obtain any required consent or regulatory approval for the purchase of all the Offered Securities by the Company within 90 days of the Company’s acceptance of the offer, the Stockholder shall have a 120-day period during which to effect a Transfer to the third party making the Offer of any or all of the Offered Securities on substantially the same or more favorable (as to the Stockholder) terms and conditions as were set forth in the Offer Notice at a price not less than the Offer Price; provided that the Transfer to such third party is not in violation of applicable federal, state or foreign securities laws.
Section 3.07 . Cooperation by the Company . The Company shall use commercially reasonable efforts to satisfy the condition contained in Rule 144 under the Securities Act with respect to Current Public Information and any other conditions to make such Rule available to the Stockholder for the sale of Common Stock, including filing with the Securities and Exchange Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act. In addition, the Company shall furnish to the Stockholder so long as the Stockholder owns Common Stock, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144.
ARTICLE 4     
CERTAIN COVENANTS AND AGREEMENTS
Section 4.01. Termination. T his Agreement shall terminate in its entirety upon the earlier of (i) the termination of the Stock Purchase Agreement in accordance with its terms prior to the Closing, or (ii) if the Closing occurs, the date on which the Stockholder’s number of shares of Common Stock beneficially owned by the Stockholder falls below 2% of the outstanding Company Securities; provided that in each case the provisions of Sections 5.02 (Notices), 5.04 (Governing Law), 5.05 (Jurisdiction), 5.06 (Waiver of Jury Trial), 5.07 (Specific Enforcement), 5.08 (Counterparts; Effectiveness; Third-party Beneficiaries), 5.09 (Entire Agreement) and 5.10 (Severability) shall survive indefinitely.
ARTICLE 5     
MISCELLANEOUS

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Section 5.01. Successors and Assigns. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns.
(b)      Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any Transfer of Common Stock or otherwise, except that any Permitted Transferee acquiring Common Stock pursuant to Section 3.03 shall (unless already bound hereby) execute and deliver to the Company an agreement to be bound by this Agreement in the form of Exhibit A hereto and shall thenceforth be a “Stockholder” for all purposes of this Agreement.
(c)      Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
Section 5.02 . Notices . All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission and electronic mail (“ e-mail ”) transmission, so long as a receipt of such e-mail is requested and received) and shall be given,
if to the Company, to:
Gain Capital Holdings, Inc.
135 US Highway 202/206
Suite 11
Bedminster, NJ 07921
Attention: Diego Rotsztain
Facsimile No.: (866) 861-1673
drotsztain@gaincapital.com
with a copy to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attention: Leonard Kreynin
Facsimile No.: (212) 701-5800
leonard.kreynin@davispolk.com
if to the Stockholder, to:
Gary Tilkin
618 Kenmoor Ave S.E.
Grand Rapids, MI 49546

10



Facsimile No.: (616) 974-3663
gary.tilkin@gftmarkets.com (before Closing)
garytilkin618@gmail.com (after Closing)
with a copy to:
Sidley Austin LLP
One South Dearborn
Chicago, IL 60603
Attention: John O’Hare
Facsimile No.: (312) 853-7036
johare@sidley.com
or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
Section 5.03 . Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 5.04 . Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws rules of such state.
Section 5.05 . Jurisdiction . The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any case of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably consents to the jurisdiction of

11



such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 5.02 shall be deemed effective service of process on such party.
Section 5.06 . WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 5.07 . Specific Enforcement . Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
Section 5.08 . Counterparts; Effectiveness; Third-Party Beneficiaries . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by all of the other parties hereto. Until and unless each party has received a counterpart hereof signed by the other parties hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns.
Section 5.09 . Entire Agreement . This Agreement and the Stock Purchase Agreement constitute the entire agreement among the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter of this Agreement.
Section 5.10 . Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to

12



be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
[ Signature Page Follows ]



13



IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
GAIN CAPITAL HOLDINGS, INC.
By:
/s/ Glenn Stevens
 
Name:
Glenn Stevens
 
Title:
Chief Executive Officer


STOCKHOLDER
 
/s/ Gary L. Tilkin
 
Name:
Gary L. Tilkin




[ Signature Page to Stockholders’ Agreement ]




EXHIBIT A
JOINDER TO AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT
This Joinder Agreement (this “ Joinder Agreement ”) is made as of the date written below by the undersigned (the “ Joining Party ”) in accordance with the Amended and Restated Stockholders’ Agreement dated as of September 24, 2013 (the “ Stockholders’ Agreement ”) among GAIN Capital Holdings Inc. and Gary L. Tilkin, as the same may be amended from time to time. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms in the Stockholders’ Agreement.
The Joining Party hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement, the Joining Party shall be deemed to be a party to the Stockholders’ Agreement as of the date hereof and shall have all of the rights and obligations of a “Stockholder” thereunder as if it had executed the Stockholders’ Agreement. The Joining Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Stockholders’ Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of the date written below.
Date: ___________ ___, ______
[NAME OF JOINING PARTY]
By:
 
 
Name:
 
 
Title:
 

Address for Notices:






Exhibit 10.2
EXECUTION VERSION

LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this “ Agreement ”) dated as of September 24, 2013 by and among Gary L. Tilkin , a natural person and resident of Michigan (“ Lender ”) and GAIN CAPITAL HOLDINGS, INC. , a Delaware corporation (“ Borrower ”), provides the terms applicable to certain indebtedness incurred by Borrower to Lender as part of the consideration paid to the Seller (as defined in the Stock Purchase Agreement). The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.
2      TERM LOAN AND TERMS OF PAYMENT
2.1      Promise to Pay . Borrower hereby unconditionally promises to pay Lender the outstanding principal amount of the Term Loan and accrued and unpaid interest thereon as and when due in accordance with this Agreement.
2.2      Term Loan .
(a)     On the Closing Date, subject to the terms and conditions set forth herein, Lender will make a term loan to Borrower in an amount equal to $33,199,918.00 (the “ Term Loan ”) which shall be deemed to be funded on the Closing Date as part of the payment by Borrower of the Purchase Price (as defined in the Stock Purchase Agreement).
(b)     On the Closing Date, Borrower shall execute and deliver to Lender a promissory note (in a customary form) payable to the order of Lender and evidencing the Term Loan.
2.3      Repayment of Term Loan; Interest Payments; Automatic Principal Reduction .
(a)     Borrower shall repay the principal of the Term Loan and shall pay interest thereon pursuant to the terms set forth herein which, as of the Closing Date, require Borrower to pay (i) quarterly payments of interest on the last calendar day of each calendar quarter (each such date, an “ Interest Payment Date ”) at the rate set forth in Section 2.4(b), (ii) quarterly installments of principal on the last calendar day of each calendar quarter commencing with the first full calendar quarter following the Final Settlement Reference Date in the amounts set forth in Section 2.5(a), and (iii) such additional quarterly installments as may be required under Section 2.5(b) (the payments required under Section 2.5(a) and 2.5(b) each, a “ Term Loan Payment ”), in each case subject to adjustment pursuant to Section 2.6(c). Borrower’s final Term Loan Payment, due on the Maturity Date, shall include all outstanding principal and accrued and unpaid interest under the Term Loan. Without limiting any fees or amounts to be paid by Borrower upon a prepayment as contemplated hereunder (if any), Borrower may, by giving at least one (1) Business Day’s notice to Lender, prepay the Term Loan in whole or in part (any such partial prepayment being applied to the Term Loan Payments in direct order of maturity thereof).
(b)     Notwithstanding anything to the contrary herein, the principal amount of the Term Loan shall be automatically adjusted in an amount equal to the Net Adjustment Amount (as defined in the Stock Purchase Agreement) pursuant to Section 2.05 of the Stock Purchase Agreement.
(c)     Notwithstanding anything to the contrary herein, upon written notice by Borrower to Lender of the exercise by Borrower of its setoff right pursuant to the last sentence of Section 12.11(a) or pursuant to Section 12.11(b), the principal amount of the Term Loan shall be automatically reduced by the amount set forth in such notice.
2.4      Payment of Interest on the Term Loan .


    


(a)      Computation of Interest . Interest on the Term Loan and all fees payable hereunder shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which such interest accrues. In computing interest on the Term Loan, the date of payment shall be excluded.
(b)      Interest Rate . Subject to Section 2.4(c), the principal amount outstanding under the Term Loan shall accrue interest at a rate per annum equal to 8.00%. Interest on the Term Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of the Term Loan pursuant to this Agreement for the portion of the Term Loan so prepaid and upon payment (including prepayment) in full thereof.
(c)      Default Rate . After an Event of Default, Obligations shall bear interest at a rate of ten percent (10.0%) (the “ Default Rate ”). Payment or acceptance of the increased interest provided in this Section 2.4(c) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Lender.
(d)      Intentionally omitted .
(e)      Payments . Unless otherwise provided, interest is payable on the Interest Payment Date.
2.5      Repayment of Principal on the Term Loan .
(a)      Quarterly Installments . Subject to Section 2.6, Borrower shall repay the Term Loan in equal quarterly installments of One Million Five Hundred Thousand Dollars ($1,500,000.00) on the last calendar day of each calendar quarter commencing with the first full calendar quarter following the Final Settlement Reference Date, with all outstanding principal due on the Maturity Date.
(b)      Additional Quarterly Installments . In addition to the amounts set forth in Section 2.5(a), Borrower shall make additional quarterly repayments as follows:
(i)     If, for any of the first four full calendar quarters completed following the Final Settlement Reference Date, Borrower’s EBITDA shall be equal to or exceed Seven Million Five Hundred Thousand Dollars ($7,500,000.00) (the “ First Year EBITDA Threshold ”), Borrower shall make additional quarterly repayments of (x) Five Hundred Thousand Dollars ($500,000.00) and (y) an additional Five Hundred Thousand Dollars ($500,000.00) for each whole multiple of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) in excess of the First Year EBITDA Threshold, in each case to be paid on the last calendar day of the calendar quarter following the quarter for which EBITDA is equal to or exceeds the First Year EBITDA Threshold.
(ii)     If, for any calendar quarter completed following the first four full calendar quarters after the Final Settlement Reference Date, Borrower’s EBITDA shall be equal to or exceed Five Million Dollars ($5,000,000.00) (the “ EBITDA Threshold ”), Borrower shall make additional quarterly repayments of (x) Five Hundred Thousand Dollars ($500,000.00) and (y) an additional Five Hundred Thousand Dollars ($500,000.00) for each whole multiple of Five Million Dollars ($5,000,000.00) in excess of the EBITDA Threshold, in each case to be paid on the last calendar day of the calendar quarter following the quarter for which EBITDA is equal to or exceeds the EBITDA Threshold.
2.6      Mandatory Prepayments.
(a)      Liquidity Events . On each occasion that a Liquidity Event occurs, (i) unless Borrower has delivered a Reinvestment Notice in respect thereof, Borrower shall, within five (5) Business Days after the receipt of Net Cash Proceeds from such Liquidity Event, prepay, in accordance with Section 2.6(c), a principal amount of the Term Loan in an amount equal to 100% of the Net Cash Proceeds received by Borrower from such Liquidity Event, and (ii) if a Reinvestment Notice shall have been delivered in respect thereof, on the applicable Reinvestment Prepayment Date, Borrower shall prepay, in accordance with Section 2.6(c), a principal amount of the Term Loan in an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Liquidity Event; provided that in either such case, the prepayment set forth in this Section 2.6(a) shall apply solely to the extent that the Net Cash Proceeds received by Borrower from the applicable Liquidity Event shall exceed Five Million Dollars ($5,000,000.00) and then only to the extent of such excess; provided further that the aggregate amount of Net Cash Proceeds that may be retained


    


by Borrower pursuant to the preceding proviso shall not exceed Twenty Five Million Dollars ($25,000,000.00) in any calendar year.
(b)      Excess Capital . If, as a result of the merger, amalgamation or other combination of the business and operations of any of Borrower’s Subsidiaries and any entity acquired, directly or indirectly, by Borrower pursuant to the Stock Purchase Agreement, the surviving Subsidiary in such transaction has available capital in excess of the applicable Minimum Regulatory Capital (“ Excess Capital ”), then Borrower shall prepay, in accordance with Section 2.6(c), a principal amount of the Term Loan in an amount equal to 50% of such Excess Capital. Such prepayment shall be made within ten (10) Business Days after receipt of any Governmental Approval required for the release of the Excess Capital by the applicable Subsidiary; provided that, notwithstanding the foregoing, no prepayment shall be required to be made pursuant to this Section 2.6(b) prior to the Final Settlement Reference Date. For purposes of this Agreement, “ Minimum Regulatory Capital ” means, with respect to any Subsidiary, the sum of (i) the minimum capital required to be maintained by such Subsidiary by any Governmental Authority with regulatory oversight over such Subsidiary, plus (ii) any additional capital necessary in order to satisfy any “early warning” or similar threshold imposed by such Governmental Authority, plus (iii) such additional capital as reasonably deemed necessary by Borrower to provide a commercially reasonable cushion in excess of any applicable “early warning” or similar threshold, in an amount consistent with Borrower’s past practice.
(c)      Application of Mandatory Prepayments . Any amounts required to be paid pursuant to Section 2.6(a) or Section 2.6(b) shall be applied in inverse order of maturity to the payments required under Section 2.5(a) and, if applicable, Section 2.5(b).
2.7      Intentionally omitted.
2.8      General Provisions Regarding Payments. All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim (except as provided in Section 12.11), before 12:00 p.m. Eastern time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
2.9      Termination. Borrower may terminate this Agreement by providing written notice thereof to Lender and paying all outstanding Obligations.
3      CONDITIONS PRECEDENT
3.1      Conditions Precedent to Term Loan . Lender’s obligation to make the Term Loan on the Closing Date is subject to the conditions precedent that (i) all conditions precedent to the consummation of the Closing (as defined in the Stock Purchase Agreement) set forth in Article 10 of the Stock Purchase Agreement shall have been satisfied and (ii) Lender shall have received, in form and substance reasonably satisfactory to Lender, the following:
(a)    a counterpart of this Agreement signed on behalf of Borrower;
(b)
duly executed copies of each other Loan Document (including, without limitation, a duly executed copy of (i) the Perfection Certificate executed by Borrower and (ii) Control Agreements executed by Borrower and the applicable depositary institution, securities intermediary or commodity intermediary, as applicable, for each Collateral Account set forth in the Perfection Certificate) reasonably satisfactory to Lender;
(c)
a certificate of Borrower’s Secretary or Assistant Secretary certifying as to the incumbency and genuineness of the signature of each officer of Borrower executing Loan Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the articles or certificate of incorporation of Borrower and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, (B) the bylaws or other governing document of Borrower as in effect on the Closing Date, (C) resolutions duly adopted by the Board of Directors of Borrower authorizing and approving the transactions contemplated hereunder and the execution, delivery and performance of this Agreement and the other Loan


    


Documents to which it is a party and (D) a certificate dated as of a recent date certifying to the good standing of Borrower under the laws of its jurisdiction of organization;
(d)
a certificate of the Secretary or Assistant Secretary of Gain Holdings, LLC certifying as to the incumbency and genuineness of the signature of each officer of Gain Holdings, LLC executing a Loan Document to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the certificate of formation of Gain Holdings, LLC and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of formation, (B) the limited liability company agreement of Gain Holdings, LLC as in effect on the Closing Date, (C) resolutions duly adopted by the governing body of Gain Holdings, LLC authorizing and approving the execution, delivery and performance of the Loan Documents to which it is a party and the transactions contemplated thereunder (D) a certificate dated as of a recent date certifying to the good standing of Gain Holdings, LLC under the laws of its jurisdiction of organization;
(e)
a favorable written opinion (addressed to Lender and dated the Closing Date) of (i) Davis Polk & Wardwell LLP, New York counsel for Borrower and Guarantor, and (ii) Morris, Nichols, Arsht & Tunnell LLP, Delaware counsel for Borrower and Guarantor, each covering such customary matters relating to Borrower, this Agreement, the other Loan Documents or the transactions contemplated hereunder or thereunder as Lender shall reasonably request;
(f)
results of a Lien search made against Borrower under the Uniform Commercial Code as in effect in each jurisdiction in which filings or recordations under the Uniform Commercial Code should be made to evidence or perfect the prospective security interests of Lender in the Collateral, indicating that the Collateral to be pledged by Borrower is free and clear of any Lien (except for Permitted Liens and other Liens that are being released in accordance with clause (g) below); and
(g)
evidence reasonably satisfactory to it that the Amended and Restated Loan and Security Agreement, dated as of September 16, 2011, among Borrower, the lenders party thereto from time to time, Silicon Valley Bank, as collateral agent and as administrative agent, and JPMorgan Chase Bank, N.A., shall have been terminated and cancelled and all Indebtedness thereunder shall have been fully repaid, and any and all Liens thereunder shall have been terminated.
4      CREATION OF SECURITY INTEREST
4.1      Grant of Security Interest . Borrower hereby grants to Lender, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Lender, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected (other than in respect of commercial tort claims not described in the following sentence) security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Lender’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim (the acquisition of which shall be determined based upon the commencement of litigation with respect thereto) with a reasonably anticipated value equal to Five Hundred Thousand Dollars ($500,000.00) or more, Borrower shall promptly notify Lender in a writing signed by Borrower of the general details thereof and grant to Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Lender.
If this Agreement is terminated, Lender’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations, Lender shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.
4.2      Authorization to File Financing Statements . Borrower hereby authorizes Lender to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Lender’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Lender under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Lender’s discretion.
5      REPRESENTATIONS AND WARRANTIES


    


Borrower represents and warrants, with respect to itself, and its Subsidiaries:
5.1      Due Organization and Authorization; Power and Authority . Borrower and each of its Subsidiaries are duly existing and in good standing, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any jurisdiction in which the conduct of their business or their ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. Borrower has previously delivered to Lender the Perfection Certificate. Borrower represents and warrants to Lender that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) except to the extent set forth in the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Closing Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Lender of such occurrence and provide Lender with Borrower’s organizational identification number.
The execution, delivery and performance of the Loan Documents by Borrower and Guarantor have been duly authorized, and do not (i) conflict with Borrower’s or Guarantor’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect and filings to perfect Liens granted under the Loan Documents) or (v) constitute an event of default under any material agreement by which Borrower or any one of its Subsidiaries is bound. Neither Borrower nor any of its Subsidiaries is in default under any agreement to which it is a party or by which it is bound in which the default would have (A) a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole) or (B) any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder.
5.2      Collateral . Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts (i) described in the Perfection Certificate delivered to Lender in connection herewith, or (ii) of which Borrower has given Lender notice and, in each case of deposit accounts under clauses (i) or (ii), as to which Borrower has taken such actions as are necessary to give Lender a perfected security interest therein. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.
Borrower is the sole owner of the intellectual property which it owns or purports to own and that is material to its business except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material intellectual property licensed to Borrower and noted on the Perfection Certificate. Each patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the intellectual property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made that any part of the intellectual property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.
5.3      Intentionally omitted.
5.4      Financial Statements; Financial Condition . The annual consolidated financial statements for Borrower and its Subsidiaries for the years ending December 31, 2012 and December 31, 2011, and the quarterly consolidated financial statements for Borrower and its Subsidiaries for the quarters ending March 31, 2013 and June 30, 2013, delivered to Lender prior to the Closing Date fairly present in all material respects Borrower’s consolidated


    


financial condition as of the end of each such period and Borrower’s consolidated results of operations for each such period. Since December 31, 2012, there has been no material adverse change in the business of Borrower and its Subsidiaries, taken as a whole.
5.5      Solvency . As of the Closing Date, (i) the fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities, (ii) Borrower is not left with unreasonably small capital after the transactions in this Agreement; and (iii) Borrower is able to pay its debts (including trade debts) as they mature.
5.6      Regulatory Compliance . Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which would reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Except to the extent that the failure to do so would not have (a) a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole) or (b) any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder, Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.
5.7      Subsidiaries; Investments . Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.
5.8      Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower and its Subsidiaries have timely paid all material foreign, federal, state and local taxes owed by Borrower, except for taxes which are being contested in good faith by appropriate proceedings promptly and diligently instituted and conducted and for which adequate reserves have been provided. Borrower or its Subsidiaries have paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower and its Subsidiaries have not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan, in each case which would reasonably be expected to result in any material liability of Borrower or such Subsidiaries, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.9      Intentionally omitted.
5.10      Intentionally omitted.
5.11      Organizational Structure . The capital structure of Borrower and its Subsidiaries, as detailed on Schedule 5.11 , will not change without the prior written consent of Lender, except for (a) the Proposed Reorganization and (b) any other change that (i) would not have a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole) and (ii) does not have any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder.
5.12      Full Disclosure . No written representation, warranty or other statement of Borrower or its Subsidiaries in (i) the Perfection Certificate delivered pursuant to Section 3.1(b)(i) or any other certificate delivered pursuant to Section 3.1 hereof or (ii) any certificate given to Lender following the Closing Date in connection with this Agreement, as of the date such representations, warranties, or other statements were made, taken together with all such written certificates given to Lender pursuant to this Agreement as of such date, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates not misleading (it being recognized by Lender that the projections and forecasts provided by Borrower (with respect to Borrower or its Subsidiaries) in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
6      AFFIRMATIVE COVENANTS


    


Borrower shall do all of the following, with respect to itself, and (other than with respect to Section 6.6) its Subsidiaries:
6.1      Government Compliance .
Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on the business or operations of either (i) Borrower or (ii) its Subsidiaries (taken as a whole). Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, the noncompliance with which would have (a) a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole), or (b) any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder.
6.2      Financial Statements, Reports, Certificates .
(d)     Deliver to Lender: (i) as soon as available, but no later than forty-five (45) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations during the period certified by a Responsible Officer, such certification to be in a form reasonably acceptable to Lender; (ii) as soon as available, but no later than one hundred fifty (150) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Lender in its reasonable discretion; (iii) within five (5) days of delivery, copies of all financial statements and reports made available to Borrower’s security holders or to any holders of Subordinated Debt; (iv) within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be (documents required to be delivered pursuant to the terms of this Section 6.2(a) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such documents have been posted on the website of the Securities and Exchange Commission at http://www.sec.gov or on which Borrower posts such documents or provides a link thereto on Borrower’s website on the internet at Borrower’s website address); (v) contemporaneously with the submission of such filings or the delivery of such reports, copies of (A) the monthly reports delivered to the Commodity Futures Trading Commission and (B) all monthly reports delivered to, and the annual examination conducted by, the National Futures Association; (vi) a prompt report of any Default or Event of Default of which Borrower has knowledge or any legal actions pending or, to the knowledge of Borrower, threatened against Borrower or any of its Subsidiaries that would reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of Five Hundred Thousand Dollars ($500,000.00) or more (but excluding, for the avoidance of doubt, any actions in respect of the Shared Liabilities); and (vii)   budgets, sales projections, operating plans and other financial information reasonably requested by Lender.
(e)     Concurrently with each delivery of financial statements pursuant to clause (i) or clause (ii) of Section 6.2(a), deliver to Lender a duly completed Compliance Certificate signed by a Responsible Officer setting forth calculations showing compliance with the financial covenants set forth in Section 6.7 of this Agreement.
(f)     Commencing with the month ending October 31, 2013, within forty-five (45) days after the last day of each month, deliver to Lender a summary of the Unrestricted Cash of Borrower and its wholly-owned Subsidiaries in form and detail reasonably acceptable to Lender.
6.3      Intentionally omitted.
6.4      Taxes; Pensions . Make, and cause each of its Subsidiaries to make, timely payment of all foreign, federal, state, and local taxes or assessments (other than taxes and assessments which Borrower or its Subsidiaries are contesting pursuant to the terms of Section 5.8 hereof) and shall deliver to Lender, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.5      Insurance . (a) Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s and each Subsidiary’s industry and location; and (b) not change the types of insurance, or the


    


respective levels of insurance coverage for such types of insurance, currently maintained by Borrower and its Subsidiaries if such change would be reasonably likely to adversely affect the interests of Lender under this Agreement.
6.6      Collateral Accounts . Provide Lender five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution. In addition, for each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Lender’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Lender. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Lender by Borrower as such.
6.7      Financial Covenants .
Starting with the fiscal quarter ended December 31, 2013 and for each subsequent fiscal quarter, Borrower and its Subsidiaries shall maintain on a consolidated basis as of the last day of each such fiscal quarter:
(a)     Debt Service Coverage Ratio . A ratio of EBITDA for the twelve-month period ending on the last day of such fiscal quarter to the aggregate amount of Borrower’s scheduled principal and interest payments for borrowed money during such twelve-month period of at least (i) in the case of each such fiscal quarter ending on or prior to December 31, 2014, 1.25 to 1.0 and (ii) in the case of each subsequent fiscal quarter, 2.5 to 1.0; and
(b)     Total Funded Debt/EBITDA . A Total Funded Debt Ratio (with respect to the immediately preceding twelve (12) month period) of a maximum of (i) in the case of each such fiscal quarter ending on or prior to December 31, 2014, 4.0 to 1.0 and (ii) in the case of each such subsequent fiscal quarter, 2.0 to 1.0;
provided , that if any Permitted Acquisition shall have been consummated during the applicable twelve-month period, the calculations required under Section 6.7(a) and Section 6.7(b) may, at the election of Borrower, be made on a Pro Forma Basis.
6.8      Protection of Intellectual Property Rights .
(a)     (i) Protect, defend and maintain the validity and enforceability of its material intellectual property; (ii) promptly advise Lender in writing of material infringements of its intellectual property; and (iii) not allow any intellectual property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Lender’s written consent.
(b)    Provide written notice to Lender within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Lender reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Lender to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Lender to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Lender’s rights and remedies under this Agreement and the other Loan Documents.
6.9      Intentionally omitted.
6.10      Intentionally omitted .
6.11      Intentionally omitted .
6.12      Further Assurances . Borrower shall execute any further instruments and take further action as Lender reasonably requests to perfect (other than in respect of commercial tort claims not described in the second sentence of Section 4.1) or continue Lender’s Lien in the Collateral or to effect the purposes of this Agreement.


    


6.13      Post-Closing Obligations . If, as of any date on or following the date that is 30 days following the Closing Date, the average daily balance in Borrower’s checking account held with Silicon Valley Bank under account number 3300513593 (the “ SVB Account ”) exceeds $1,000,000 for the preceding consecutive 90-day period, Borrower shall use commercially reasonable efforts to cause to be delivered to Lender an opinion reasonably satisfactory to Lender from California counsel as to the perfection of Lender’s security interest in the SVB Account.
7      NEGATIVE COVENANTS
Borrower and (other than with respect to Section 7.6) its Subsidiaries shall not do any of the following without Lender’s prior written consent:
7.1      Dispositions . Except for (i) transactions required to effect the Proposed Reorganization and (ii) any Transfer of any equity interests or assets of SL Bruce Financial Corporation or Gain Capital Securities, Inc., convey, sell, lease, transfer or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn‑out or obsolete Equipment; (c) constituting Permitted Liens or Permitted Investments; (d) of property by any Subsidiary that is not a Guarantor to Borrower or any other Subsidiary or by a Guarantor to Borrower; (e) of stock in a Subsidiary (other than Gain Holdings, LLC or Gain Capital Group, LLC) to Borrower or any other Subsidiary; (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; and (g) other Transfers, provided that, in the case of this clause (g), (i) no Default or Event of Default has occurred and is continuing or would exist immediately after giving effect to the transactions, (ii) the consideration received for such Transfer shall be in an amount at least equal to the fair market value thereof, as determined by Borrower in good faith, (iii) no less than 80% of the consideration shall be paid in cash or Cash Equivalents, and (iv) if the consideration received for such Transfer is in an amount greater than One Million Dollars ($1,000,000.00), Borrower shall have delivered fifteen (15) days prior written notice of such Transfer demonstrating compliance with the conditions set forth in this clause (g). Borrower shall not enter into an agreement with any Person other than Lender which restricts the subsequent granting of a security interest in the intellectual property.
7.2      Changes in Business, Management, Ownership, Control, or Business Locations . (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably complementary thereto (including as contemplated by the Stock Purchase Agreement); (b) liquidate or dissolve; or (c) in addition to and subject to Section 5.11, enter into any transaction or series of related transactions in which the stockholders of Borrower immediately prior to the first such transaction own less than 50% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Lender the venture capital investors prior to the closing of the transaction).
Borrower shall not, without at least thirty (30) days prior written notice to Lender: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Ten Thousand Dollars ($10,000.00) in Borrower’s assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.
7.3      Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except (a) the GFT Acquisition or (b) where (i) immediately after such transaction and after paying the purchase price and related transaction expenses, closing costs and fees therefor, Borrower and its wholly-owned Subsidiaries would have One Hundred Million Dollars ($100,000,000.00) in Unrestricted Cash; (ii) no Default or Event of Default has occurred and is continuing or would exist immediately after giving effect to the transactions (and Borrower shall have delivered a certificate to such effect); (iii) if such merger, consolidation or acquisition involves Borrower, Borrower is the surviving legal entity; (iv) Borrower shall be in compliance on a Pro Forma Basis with the financial covenants set forth in Section 6.7(a)(ii) and 6.7(b)(ii) as of the end of the most recently completed fiscal quarter for which financial statements have been delivered (and Borrower shall have delivered to Lender a certificate demonstrating such compliance, including reasonably detailed calculations setting for such compliance) and (v) if the aggregate consideration paid or payable by Borrower and its Subsidiaries in such transaction


    


equals or exceeds $15,000,000 (as determined in good faith by Borrower), such transaction shall have been approved by the board of directors of Borrower (each transaction described in this clause (b), a “ Permitted Acquisition ”; provided , that, in addition, the GFT Acquisition shall be deemed to constitute a Permitted Acquisition for all purposes of this Agreement); provided , that the aggregate cash consideration paid by Borrower and its Subsidiaries in respect of Permitted Acquisitions (other than cash consideration financed with the proceeds of any sale, issuance or other Transfer of any capital stock or other equity interests of Borrower to the extent such amounts are not required to be applied to prepay the Term Loan in accordance with Section 2.6(a)) shall not exceed $35,000,000 in any period of 12 consecutive months following the Closing Date. A Subsidiary may merge or consolidate with or into another Subsidiary or Borrower; provided , however , that (x) if the applicable Subsidiary is a Guarantor, such Subsidiary must be the surviving legal entity or (y) if such merger or consolidation involves Borrower, Borrower must be the surviving legal entity.
7.4      Indebtedness . Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5      Encumbrance . Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Lender) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein.
7.6      Maintenance of Collateral Accounts . Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof.
7.7      Distributions; Investments; Bonuses . (a) Directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, provided , however , Borrower may make a dividend, distribution or payment or otherwise redeem, retire, or purchase any stock so long as immediately after such dividend, redemption or repurchase, Borrower and its wholly-owned Subsidiaries would have One Hundred Million Dollars ($100,000,000.00) in Unrestricted Cash, and provided further no Event of Default has occurred or would result; or (c) allow Gain Holdings, LLC to transfer any of its stock or beneficial ownership of Gain Capital Group, LLC without the prior written consent of Lender.
7.8      Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (x) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person and (y) any transactions in respect of the Shared Liabilities.
7.9      Subordinated Debt . (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Lender.
7.10      Compliance . In the case of Borrower or Guarantor, become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System); fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act, or any other law or regulation, if such failure would reasonably be expected to have (a) a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole) or (b) any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which would reasonably be expected to result in any material liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.


    


8      EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “ Event of Default ”) under this Agreement:
8.1      Payment Default . Borrower fails to (a) make any payment of principal or interest on the Term Loan on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period will not apply to payments due on the Maturity Date). During the cure period, the failure to cure the payment default is not an Event of Default;
8.2      Covenant Default .
(a) Borrower or its Subsidiaries fails or neglects to perform any obligation in Sections 6.1 (as it pertains to Borrower’s legal existence and good standing), 6.2, 6.6, 6.7, or 6.8, or violates any covenant in Section 7; or
(b) Borrower or its Subsidiaries fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8 below) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower or such Subsidiary be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower or such Subsidiary shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default. Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above;
8.3      Intentionally omitted .
8.4      Attachment . (a) Any material portion of Borrower’s and/or its Subsidiaries’ assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) [intentionally omitted]; (c) Borrower and/or its Subsidiaries is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) [intentionally omitted]; or (e) a notice of lien, levy, or assessment is filed against any of Borrower’s and/or its Subsidiaries’ assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower;
8.5      Insolvency (a) Borrower and/or its Subsidiaries are unable to pay their debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower and/or its Subsidiaries begin an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and/or its Subsidiaries and not dismissed or stayed within thirty (30) days;
8.6      Other Agreements . There is a default in any agreement to which Borrower, its Subsidiaries, or any Guarantor is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Five Million Dollars ($5,000,000.00) or that would have (a) a material adverse effect on the business of Borrower and its Subsidiaries (taken as a whole) or (b) any material adverse impact on the ability of Borrower to satisfy the Obligations when due hereunder;
8.7      Judgments . A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Million Five Hundred Thousand Dollars ($2,500,000.00) (not covered by independent third-party insurance, and excluding any judgment in respect of the Shared Liabilities) shall be rendered against Borrower and/or its Subsidiaries, and shall remain unsatisfied and unstayed for a period of thirty (30) days after the entry thereof;
8.8      Misrepresentations . Borrower or Guarantor (or any Person acting for Borrower or Guarantor) makes any representation, warranty, or other statement in this Agreement, any Loan Document or in any writing delivered to Lender pursuant to this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;


    


8.9      Subordinated Debt . A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Lender, or any creditor that has signed such an agreement with Lender breaches any terms of such agreement that pertain to lien subordination, payment restrictions and/or enforcement restrictions; or
8.10      Guaranty . (a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance described in Sections 8.4, 8.5, 8.7, or 8.8. occurs with respect to any Guarantor, (d) the death, liquidation, winding up, or termination of existence of any Guarantor; or (e) (i) a material impairment in the perfection or priority of Lender’s Lien in the collateral provided by Guarantor or in the value of such collateral or (ii) a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations occurs with respect to any Guarantor.
9      RIGHTS AND REMEDIES
9.1      Rights and Remedies . While an Event of Default occurs and continues Lender may, without notice or demand, do any or all of the following:
(a)     declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Lender);
(b)     [intentionally omitted];
(c)     settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Lender considers advisable, notify any Person owing Borrower money of Lender’s security interest in such funds, and verify the amount of such account;
(d)     make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Lender requests and make it available as Lender designates. Lender may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Lender a license to enter and occupy any of its premises, without charge, to exercise any of Lender’s rights or remedies;
(e)     apply to the Obligations any amount held by Lender owing to or for the credit or the account of Borrower;
(f)     ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Lender is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Lender’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Lender;
(g)     deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(h)     demand and receive possession of Borrower’s Books; and
(i)     exercise all rights and remedies available to Lender under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2      Power of Attorney . Borrower hereby irrevocably appoints Lender as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any


    


Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Lender determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Lender for its own benefit or a third party as the Code permits. Borrower hereby appoints Lender as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect (to the extent such perfection is required hereunder) or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full. Lender’s foregoing appointment as Borrower’s attorney in fact, and all of Lender’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed.
9.3      Accounts Verification; Collection . If an Event of Default has occurred and is continuing, Lender may notify any Person owing Borrower money of Lender’s security interest in such funds and verify the amount of such account. After the occurrence of an Event of Default, any amounts received by Borrower shall be held in trust by Borrower for Lender, and, if requested by Lender, Borrower shall immediately deliver such receipts to Lender in the form received from the Account Debtor, with proper endorsements for deposit.
9.4      Protective Payments . If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Lender may obtain such insurance or make such payment, and all amounts so paid by Lender are Lender’s Expenses and immediately due and payable, bearing interest at the Default Rate, and secured by the Collateral. Lender will make reasonable efforts to provide Borrower with notice of Lender obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Lender are deemed an agreement to make similar payments in the future or Lender’s waiver of any Event of Default.
9.5      Application of Payments and Proceeds . If an Event of Default has occurred and is continuing, Lender may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Lender shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Lender for any deficiency. If Lender, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Lender shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Lender of cash therefor
9.6      Lender’s Liability for Collateral . So long as Lender complies with reasonable practices regarding the safekeeping of the Collateral in the possession or under the control of Lender, Lender shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.7      No Waiver; Remedies Cumulative . Lender’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Lender thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Lender and then is only effective for the specific instance and purpose for which it is given. Lender’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Lender has all rights and remedies provided under the Code, by law, or in equity. Lender’s exercise of one right or remedy is not an election and shall not preclude Lender from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Lender’s waiver of any Event of Default is not a continuing waiver. Lender’s delay in exercising any remedy is not a waiver, election, or acquiescence.
9.8      Demand Waiver . Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Lender on which Borrower is liable.
10      NOTICES


    


All notices, consents, requests, approvals, demands, or other communication (collectively, “ Communication ”) by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Either Lender or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrower:    Gain Capital Holdings, Inc.    135 US Highway 202/206    
    Suite 11    Bedminster, New Jersey 07921    Attention: Diego Rotsztain    Fax: (866) 861-1673    Email:      drotsztain@gaincapital.com
with a copy to:        Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attention: Leonard Kreynin
Fax: (212) 701-5800
Email: leonard.kreynin@davispolk.com


If to Lender:        Gary L. Tilkin
618 Kenmoor Ave S.E.
Grand Rapids, Michigan 49456
Fax: (616) 974-3663
Email: gtilkin@gftforex.com

with a copy to:    Sidley Austin LLP    One South Dearborn    Chicago, Illinois 60603    Attention: John O’Hare    Fax: (312) 853-7036    Email: johare@sidley.com
11      CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
The law of the State of New York governs the Loan Documents without regard to principles of conflicts of law. Borrower and Lender each submit to the exclusive jurisdiction of the State and Federal courts in the City of New York; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Lender from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Lender. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS


    


WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL .
12      GENERAL PROVISIONS
12.1      Successors and Assigns . This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without prior written consent of Lender (which may be granted or withheld in Lender’s discretion). Lender may not assign this Agreement or any rights or obligations under it; provided that Lender may assign all of its rights and obligations (but not a portion thereof) under this Agreement to natural persons related to Lender or to estate planning vehicles (together, “ Eligible Assignees ”), in each case solely for estate planning purposes.
12.2      Indemnification . Borrower agrees to indemnify, defend and hold Lender and its agents, attorneys, or any other Person affiliated with or representing Lender harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “ Claims ”) asserted by any party other than Borrower against Lender in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Lender’s Expenses incurred, or paid by Lender from, following, or arising from transactions between Lender and Borrower (including reasonable attorneys’ fees and expenses), except for (i) Claims and/or losses directly caused by Lender’s gross negligence or willful misconduct, or (ii) liabilities of Lender to Borrower directly resulting from claims brought by Borrower against Lender.
12.3      Limitation of Actions . Any claim or cause of action brought by Borrower against Lender, its agents, accountants, attorneys, or any other Person affiliated with or representing Lender based upon, arising from, or relating to this Agreement or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Lender, its agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of Borrower’s officer or directors had knowledge of the first act, the occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on Lender, or on any other person authorized to accept service on behalf of Lender, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Lender in its sole discretion. This provision shall survive any termination of this Agreement or any other Loan Document; provided, however that this provision shall be inapplicable to Borrower’s setoff rights under Section 12.11.
12.4      Time of Essence . Time is of the essence for the performance of all Obligations in this Agreement.
12.5      Severability of Provisions . Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
12.6      Amendments in Writing; Integration . All amendments to this Agreement must be in writing and signed by Lender and Borrower. This Agreement, the Loan Documents and the Stock Purchase Agreement represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement, the Loan Documents and the Stock Purchase Agreement merge into this Agreement, the Loan Documents and the Stock Purchase Agreement.
12.7      Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.
12.8      Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid satisfied. The obligation of Borrower in Section 12.2 to indemnify Lender shall survive until the statute of limitations with respect to such claim or cause of action shall have run.


    


12.9      Confidentiality . In handling any confidential information, Lender shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Eligible Assignees (provided, however, Lender shall obtain such Eligible Assignee’s agreement to the terms of this provision); (b) as required by law, regulation, subpoena, or other order; (c) as Lender considers appropriate in exercising remedies under the Loan Documents; and (d) to third-party service providers of Lender so long as such service providers have executed a confidentiality agreement with Lender with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in Lender’s possession when disclosed to Lender, or becomes part of the public domain after disclosure to Lender; or (ii) is disclosed to Lender by a third party, if Lender does not know that the third party is prohibited from disclosing the information.
12.10      Lender’s Right of Set Off . Borrower hereby grants to Lender a lien, security interest and right of set off as security for all Obligations to Lender, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity under the control of Lender (including a Lender subsidiary) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Lender may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
12.11      Escrow; Borrower Setoff.
(a)     If at any time one or more indemnification claims that shall have been asserted in good faith by Borrower against Lender pursuant to Section 8.03 or Section 11.02(a)(x) or (a)(y) of the Stock Purchase Agreement (any such claim, a “ Borrower SPA Claim ”) shall be pending and unresolved, then for so long as any Borrower SPA Claims remain pending and unresolved, such amount, if any, of the principal payments required to be made by Borrower to Lender hereunder in respect of the Term Loan (including, for the avoidance of doubt, mandatory prepayments pursuant to Section 2.6) the making of which would, immediately after giving effect thereto, cause the amount of all pending and unresolved Borrower SPA Claims to exceed the outstanding principal amount of the Term Loan, together with interest accruing hereunder on such principal amounts, shall not be made to Lender but shall instead be deposited to an escrow account to be established at a third party financial institution by the parties hereto in accordance with customary escrow arrangements (all such payments in respect of principal and interest so deposited, “ Escrowed Amounts ”); provided , that upon such deposit, Borrower’s obligation to make such payments of principal and interest to Lender shall be deemed satisfied; provided further , that the outstanding principal owing to Lender under this Agreement shall not be reduced by the Escrowed Amount. Promptly following the resolution (in whole or in part) (a “ Resolution ”), through negotiations or litigation in an appropriate court of jurisdiction determined pursuant to Section 13.07 of the Stock Purchase Agreement, of any Borrower SPA Claim for which Escrowed Amounts exist, to the extent such Resolution is in favor of Lender, the Escrowed Amounts in respect thereof (including, for the avoidance of doubt, amounts paid by Borrower into escrow in respect of interest and any earnings accrued upon funds in escrow) shall be released to Lender and the outstanding principal owing to Lender under this Agreement shall be reduced by the amount so released (other than amounts reflecting interest paid by Borrower on the escrowed principal and any earnings accrued upon funds in escrow). Promptly following the Resolution of any Borrower SPA Claim for which Escrowed Amounts exist, to the extent such Resolution is in favor of Borrower, (i) the Escrowed Amounts in respect thereof shall be released to Borrower and (ii) the amount of such Escrowed Amounts (other than amounts reflecting interest paid by Borrower on the escrowed principal and any earnings accrued upon funds in escrow) so released to Borrower shall constitute a set off against any liability or obligation of Borrower in respect of the principal amount of the Term Loan.
(b)     If at any time one or more indemnification claims that shall have been asserted in good faith by Borrower against Lender pursuant to Section 11.02(a)(z) of the Stock Purchase Agreement based upon a payment by Borrower or any of its subsidiaries to a counterparty of a Shared Liability (a “ Section 12.11(b) Indemnity Claim ”), and if the Section 12.11(b) Indemnity Claim exceeds the sum of the remaining Holdback Amount and the Additional Holdback Amount, if any (each such term as defined in the Stock Purchase Agreement) pursuant to Sections 2.06 and 11.02(a)(ii) of the Stock Purchase Agreement (any such excess being referred to as the “ Setoff Amount ”), Borrower shall give Lender written notice thereof (a “ Set-Off Notice ”), which Set-Off Notice shall set forth the Setoff Amount. If Borrower delivers a Set-Off Notice, the outstanding principal and accrued and unpaid interest owing to Lender under this Agreement shall be reduced by the Set-Off Amount set forth in such Set-Off Notice, with such Set-Off Amount


    


applied first against accrued and unpaid interest under this Agreement and second against the outstanding principal amount of the Term Loan (and against the scheduled installments thereof in the direct order of maturity). The Set-Off Amount so applied to the Term Loan balance shall be deemed to have been paid and satisfied in full, and such offset shall be deemed effective as of the date of the Set-Off Notice.
13      DEFINITIONS
13.1      Definitions . As used in this Agreement, the following terms have the following meanings:
“ Account ” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
“ Account Debtor ” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.
“ Affiliate ” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.
“ Agreement ” is defined in the preamble hereof.
“ Applicable Haircut Percentage ” is, as of any date of determination, the percentage set forth in the following table corresponding to the outstanding principal amount of the Term Loan as of such date:

Outstanding Principal Amount
of Term Loan
Applicable Haircut Percentage
 
 
Greater than $20 million
25
%
Greater than $8 million but less than or equal to $20 million
15
%
Less than or equal to $8 million
0
%
 
 

“ Borrower ” is defined in the preamble hereof
“ Borrower’s Books ” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
“ Business Day ” is any day other than a Saturday, Sunday or other day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) certificates of deposit issued maturing no more than one (1) year after issue.
“ Claims ” is defined in Section 12.2.

“ Closing Date ” is defined in the Stock Purchase Agreement.

“ Code ” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory


    


provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to Lender’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term “ Code ” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“ Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit A .
“ Collateral Account ” is any Deposit Account, Securities Account, or Commodity Account maintained by Borrower.
“ Commodity Account ” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.
“ Communication ” is defined in Section 10.
“ Compliance Certificate ” is that certain certificate in the form attached hereto as Exhibit B .
“ Contingent Obligation ” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co‑made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
“ Control Agreement ” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity account, Borrower, and Lender pursuant to which Lender obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
“ Default ” means any event which with notice or passage of time or both, would constitute an Event of Default.
“ Default Rate ” is defined in Section 2.4(c).
“ Deposit Account ” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.
“ Dollars , ” “ dollars ” or use of the sign “ $ ” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.
“ EBITDA ” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expense.
“ EBITDA Threshold ” is defined in Section 2.5(b).
“ Eligible Assignees ” is defined in Section 12.1.
“ Equipment ” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“ ERISA ” is the Employee Retirement Income Security Act of 1974, and its regulations.


    


“ Event of Default ” is defined in Section 8.
“ Excess Capital ” is defined in Section 2.6(b).
“ Final Settlement Reference Date ” is defined in the Stock Purchase Agreement.
“ First Year EBITDA Threshold ” is defined in Section 2.5(b).
“ Foreign Subsidiary ” means any Subsidiary which is not organized under the laws of the United States or any state or territory thereof or the District of Columbia.
“ GAAP ” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
“ General Intangibles ” is all “general intangibles” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
“ GFT ” is Global Futures and Forex, Ltd., a Michigan corporation.
“ GFT Acquisition ” is the acquisition by Borrower of 100% of the outstanding stock of GFT pursuant to the Stock Purchase Agreement.
“ Go-Forward Agreement ” is defined in the Stock Purchase Agreement.
“ Governmental Approval ” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
“ Governmental Authority ” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
“ Guarantor ” is any present or future guarantor of the Obligations, including, without limitation, Gain Holdings, LLC.
“ Indebtedness ” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.
“ Insolvency Proceeding ” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“ Interest Expense ” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to the Term Loan and other Indebtedness of Borrower, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’


    


acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).
“ Interest Payment Date ” is defined in Section 2.3.
“ Inventory ” is all “inventory” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
“ Investment ” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
“ Lender ” is defined in the preamble hereof.
“ Lender’s Expenses ” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) of Lender for preparing, negotiating, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings).
“ Lien ” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“ Liquidity Event ” means any Transfer (or series of related Transfers) following the Final Settlement Reference Date of any business unit, asset or property of Borrower or any Subsidiary (including any sale, issuance or other Transfer following the Final Settlement Reference Date of any capital stock or other equity interests of (i) Borrower or (ii) a Subsidiary of Borrower (other than to Borrower or another Subsidiary of Borrower)), whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, leased or licensed, other than any Transfer permitted under Section 7.1 (except for Transfers following the Final Settlement Reference Date permitted under Section 7.1(g), which shall be considered Liquidity Events); provided, that any sale or issuance of capital stock or other equity interests of Borrower in connection with management, director or employee stock option or other equity compensation incentive plans shall not constitute a Liquidity Event.
“ Loan Documents ” are, collectively, this Agreement, the Perfection Certificate, the Pledge Agreement, any Control Agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement executed by Borrower and/or any Guarantor for the benefit of Lender in connection with this Agreement that is designated therein as a “Loan Document”, all as amended, restated, or otherwise modified.
“ Maturity Date ” is September 24, 2018; provided that if the Final Settlement Reference Date has not occurred on or before September 24, 2018, the Maturity Date shall be extended to the Final Settlement Reference Date.
“ Minimum Regulatory Capital ” is defined in Section 2.6(b).
“ Net Cash Proceeds ” means, with respect to any Liquidity Event, an amount equal to: (i) cash payments (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Borrower or any of its Subsidiaries from such Liquidity Event, minus (ii) any bona fide direct costs and expenses incurred and paid or payable in connection with such Liquidity Event, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Liquidity Event, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Term Loan) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Liquidity Event and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Liquidity Event undertaken by Borrower or any of its Subsidiaries in connection with such Liquidity Event; provided that upon release of any such reserve, the amount released shall be considered Net Cash Proceeds.
“ Net Income ” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period; provided , however , that Net Income for any period shall be determined without taking into account (x) any charges, expenses and payments during such period relating to the settlement of the Shared Liabilities (including all professional and consulting fees and expenses in connection therewith (including,


    


for the avoidance of doubt, all fees and expenses payable to Ballintrae)) and (y) payments made pursuant to any Go-Forward Agreement and any related expenses or charges during such period.
“ Obligations ” are Borrower’s obligation to pay when due any debts, principal, interest, Lender’s Expenses and other amounts Borrower owes Lender now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit, cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin, and the performance of Borrower’s duties under the Loan Documents.
“ Perfection Certificate ” is that certain Perfection Certificate dated as of September 24, 2013 delivered by Borrower to Lender in form and substance customary for transactions of this type and reasonably satisfactory to Lender.
“ Permitted Acquisition ” is defined in Section 7.3.
“ Permitted Indebtedness ” is:
(a)    Borrower’s Indebtedness to Lender under this Agreement and the other Loan Documents, and any guarantee thereof by a Guarantor;
(b)    Indebtedness existing on the Closing Date and shown on (x) the Perfection Certificate or (y) Schedule 13.1 hereto;
(c)    Subordinated Debt;
(d)    unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e)    Indebtedness to brokers incurred in the ordinary course of business in connection with ordinary course trading activities, and any unsecured guarantees thereof;
(f)    Indebtedness for capital lease obligations and purchase money Indebtedness not to exceed Six Million Dollars ($6,000,000.00) in the aggregate;
(g)    unsecured Indebtedness not to exceed Ten Million Dollars ($10,000,000.00) in the aggregate; and
(h)    extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
“ Permitted Investments ” are:
(a)    Investments shown on the Perfection Certificate and existing on the Closing Date;
(b)    Investments consisting of Permitted Acquisitions;
(c)    Investments by Borrower in its Subsidiaries existing on the date hereof and by Subsidiaries of Borrower in Borrower and other Subsidiaries of Borrower;
(d)    Investments (i) consisting of the GFT Acquisition (including any Investments held by GFT as of the Closing Date) and (ii) required to effect the Proposed Reorganization;
(e)    so long as no Default or Event of Default has occurred and is continuing or would exist immediately after giving effect to the transactions, other Investments in an amount not to exceed Ten Million Dollars ($10,000,000.00) in the aggregate;
(f)    Cash Equivalents;
(g)    Investments constituting guarantees permitted under clause (a) or (e) of the definition of “Permitted Indebtedness”; and


    


(h)    Investments made (i) with the proceeds of any Liquidity Event to the extent such amounts are not required to be applied to prepay the Term Loan in accordance with Section 2.6(a) as a result of the delivery of a Reinvestment Notice, (ii) with proceeds of any Indebtedness incurred by Borrower (to the extent such Indebtedness is permitted under clauses (c) or (g) of the definition of Permitted Indebtedness) and (iii) by Borrower with any property or assets transferred to Borrower by any of its Subsidiaries in a transaction permitted hereunder.
“ Permitted Liens ” are:
(a)    Liens existing on the Closing Date and shown on (x) the Perfection Certificate or (y) Schedule 13.2 hereto or arising under this Agreement and the other Loan Documents;
(b)    Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Lender’s Liens;
(c)    Liens (i) securing Indebtedness permitted under clause (f) of the definition of Permitted Indebtedness on assets acquired or held by Borrower incurred for financing the acquisition of such assets (provided that such Liens may extend to additions or accessions to such property or to any replacements thereof), or (ii) existing on assets when acquired, if the Lien is confined to the property and improvements and the proceeds of such assets;
(d)    Liens in the ordinary course of business on deposit, securities and other accounts maintained by Borrower or any Subsidiary of Borrower with a financial institution or broker that secure obligations of Borrower or such Subsidiary to such financial institution or broker; and
(e)    Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.
“ Person ” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
“ Pledge Agreement ” is that certain Pledge and Security Agreement dated as of September 24, 2013 among Borrower and Lender.
“ Pro Forma Adjustment ” means, for any period of determination, (X) the pro forma increase or decrease in EBITDA, documented in writing and projected by Borrower in good faith as a result of, without duplication, (a) actions taken by or expected to be taken prior to or during such period of determination or, in the case of each Permitted Acquisition that shall have occurred during such period or following the end of such period and prior to the applicable date on which compliance is to be tested, within twelve months following the date of such Permitted Acquisition, for purposes of realizing cost savings, operating expense reductions, cost synergies or revenue enhancements arising out of such Permitted Acquisition or (b) any additional costs, expenses or charges, accruals or reserves incurred prior to or during such period of determination in connection with each such Permitted Acquisition, all as set forth in a certificate signed by a Responsible Officer of Borrower multiplied by (Y) except with respect to any such increase or decrease relating to the GFT Acquisition, (1 minus the Applicable Haircut Percentage); provided , that (i) the amount determined under clause (X) with respect to any Permitted Acquisition for any period of determination shall not exceed the amount, if any, that has been disclosed publicly by Borrower with respect to such Permitted Acquisition for such period of determination and (ii) the Pro Forma Adjustment shall be inapplicable to any Permitted Acquisition if (A) the aggregate consideration paid or payable in such Permitted Acquisition by Borrower and its Subsidiaries equals or exceeds $10,000,000 (as determined in good faith by Borrower) and (B) such Permitted Acquisition has not been approved by the board of directors of Borrower.
“ Pro Forma Basis ” means, with respect to compliance with any test or covenant hereunder, that (A) to the extent applicable, the Pro Forma Adjustment shall have been made and (B) all Permitted Acquisitions that shall have been consummated during the applicable period or following the end of the applicable period and on or prior to the date of determination, and the following transactions in connection therewith, shall be deemed to have occurred as of the first day of the applicable period of measurement in such test or covenant: (i) income statement items (whether positive or negative) attributable to the property or Person subject to such Permitted Acquisition; (ii) any refinancing,


    


prepayment, repurchase, retirement, repayment, redemption, defeasance or extinguishment of Indebtedness and (iii) any Indebtedness incurred, issued, obtained or assumed by Borrower or any Subsidiary in connection therewith.
“ Proposed Reorganization ” means (i) the merger, amalgamation or other combination of the business and operations of Borrower or any of its Subsidiaries and any entity acquired by Borrower pursuant to the Stock Purchase Agreement (or any entity that is a subsidiary of any such entity acquired by Borrower pursuant to the Stock Purchase Agreement) and (ii) any transfer of the assets or equity securities of any entity acquired by Borrower pursuant to the Stock Purchase Agreement (or of any entity that is a subsidiary of any such entity acquired by Borrower pursuant to the Stock Purchase Agreement) to Borrower or any Subsidiary.
“ Registered Organization ” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.
“ Reinvestment Notice ” is a written notice executed by a Responsible Officer stating that Borrower, directly or through one or more of its Subsidiaries, intends to invest (or commit to invest) the Net Cash Proceeds from a Liquidity Event involving the sale of Borrower’s equity interests to (x) fund a joint venture, strategic alliance or other commercial relationship with a customer, supplier or other strategic partner of Borrower or an Investment in any Subsidiary or (y) acquire, directly or indirectly, all or part of the tangible or intangible assets or securities of another business, and in each case identifying with reasonable specificity the applicable joint venture, strategic alliance, other commercial relationship, Investment or business.
“ Reinvestment Prepayment Amount ” is, with respect to any Liquidity Event involving the sale of Borrower’s equity interests, the excess, if any, of (a) the Net Cash Proceeds relating thereto over (b) any amount expended prior to the relevant Reinvestment Prepayment Date to (x) fund a joint venture, strategic alliance or other commercial relationship with a customer, supplier or other strategic partner of Borrower or (y) acquire, directly or indirectly, all or part of the tangible or intangible assets or securities of another business.
“ Reinvestment Prepayment Date ” means, with respect to any Liquidity Event involving the sale of Borrower’s equity interests, the earlier of (a) the date occurring six months after such Liquidity Event and (b) the date on which Borrower shall have determined not to (x) fund the joint venture, strategic alliance or other commercial relationship with a customer, supplier or other strategic partner of Borrower specified in the Reinvestment Notice or (y) acquire, directly or indirectly, all or part of the tangible or intangible assets or securities of the business specified in the Reinvestment Notice, in each case with all or any portion of the relevant Net Cash Proceeds; provided that if Borrower, directly or through one or more of its Subsidiaries, enters into a binding agreement to invest such Net Cash Proceeds in the manner set forth in clause (x) or (y) above within six months of the applicable Liquidity Event, the period specified in clause (a) above shall be extended by an additional three months following the date of entry into such agreement.
“ Requirement of Law ” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“ Responsible Officer ” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.
“ Restricted License ” is any material license or other material agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Lender’s right to sell any Collateral.
“ Schedule ” is any attached schedule of exceptions.
“ Set-Off Amount ” is defined in Section 12.11(b).
“ Set-Off Notice ” is defined in Section 12.11(b).
“ Securities Account ” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.


    


“ Shared Liabilities ” is defined in the Stock Purchase Agreement.
“ Shared Liabilities Claim ” is defined in Section 12.11(b).
“ Stock Purchase Agreement ” is that certain Amended and Restated Stock Purchase Agreement dated as of September 24, 2013 among Borrower, Lender and GFT.
“ Subordinated Debt ” is indebtedness incurred by Borrower (i) subordinated to all of Borrower’s now or hereafter indebtedness to Lender (pursuant to a subordination, intercreditor, or other similar agreement in form and substance reasonably satisfactory to Lender entered into between Lender and the other creditor), on terms reasonably acceptable to Lender and (ii) at a time when no Default or Event of Default has occurred and is continuing or would exist immediately after giving effect to the incurrence of such indebtedness.
“ Subsidiary ” means, with respect to any Person, any Person of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person.
“ SVB Account ” is defined in Section 6.13.
“ Term Loan ” is defined in Section 2.2.
“ Term Loan Payment ” is defined in Section 2.3.
“ Total Funded Debt ” is the aggregate amount of all outstanding principal, interest, fees and other costs arising out of any indebtedness of Borrower for borrowed money. For the avoidance of doubt, “Total Funded Debt” includes the Term Loan.
“ Total Funded Debt Ratio ” is, for the relevant testing period, a ratio of Total Funded Debt to EBITDA.
“ Transfer ” is defined in Section 7.1.
“ Unrestricted Cash ” is the sum of (a) unrestricted cash and Cash Equivalents plus (b) receivables due from brokers minus (c) payables due to customers.
[ Signature page follows. ]



    


IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the date first written above.
BORROWER:
GAIN CAPITAL HOLDINGS, INC.
By __/s/ Glenn Stevens            
Name:_ Glenn Stevens            
Title:_ Chief Executive Officer        

GARY L. TILKIN, as LENDER
By__ /s/ Gary L. Tilkin            
Name:__ Gary L. Tilkin            
Title:                     

Note:
All exhibits and schedules to this agreement have been omitted in accordance with Item 601(b) of Regulation S-K. A copy of any omitted exhibits or schedules will be furnished to the Securities and Exchange Commission upon request.


1

    



Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Glenn H. Stevens, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GAIN Capital Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2013
 
/s/ Glenn H. Stevens
 
 
Glenn H. Stevens
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)




Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Jason Emerson, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of GAIN Capital Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2013
 
/s/ Jason Emerson
 
 
Jason Emerson
 
 
Chief Financial Officer
 
 
 




Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Glenn H. Stevens, the undersigned Chief Executive Officer and President of GAIN Capital Holdings, Inc., a Delaware corporation (the “Company”) hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:
1.
The accompanying quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: November 12, 2013
 
/s/ Glenn H. Stevens
 
 
Glenn H. Stevens
 
 
Chief Executive Officer and President
 
 
(Principal Executive Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 906 THE SARBANES-OXLEY ACT OF 2002
I, Jason Emerson, the undersigned Chief Financial Officer of GAIN Capital Holdings, Inc. (the “Company”) hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:
1.
The accompanying quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: November 12, 2013
 
/s/ Jason Emerson
 
 
Jason Emerson
 
 
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.