S-4 1 d484578ds4.htm FORM S-4 Form S-4
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As Filed with the Securities and Exchange Commission on February 12, 2013

Registration No. 333-[            ]

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

KNIGHT HOLDCO, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   6211   38-3898306
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
 

(IRS Employer

Identification Number)

 

 

c/o Knight Capital Group, Inc

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Leonard J. Amoruso, Esq.

Executive Vice President

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

Andrew M. Greenstein, Esq.

Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

 

John McCarthy, Esq.

GETCO Holding Company, LLC

350 N. Orleans Street

Chicago, Illinois 60654

(312) 931-2200

Edward D. Herlihy, Esq.

Nicholas G. Demmo, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

H. Rodgin Cohen, Esq.

John P. Mead, Esq.

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

(212) 558-4000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨


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If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered

   

Proposed

Maximum

Offering Price

per Share

 

Proposed

Maximum

Aggregate
Offering Price

   

Amount of

Registration Fee

 

Class A Common Stock, par value $0.01 per share

    514,122,750 (1)     N/A   $ 1,493,183,390 (2)     $ 203,670 (3)  

Series A-1 Cumulative Perpetual Convertible Preferred Stock, par value $0.01 per share

    154,531 (4)     N/A   $ 145,960,020 (5)     $ 19,909 (3)  

Class A Warrants(6)

    16,905,316      N/A     N/A        N/A(7)   

Class B Warrants(6)

    16,905,316      N/A     N/A        N/A(7)   

Class C Warrants(6)

    16,905,316      N/A     N/A        N/A(7)   

 

 

 

 
(1) Represents the maximum number of shares of Knight Holdco, Inc. Class A common stock estimated to be issuable upon the completion of the transactions described herein. This number is based on the sum of (i) the product of (A) 321,267,568 shares of Knight Capital Group, Inc. Class A common stock outstanding, issuable upon conversion of any outstanding Series A-1 Preferred Stock of Knight Capital Group, Inc. (other than Knight Series A-1 Preferred Stock held by GETCO Holding Company, LLC and its subsidiaries, which will be cancelled in the Knight merger) and issuable under various equity plans as of February 6, 2013 and (B) 1, the exchange ratio for such shares in the Knight merger; (ii) 142,139,234, the total number of shares of Knight Holdco, Inc. Class A common stock issuable in the GETCO merger, as described herein, based on the product of (A) 8,398,710, the aggregate number of Class A and Class B units of GETCO Holding Company, LLC outstanding (other than those held by GA-GTCO, LLC) and units that may be issued under various equity plans as of February 8, 2013, and (B) the applicable GETCO exchange ratios, as described herein and (iii) 50,715,948 shares of Knight Holdco, Inc. Class A common stock underlying the Class A, Class B and Class C warrants to be delivered in the GETCO merger, as described herein.
(2) Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act and calculated in accordance with Rule 457(f)(1)-(2), Rule 457(c) and Rule 457(i) of the Securities Act, based on the sum of (i) the product of (A) $3.71, the average of the high and low prices per share of Knight Capital Group, Inc. Class A common stock as reported on the New York Stock Exchange on February 11, 2013 and (B) 218,246,850, the estimated maximum number of shares of Knight Capital Group, Inc. Class A common stock that may be exchanged for the merger consideration, including shares issuable under various equity plans (but excluding shares of Knight Class A common stock issuable upon the conversion of the Knight Series A-1 Preferred Stock) and (ii) $684,578,811, the aggregate book value of 8,398,710 units of GETCO Holding Company, LLC, representing the estimated maximum number of units of GETCO Holding Company, LLC that may be exchanged for the merger consideration in the GETCO merger, including units that may be issued under various equity plans, computed as of September 30, 2012, the latest practicable date prior to the date hereof for which it was possible to obtain such information. Pursuant to Rule 457(i), there is no additional filing fee with respect to shares of Knight Holdco, Inc. Class A common stock issuable upon conversion of the Series A-1 Cumulative Perpetual Convertible Preferred Stock because no additional consideration will be received in connection with the issuance of such shares.
(3) Computed pursuant to Rules 457(f)(1)-(2) and 457(c) of the Securities Act, based on a rate of $136.40 per $1,000,000 of the proposed maximum aggregate offering price.
(4) Represents the maximum number of shares of Knight Holdco, Inc. Series A-1 Cumulative Perpetual Convertible Preferred Stock estimated to be issuable upon the completion of the transactions described herein. This number is based on the product of (i) 154,531, the total number of shares of Knight Series A-1 Cumulative Perpetual Convertible Preferred Stock issued and outstanding as of February 6, 2013 (other than Knight Series A-1 Preferred Stock held by GETCO Holding Company, LLC and its subsidiaries) and (ii) 1, the exchange ratio for such shares in the Knight merger.
(5) Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act and calculated in accordance with Rule 457(f)(1)-(2) and Rule 457(i) of the Securities Act, based on $145,960,020, the aggregate book value of the 154,531 shares of Knight Series A-1 Cumulative Perpetual Convertible Preferred Stock that may be exchanged for the merger consideration in the Knight merger.
(6) Represents maximum number of Class A, Class B and Class C warrants to purchase shares of Knight Holdco, Inc. Class A common stock issuable in connection with the GETCO merger as described in the enclosed joint proxy statement/prospectus.
(7) In accordance with existing SEC interpretations and Rule 457(g), the entire registration fee for the warrants is allocated to the Knight Holdco, Inc. Class A common stock registered underlying the warrants, and no separate fee is recorded for the warrants to purchase shares of Knight Holdco, Inc. Class A common stock.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary joint proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary joint proxy statement/prospectus is not an offer to sell and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY COPY—SUBJECT TO COMPLETION, DATED FEBRUARY 12, 2013

 

LOGO

   LOGO

MERGERS PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Knight Stockholders and GETCO Unitholders:

On December 19, 2012, Knight Capital Group, Inc. (“Knight”), GETCO Holding Company, LLC (“GETCO”) and GA-GTCO, LLC (“GA-GTCO”), a unitholder of GETCO, agreed to a strategic business combination to create a leading global financial services firm focused on providing clients with a range of offerings across multiple asset classes including liquidity provision, trade execution and market access services. As a result of the strategic business combination, Knight, GETCO and GA-GTCO will each become a wholly owned subsidiary of Knight Holdco, Inc., a newly-formed Delaware corporation (“KCG”). The business of KCG will be the combined business of Knight and GETCO.

If the mergers are completed, Knight common stockholders (other than GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) will have the right to elect to receive $3.75 per share in cash or one share of common stock of KCG for each share of Knight Class A common stock, par value $0.01 per share (“Knight common stock”) they own immediately prior to the completion of the mergers. The cash portion of the consideration will be subject to pro-ration if the holders of more than 66.7% of the Knight common stock eligible for election in the mergers properly elect to receive the cash consideration for their Knight shares. Jefferies & Company, Inc. and its affiliates (“Jefferies”), the largest stockholder in Knight with an approximately 23% ownership (as of February 6, 2013 assuming conversion of all of the Knight Series A-1 Cumulative Perpetual Convertible Preferred Stock (“Knight Series A-1 Preferred Stock”)), has agreed to waive its right to receive cash consideration with respect to up to 50.0% of its Knight shares to the extent the total cash consideration would otherwise exceed $720.0 million. This is intended to enable other Knight stockholders (excluding GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) to receive up to 66.7% of their total consideration in cash, while limiting the total cash consideration to be paid by KCG to not more than $720.0 million in the aggregate.

If the mergers are completed, Knight preferred stockholders (other than GETCO) will be entitled to receive one share of preferred stock of KCG for each share of Knight Series A-1 Preferred Stock they own immediately prior to the completion of the mergers. The KCG preferred stock to be issued in the mergers will have rights, preferences, privileges and voting powers that are not materially less favorable than those of the Knight Series A-1 Preferred Stock, as further described in this joint proxy statement/prospectus.

If the mergers are completed, GETCO Class A, Class B and Class P unitholders are expected to receive, in aggregate, approximately 230 million shares of common stock of KCG and 75 million warrants to acquire shares of common stock of KCG, on the terms and conditions described in this joint proxy statement/prospectus. The exact number of shares of common stock of KCG and warrants that each GETCO Class A, Class B and Class P unitholder will receive in the mergers will depend on the applicable GETCO ratios, as described in the accompanying joint proxy statement/prospectus.

Knight will hold a special meeting of its stockholders and GETCO will hold a special meeting of its Class A and Class P unitholders to consider and vote on the mergers. Every vote is important. We cannot complete the mergers unless a majority of the Knight stockholders and holders of 70% of the GETCO Class A and Class P units outstanding and entitled to vote thereon (voting as a class) approve the mergers. Whether or not you plan to attend your company’s special meeting, please take the time to vote by following the instructions contained in this joint proxy statement/prospectus and on your proxy card.

We enthusiastically support this combination of our companies and join with our boards in recommending that you vote FOR the approval of the merger agreement and the mergers.

 

Sincerely,

 

   Sincerely,

LOGO

  

LOGO

Thomas M. Joyce

Chairman and Chief Executive Officer

Knight Capital Group, Inc.

  

Daniel Coleman

Chief Executive Officer

GETCO Holding Company, LLC

 

 

For a discussion of risk factors which you should consider in evaluating the mergers, see “RISK FACTORS” beginning on page 39.

Based on the number of Knight shares and GETCO units outstanding on [                    ], 2013, including shares and units issuable under various equity plans prior to the anticipated closing date of the mergers, shares issuable upon conversion of the Knight Series A-1 Preferred Stock and GETCO units issuable in connection with the equity financing (as described in this joint proxy statement/prospectus), we expect that as many as approximately [            ] shares of KCG common stock, par value $0.01 per share, will be issued in connection with the mergers. In addition, up to 75 million shares of KCG common stock will be reserved for issuance upon exercise of the warrants issued to GETCO unitholders and GA-GTCO unitholders.

Upon completion of the mergers, we expect shares of common stock of KCG will be listed on the New York Stock Exchange under the symbol “KCG”, Knight’s current trading symbol on the New York Stock Exchange as well as the Professional Segment of the Paris market of NYSE Euronext. GETCO’s units are not publicly traded.

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the mergers and other transactions described in this joint proxy statement/prospectus nor have they approved or disapproved the issuance of the new company’s common stock to be issued in connection with the mergers, or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated [                    ], 2013, and is first being mailed to Knight stockholders and GETCO unitholders on or about [                    ], 2013.


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WHERE YOU CAN FIND MORE INFORMATION

Knight files annual, quarterly and current reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the “SEC”). You may read and copy any materials that Knight files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, Knight files reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at www.sec.gov containing this information. Reports, proxy statements and other information concerning Knight may also be inspected at the offices of the New York Stock Exchange, which is located at 20 Broad Street, New York, New York 10005.

KCG has filed a registration statement on Form S-4 of which this document forms a part. As permitted by SEC rules, this document does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this document as to the contents of any contract or other documents referred to in this document are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This document incorporates by reference documents Knight has previously filed with the SEC. These documents contain important information about Knight and its financial condition. See “Incorporation of Certain Documents by Reference” on page [    ]. You can obtain any document incorporated by reference in this document without charge, excluding all exhibits, except that if Knight has specifically incorporated by reference an exhibit in this joint proxy statement/prospectus, the exhibit will also be provided without charge by requesting it in writing or by telephone at the following address:

 

Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Attention: Investor Relations

If you would like to request documents, please do so by [                        ], 2013, in order to receive them before your special meeting. You may also obtain these documents from Knight’s website at www.knight.com or at the SEC’s internet site www.sec.gov by clicking on the “Search for Company Filings” link, then clicking on the “Company & Other Filers” link, and then entering Knight’s, or in the case of the registration statement on S-4, Knight Holdco, Inc.’s, name in the field.


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LOGO

KNIGHT CAPITAL GROUP, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [                    ], 2013

To the Stockholders of Knight Capital Group, Inc.:

We will hold a special meeting of the stockholders of Knight Capital Group, Inc., on [                    ], [                    ] 2013 at [        ], local time at [        ], to consider and vote upon the following matters:

 

   

a proposal to approve the Agreement and Plan of Merger, dated as of December 19, 2012, by and among Knight Capital Group, Inc. (“Knight”), GETCO Holding Company, LLC (“GETCO”) and GA-GTCO, LLC (“GA-GTCO”), as it may be amended from time to time, pursuant to which, among other things, (i) Knight Acquisition Corp, a wholly owned direct subsidiary of Knight Holdco, Inc., a newly-formed Delaware corporation (“KCG”), will merge with and into Knight, with Knight surviving the merger, (ii) GETCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, will merge with and into GETCO, with GETCO surviving the merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, with GA-GTCO Acquisition, LLC surviving the merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG;

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement; and

 

   

a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Knight’s named executive officers in connection with the mergers.

We will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement of the special meeting by the Knight board of directors.

Only holders of record of shares of Knight Class A common stock, par value $0.01 per share (“Knight common stock”) and Knight Series A-1 Cumulative Perpetual Convertible Preferred Stock (“Knight Series A-1 Preferred Stock”) at the close of business on [                    ], 2013, the record date for the special meeting, are entitled to notice of the special meeting, and only holders of record of shares of Knight common stock and Knight Series A-1 Preferred Stock at the close of business on the record date are entitled to vote at the special meeting and any adjournments or postponements thereof.

As further described in the accompanying joint proxy statement/prospectus, we cannot complete the mergers described above unless (i) holders of a majority of the Knight common stock and Knight Series A-1 Preferred Stock (voting together with the Knight common stock on an as-converted basis) who are entitled to vote at the Knight special meeting and (ii) subject to limited exceptions, holders of a majority of the Knight Series A-1 Preferred Stock who are entitled to vote at the Knight special meeting, voting separately as a class, vote to approve the merger agreement and mergers.

For more information about the mergers described above and the other transactions contemplated by the merger agreement, please review the accompanying joint proxy statement/prospectus and the merger agreement attached to it as Annex A.

Your vote is important. Regardless of whether you plan to attend the special meeting, please vote as soon as possible. If you hold stock in your name as a stockholder of record, please complete, sign, date and


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return the accompanying proxy card in the enclosed postage-paid return envelope. If you hold your stock in “street name” through a bank or broker, please follow the instructions on the voting instruction card furnished by such firm.

The enclosed joint proxy statement/prospectus provides a detailed description of the special meeting, the mergers, the documents related to the mergers and other related matters. We urge you to read the joint proxy statement/prospectus, including any documents incorporated in the joint proxy statement/prospectus by reference, and its annexes carefully and in their entirety. If you have any questions concerning the mergers or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares of Knight common stock or Knight Series A-1 Preferred Stock, please contact Investor Relations at (201) 222-9400.

Knight’s board of directors has approved the mergers and the merger agreement and recommends that Knight stockholders vote “FOR” the approval of the merger agreement and the mergers, “FOR” the approval of the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of such approval and “FOR” the approval, on an advisory (non-binding) basis, of the compensation that may be paid or become payable to Knight’s named executive officers in connection with the merger.

 

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Name:

Title:

 

Thomas M. Merritt

Corporate Secretary

Jersey City, New Jersey

[                    ], 2013


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LOGO

GETCO HOLDING COMPANY, LLC

NOTICE OF SPECIAL MEETING OF CLASS A AND CLASS P UNITHOLDERS

TO BE HELD ON [                    ], 2013

NOTICE IS HEREBY GIVEN that a special meeting of the voting unitholders of GETCO Holding Company, LLC (“GETCO”) will be held at [                    ], on [                    ], 2013 at [        ], Central time, to vote upon the following matters:

 

   

a proposal to approve the Agreement and Plan of Merger, dated as of December 19, 2012, by and among Knight Capital Group, Inc. (“Knight”), GETCO Holding Company, LLC (“GETCO”) and GA-GTCO, LLC (“GA-GTCO”), as it may be amended from time to time, pursuant to which, among other things, (i) Knight Acquisition Corp, a wholly owned direct subsidiary of Knight Holdco, Inc., a newly-formed Delaware corporation (“KCG”), will merge with and into Knight, with Knight surviving the merger, (ii) GETCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, will merge with and into GETCO, with GETCO surviving the merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, with GA-GTCO Acquisition, LLC surviving the merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG; and

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement.

The board of directors of GETCO is not currently aware of any other business to be acted upon at the special meeting.

The board of directors of GETCO has set [                    ], 2013 as the record date for the GETCO special meeting. Only holders of GETCO Class A units and Class P units at the close of business on [                    ], 2013 will be entitled to receive notice of and to vote at the GETCO special meeting. We cannot complete the mergers without the affirmative vote of 70% or more of the total number of votes associated with the outstanding GETCO voting units (voting together as a class).

To ensure your representation at the GETCO special meeting, please complete and return the enclosed proxy card. You may submit your proxy by filling out, signing and dating your proxy card and mailing it in the prepaid envelope included with this joint proxy statement/prospectus. Submitting a proxy now will not prevent you from being able to vote in person or telephonically at the GETCO special meeting. For specific instructions on how to vote your units, see “The GETCO Special Meeting” beginning on page [                    ] of this joint proxy statement/prospectus and the instructions on the proxy card.

The GETCO board of directors has unanimously approved the merger agreement and the mergers and recommends that you vote “FOR” approval of the merger agreement and the mergers and “FOR” the approval of the adjournment proposal, if necessary and appropriate to solicit additional proxies in favor of such approval.


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The merger agreement and proposed transactions contemplated by the merger agreement are described in more detail in this document. I urge you to read the entire document, including any documents incorporated by reference into this joint proxy statement/prospectus and its annexes, carefully and in their entirety. In particular, you should carefully consider the discussion in “Risk Factors” beginning on page [                    ]. A copy of the merger agreement is attached as Annex A to this document.

BY ORDER OF THE BOARD OF DIRECTORS

John McCarthy

General Counsel

Chicago, Illinois

[                    ], 2013

PLEASE VOTE YOUR UNITS OF GETCO PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE ANY QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR UNITS, PLEASE CALL JOHN MCCARTHY, GETCO’S GENERAL COUNSEL, AT (312) 931-2200.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGERS

     1   

SUMMARY

     12   

The Merger Agreement and the Mergers

     12   

Information About the Companies

     24   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KNIGHT

     27   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA AND OTHER DATA OF GETCO

     30   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA

     34   

COMPARATIVE PER SHARE/UNIT DATA

     37   

RISK FACTORS

     39   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     61   

THE KNIGHT SPECIAL MEETING

     63   

General

     63   

Date, Time and Place of the Knight Special Meeting

     63   

Knight Record Date; Shares Entitled to Vote

     63   

Quorum

     63   

Vote Required

     63   

Recommendation of the Board of Directors

     64   

Voting by Knight’s Directors and Executive Officers; GETCO Ownership

     64   

Voting by TD Ameritrade

     64   

Voting of Proxies

     65   

How to Vote

     65   

Shares Held in “Street Name”

     66   

Revoking Your Proxy

     66   

Proxy Solicitations

     67   

Other Business; Adjournment

     67   

Assistance

     67   

THE GETCO SPECIAL MEETING

     68   

General

     68   

Date, Time and Place of the GETCO Special Meeting

     68   

Purpose of the GETCO Special Meeting

     68   

GETCO Record Date; Units Entitled to Vote

     68   

Quorum

     68   

Vote Required

     68   

Recommendation of the Board of Directors

     68   

Voting Agreements

     69   

Voting by GETCO’s Directors and Executive Officers

     69   

Voting of Proxies

     69   

How to Vote

     69   

Revoking Your Proxy

     70   

Proxy Solicitations

     70   

Other Business

     70   

Assistance

     70   

INFORMATION ABOUT THE COMPANIES

     71   

THE MERGERS

     84   

General Description of the Mergers

     84   

Background of the Mergers

     84   

Knight’s Reasons for the Mergers and Recommendation of Knight’s Board of Directors

     90   

Opinion of Sandler O’Neill

     92   

GETCO’s Reasons for the Mergers and Recommendation of GETCO’s Board of Directors

     102   

Opinion of BofA Merrill Lynch

     104   

Certain GETCO Unaudited Prospective Financial Information

     113   

 

-i-


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Interests of Certain of Knight’s Directors and Executive Officers in the Mergers

     116   

Merger-Related Compensation for Knight’s Named Executive Officers

     119   

Interests of Certain of GETCO’s Directors and Executive Officers in the Mergers

     120   

Golden Parachute Compensation of Certain GETCO Executives

     122   

Interests of Jefferies in the Mergers

     123   

Board of Directors and Executive Officers of KCG

     124   

Compensation of KCG’s Named Executive Officers

     127   

Compensation Discussion and Analysis

     127   

Listing of KCG Common Stock

     129   

Dividend/Distribution Policy

     129   

Appraisal Rights

     130   

Regulatory Matters

     134   

Litigation Proceedings Relating to the Mergers

     134   

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

     135   

Accounting Treatment

     139   

Financing Matters

     139   

THE MERGER AGREEMENT

     146   

Structure of the Mergers

     146   

Closing and Effective Time of the Mergers

     146   

Merger Consideration; Conversion of Shares and Units

     146   

Treatment of Equity-Based Awards

     149   

Exchange of Certificates

     150   

Election Procedures

     150   

Conditions to the Completion of the Mergers

     152   

Termination of the Merger Agreement

     153   

Termination Fees

     153   

Effect of Termination

     155   

Agreement Not to Solicit Other Offers

     155   

Amendment, Extension and Waiver

     156   

Representations and Warranties of Knight, GETCO and GA-GTCO

     156   

Covenants of Knight, GETCO and GA-GTCO

     158   

Voting and Support Agreements

     162   

Warrant Agreement and the Warrants

     164   

Registration Rights Agreement

     166   

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

     167   

DESCRIPTION OF KNIGHT HOLDCO, INC. CAPITAL STOCK

     181   

COMPARISON OF STOCKHOLDER AND UNITHOLDER RIGHTS

     186   

COMPARATIVE MARKET PRICES AND DIVIDENDS / DISTRIBUTIONS

     202   

General

     202   

Knight Market Price History and Dividends

     202   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS

     203   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GETCO

     209   

LEGAL MATTERS

     239   

EXPERTS

     239   

KNIGHT COMPENSATION PROPOSAL

     240   

Non-Binding Advisory Vote Approving Merger-Related Named Executive Officer Compensation Proposal

     240   

Vote Required and Knight Board Recommendation

     240   

STOCKHOLDER PROPOSALS

     241   

OTHER MATTERS

     242   

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     243   

 

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Annexes

 

A: Agreement and Plan of Merger, dated as of December 19, 2012, by and among GETCO Holding Company, LLC, GA-GTCO, LLC and Knight Capital Group, Inc.

 

B: Opinion (addressed to the Board of Directors of Knight Capital Group, Inc.) of Sandler O’Neill + Partners, L.P.

 

C: Opinion (addressed to the Board of Directors of GETCO Holding Company, LLC) of Merrill Lynch, Pierce, Fenner & Smith Incorporated

 

D: Appraisal Rights: Section 262 of the Delaware General Corporation Law

 

E: Commitment Letter, dated December 19, 2012, between GETCO Holding Company, LLC and Jefferies Finance LLC

 

F: Form of GETCO Voting and Support Agreement

 

G: Form of Knight Voting and Support Agreement

 

H: Form of Warrant Agreement

 

I: Form of Registration Rights Agreement

 

J: Form of Amended and Restated Certificate of Incorporation of Knight Holdco, Inc.

 

K: Form of Amended and Restated Bylaws of Knight Holdco, Inc.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGERS

The following are some questions that you, as a stockholder of Knight or unitholder of GETCO, may have regarding the stockholders’ or the unitholders’ special meeting and the answers to those questions. We urge you to read the remainder of this document carefully because the information in this section does not provide all the information that might be important to you in determining how to vote at the special meetings. Additional important information is also contained in the annexes to, and the documents incorporated by reference into, this document. See “Incorporation of Certain Documents by Reference” beginning on page [    ].

Unless the context otherwise requires, references in this joint proxy statement/prospectus to “Knight” refer to Knight Capital Group, Inc., a Delaware corporation, and its subsidiaries; references to “GETCO” refer to GETCO Holding Company, LLC, a Delaware limited liability company, and its subsidiaries; references to “GA-GTCO” refer to GA-GTCO, LLC, a Delaware limited liability company and a unitholder of GETCO; and references to “KCG,” “the combined company,” “we,” “our,” or other first person references refer to Knight Holdco, Inc., a newly-formed Delaware corporation and the surviving parent company in the mergers described herein, and its subsidiaries (including, after completion of the mergers, Knight and GETCO).

Q: Why am I receiving this document?

A: Knight and GETCO have agreed to a strategic business combination transaction. We are delivering this document to you because it is a joint proxy statement being used by both the Knight and GETCO boards of directors to solicit proxies of Knight stockholders and GETCO Class A and Class P unitholders in connection with the Agreement and Plan of Merger, dated as of December 19, 2012, by and among Knight, GETCO and GA-GTCO, as it may be amended from time to time, which we refer to as the merger agreement. Under the terms of the merger agreement, (i) Knight Acquisition Corp, a wholly owned direct subsidiary of KCG, will merge with and into Knight, with Knight surviving the merger, which we refer to as the Knight merger, (ii) GETCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, will merge with and into GETCO, with GETCO surviving the merger, which we refer to as the GETCO merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, a wholly owned direct subsidiary of KCG, with GA-GTCO Acquisition, LLC surviving the merger, which we refer to as the GA-GTCO merger. We refer to these transactions collectively as the mergers. It is intended that each merger will occur substantially simultaneously with the other mergers, but that the GA-GTCO merger will occur immediately before the Knight merger, which will occur immediately before the GETCO merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG. Upon completion of the mergers, the holders of Knight Class A common stock, par value $0.01 per share (which we refer to as the Knight common stock), Knight Series A-1 Cumulative Perpetual Convertible Preferred Stock (which we refer to as the Knight Series A-1 Preferred Stock), GETCO units and GA-GTCO units prior to the mergers will together own all of the outstanding shares of KCG common stock following the mergers. Knight stockholders and GETCO Class A and Class P unitholders are being asked to approve the merger agreement and the mergers. We refer to this as the merger proposal. Only holders of GETCO’s Class A units and Class P units are entitled to vote on the GETCO merger proposal. We sometimes refer to those holders as the voting unitholders.

This document is also a prospectus, which is being delivered to Knight stockholders and GETCO Class A, Class B and Class P unitholders because KCG is offering shares of its preferred stock, common stock and warrants to purchase such shares of common stock. If the mergers are completed, shares of KCG common stock will be included as part of the aggregate consideration to be issued in exchange for shares of Knight common stock and shares of KCG common stock and warrants will be issued in exchange for GETCO Class A and Class B units and GA-GTCO units. In addition, if the mergers are completed, each share of Knight Series A-1 Preferred Stock then outstanding (other than shares held by GETCO) will be converted into the right to receive one share of preferred stock of KCG, to be designated, prior to the completion of the mergers, as Series A-1 Cumulative Perpetual Convertible Preferred Stock, par value $0.01 per share, which we refer to as the KCG Series A-1 Preferred Stock. The KCG Series A-1 Preferred Stock will have rights (including conversion rights), preferences, privileges and voting powers that are not materially less favorable than those of the Knight Series A-1 Preferred Stock immediately prior to the completion of the mergers.


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Knight stockholders and GETCO voting unitholders are also being asked to approve the adjournment of the Knight and GETCO special meetings, respectively, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement and the mergers. We refer to this as the adjournment proposal.

In addition, Knight stockholders will also consider and vote, on an advisory (non-binding) basis, on a proposal to approve the compensation that may be paid or become payable to Knight’s named executive officers in connection with the mergers, including the agreements and understandings pursuant to which such compensation may be paid or become payable. We refer to this as the Knight compensation proposal.

Q: When and where are the meetings of the stockholders and unitholders?

A: The special meeting of Knight stockholders will take place at [        ], local time, on [                    ], 2013, [        ].

The special meeting of GETCO unitholders will take place at [    ]:00 [        ].m., local time, on [                    ], 2013, at [        ].

For additional information relating to the Knight and GETCO special meetings, see “The Knight Special Meeting” beginning on page [    ] and “The GETCO Special Meeting” beginning on page [    ].

Q: What will happen in the proposed transaction?

A: Pursuant to the terms and subject to the conditions of the merger agreement, Knight and GETCO are entering into a strategic business combination, and at the conclusion of the mergers, Knight, GETCO and the surviving limited liability company in the GA-GTCO merger will each become a wholly owned subsidiary of KCG.

Promptly after entering into the merger agreement, Knight Holdco, Inc., a Delaware corporation, was formed as a wholly owned direct subsidiary of Knight. In addition, Knight Acquisition Corp, a Delaware corporation; GETCO Acquisition, LLC, a Delaware limited liability company; and GA-GTCO Acquisition, LLC, a Delaware limited liability company, were formed as direct, wholly-owned subsidiaries of Knight Holdco, Inc. We sometimes refer to Knight Acquisition Corp, GETCO Acquisition, LLC and GA-GTCO Acquisition, LLC as the merger subsidiaries. The following diagram illustrates the corporate structure of KCG, Knight, GETCO, GA-GTCO and the merger subsidiaries following the creation of the merger subsidiaries but prior to the completion of the mergers:

 

LOGO    LOGO

Under the terms of the merger agreement, (i) Knight Acquisition Corp will merge with and into Knight, with Knight surviving the merger, (ii) GETCO Acquisition, LLC will merge with and into GETCO, with GETCO surviving the merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, with GA-GTCO Acquisition, LLC surviving the merger. It is intended that each merger will occur substantially simultaneously with the other mergers, but that the GA-GTCO merger will occur immediately before the Knight

 

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merger, which will occur immediately before the GETCO merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG. KCG will own all of the outstanding shares of Knight common stock, all of the outstanding GETCO units and all of the outstanding limited liability company interests of GA-GTCO Acquisition, LLC. The holders of Knight common stock, Knight Series A-1 Preferred Stock, GETCO units and GA-GTCO units prior to the mergers will together own all of the outstanding shares of common stock and preferred stock of KCG following the mergers. The following diagram illustrates the corporate structure of KCG, Knight, GETCO and GA-GTCO Acquisition, LLC following the completion of the mergers:

 

LOGO

For additional information on the mergers, see “The Mergers” beginning on page [    ].

Q: What will I receive for my shares or units?

A: If the mergers are completed, each Knight common stockholder (other than GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) will have the right to elect to receive either $3.75 per share in cash or one share of common stock of KCG for each share of Knight common stock such stockholder holds immediately prior to the completion of the mergers, which we refer to as the Knight merger consideration. The cash portion of the Knight merger consideration will be subject to pro-ration if the holders of more than 66.7% of the Knight common shares eligible for election in the mergers properly elect to receive the cash consideration for their Knight shares. Jefferies & Company, Inc. and its affiliates, which we refer to as Jefferies, the largest stockholder in Knight with an approximately 23% fully converted ownership (as of February 6, 2013), has agreed to waive its right to receive cash consideration with respect to up to 50.0% of its Knight shares to the extent the total cash consideration payable in the Knight merger would otherwise exceed $720.0 million. This is intended to enable other Knight stockholders (excluding GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) to receive up to 66.7% of their total merger consideration in cash, while limiting the total cash consideration to be paid by KCG in the Knight merger to not more than $720.0 million in the aggregate.

If the mergers are completed, the holders of any then outstanding Knight Series A-1 Preferred Stock will be entitled to receive one share of preferred stock of KCG to be designated, prior to the completion of the mergers, as KCG Series A-1 Preferred Stock. The KCG Series A-1 Preferred Stock will have rights (including conversion rights), preferences, privileges and voting powers that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Knight Series A-1 Preferred Stock immediately prior to the completion of the mergers. The terms of the Knight Series A-1 Preferred Stock provide for an optional conversion into Knight common stock at any time and a mandatory conversion into Knight common stock on the third trading day following the first date as of which the closing price for Knight common stock on the New York Stock Exchange, which we refer to as the NYSE, exceeds $3.00 for 60 consecutive trading days. As of the date of this joint proxy statement/prospectus, the closing price of Knight common stock has been greater than $3.00 for 52 consecutive trading days. If all shares of Knight Series A-1 Preferred Stock convert to Knight common stock prior to the closing of the mergers, KCG will not designate any shares of KCG preferred stock as KCG Series A-1 Preferred Stock, and no KCG preferred shares will be issued in connection with the mergers.

 

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If the mergers are completed, in exchange for their units, GETCO Class A, Class B and Class P unitholders will receive shares of common stock of KCG and warrants to acquire shares of common stock of KCG, which we refer to as the warrants (in each case, based on the ratios set forth below). Based on the number of GETCO Class A units, Class B units and Class P units outstanding as of January 31, 2013 and the GETCO units expected to be issued in connection with the equity financing (as described in “The Mergers—Financing Matters” beginning on page [    ]), approximately 230 million shares of common stock of KCG will be issued to GETCO unitholders in the aggregate. This number may increase or decrease based on the number of GETCO Class A units, Class B units and Class P units outstanding as of the closing date. The warrants will be comprised of 25 million Class A warrants, having a $4.00 exercise price and exercisable for a four-year term; 25 million Class B warrants, having a $4.50 exercise price and exercisable for a five-year term; and 25 million Class C warrants, having a $5.00 exercise price and exercisable for a six-year term. The exact number of shares of common stock of KCG and warrants that each GETCO Class A unitholder, Class B unitholder or Class P unitholder will receive will be based on the ratios set forth in the table below, which we refer to as the GETCO ratios.

 

GETCO Unitholder

  

Number of shares of KCG common

stock to be issued per unit, upon

completion of the mergers

  

Number of warrants to
be issued per unit, upon
completion of the  mergers

GA-GTCO and/or its affiliates*

   24.78229148 shares of KCG common stock per GETCO unit    8.498383451 warrants per GETCO unit

Daniel Tierney and affiliates

   16.37638102 shares of KCG common stock per GETCO unit    5.615815052 warrants per GETCO unit

Stephen Schuler and affiliates

   16.37638102 shares of KCG common stock per GETCO unit    5.615815052 warrants per GETCO unit

All other holders of Class A units and Class B units

   17.74370192 shares of KCG common stock per GETCO Class A or Class B unit    6.084698944 warrants per GETCO Class A or Class B unit

 

* The units to be issued to affiliates of General Atlantic in connection with the equity financing will not be subject to the above ratio and will instead convert into a number of shares of KCG common stock equal to the amount of the equity commitment funded divided by $3.75. 14,666,667 shares of KCG common stock are expected to be issued in exchange for the full equity financing. No warrants will be issued in exchange for the units issued to affiliates of General Atlantic in connection with the equity financing. See “The Mergers—Financing Matters” beginning on page [    ], for additional information.

Pursuant to GETCO’s amended and restated limited liability company operating agreement, which we refer to as GETCO’s operating agreement, in any transaction that is a “Capital Event,” such as the GETCO merger, the holders of the Class P units have the option to receive either their full liquidation preference or their pro rata share of the merger consideration. As of December 19, 2012, this preference was approximately $311 million, which is greater than the Class P units’ pro rata share of the merger consideration. As an inducement to GETCO to enter into the merger agreement and based on discussions with Daniel Tierney and Stephen Schuler (the holders of substantially all of the Class A units), GA-GTCO, as holder of all Class P units, agreed to waive its right to receive approximately $23 million of its full liquidation preference. In addition, based on those discussions and as an inducement to GETCO to enter into the merger agreement, Daniel Tierney and Stephen Schuler agreed to reduce the amount of consideration they would receive in the mergers as compared to all other holders of Class A units or Class B units. The GETCO ratios above reflect these arrangements, which result in all other holders receiving additional consideration as compared to what they would have received had GA-GTCO received its full liquidation preference or had Messrs. Tierney and Schuler not agreed to accept a lower percentage of the total merger consideration.

Pursuant to GETCO’s operating agreement, in connection with a “Capital Event,” the owners of GA-GTCO may, at their option, sell equity securities of GA-GTCO (in lieu of GETCO units held by GA-GTCO). GA-GTCO’s owners exercised that option in connection with the mergers which is why they are a party to the merger

 

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agreement and which is why the holders of GA-GTCO units will receive their merger consideration through the GA-GTCO merger (and not the GETCO merger).

Pursuant to GETCO’s operating agreement, GETCO’s Class E units will not receive any merger consideration and will be cancelled in the GETCO merger.

Stockholders of Knight and unitholders of GETCO and GA-GTCO will receive cash in lieu of fractional shares and units, respectively. Unitholders of GETCO and GA-GTCO will receive whole numbers of warrants rounded to the nearest warrant in lieu of fractional warrants.

For additional information on the consideration to be received in the mergers, see “The Merger Agreement—Merger Consideration; Conversion of Shares and Units” beginning on page [    ].

Q: How do Knight’s and GETCO’s boards of directors recommend that I vote at the special meetings?

A: Both Knight’s and GETCO’s boards of directors recommend that you vote “FOR” the merger proposal and “FOR” the adjournment proposal. Knight’s board of directors also recommends that you vote “FOR” the Knight compensation proposal.

Q: What vote is required to approve the mergers?

A: The mergers cannot be completed unless holders of a majority of the Knight common stock and Knight Series A-1 Preferred Stock (voting together with the Knight common stock on an as-converted basis) who are entitled to vote at the Knight special meeting vote to approve and adopt the merger agreement and the mergers. We also currently expect that the mergers will not be able to be completed unless holders of a majority of the Knight Series A-1 Preferred Stock who are entitled to vote at the Knight special meeting, voting separately as a class, vote to approve and adopt the merger agreement and the mergers.

Further, the mergers also cannot be completed unless they are (i) approved and adopted by the affirmative vote of 70% of the GETCO Class A and Class P units outstanding and entitled to vote thereon (voting as a class) and (ii) consented to by GA-GTCO, the holder of GETCO’s Class P units. Because approval and adoption of the merger agreement and the mergers requires the affirmative vote of Knight stockholders and GETCO voting unitholders, if you abstain or fail to vote your shares or units in favor of approval and adoption of the merger agreement and the mergers, this will have the same effect as voting your shares or units against approval and adoption of the merger agreement and the mergers.

On December 19, 2012, Knight entered into voting agreements with GETCO’s largest unitholder, GA-GTCO, and GETCO’s founders, Stephen Schuler and Daniel Tierney, pursuant to which GA-GTCO, Mr. Schuler and Mr. Tierney agreed to vote or caused to be voted all GETCO voting units owned by them and entitled to vote on the merger agreement in favor of the merger proposal. They also agreed, generally, not to dispose of their GETCO units prior to the GETCO special meeting, to refrain from procuring any competitive proposal that would interfere with the mergers and to vote in favor of the adjournment proposal if there are insufficient votes for approving and adopting the merger agreement at the GETCO special meeting. As of January 31, 2013, the units held by GA-GTCO, Mr. Schuler and Mr. Tierney together represent approximately 88% of the units of GETCO entitled to vote at the GETCO special meeting. Consequently, GETCO currently believes that approval of the GETCO merger proposal at the GETCO special meeting is assured.

On December 19, 2012, GETCO entered into a voting agreement with TD Ameritrade Holding Corporation, which we refer to as TD Ameritrade, pursuant to which TD Ameritrade agreed to vote or caused to be voted all the Knight common stock and Knight Series A-1 Preferred Stock owned by it and entitled to vote on the merger

 

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agreement in favor of the merger proposal. TD Ameritrade also agreed, generally, not to dispose of its Knight shares prior to the Knight special meeting, to refrain from procuring any competitive proposal that would interfere with the mergers and to vote in favor of the adjournment proposal if there are insufficient votes for approving and adopting the merger agreement at the Knight special meeting. As of February 6, 2013, the shares covered by TD Ameritrade’s voting agreement, taken together with the shares of Knight Series A-1 Preferred Stock currently owned by GETCO as of that date, represented approximately 23% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and 52% of the Knight Series A-1 Preferred Stock outstanding as of that date.

For additional information on the vote required to approve the transactions, see “The Knight Special Meeting—Vote Required” beginning on page [    ] and “The GETCO Special Meeting—Vote Required” beginning on page [    ]. For additional information on the voting agreements, see “The Merger Agreement—Voting and Support Agreements” beginning on page [    ].

Q: What will happen to my future dividends or distributions?

A: As of the date of the merger agreement, December 19, 2012, Knight and GETCO will not and will not permit any of their subsidiaries to, without the prior written consent of the other party, make any dividend payments or distributions, except for (i) dividends paid in the ordinary course of business by any direct or indirect wholly owned subsidiary to Knight or GETCO or any other direct or indirect wholly owned subsidiary of Knight or GETCO, (ii) in the case of Knight, regular cash dividends to holders of the Knight Series A-1 Preferred Stock and (iii) in the case of GETCO, any tax distributions required to be paid pursuant to GETCO’s operating agreement.

Knight has historically not paid dividends on its common stock, and KCG expects to continue this policy. KCG’s decision as to whether or not to pay dividends on its common stock in the future, and if so, in what amount, will be made by KCG’s board of directors and will depend on, among other factors, KCG’s cash requirements, financial condition, requirements to comply with the covenants under its debt instruments, earnings and legal considerations.

For additional information on dividends, see “The Mergers—Dividend / Distribution Policy” on page [    ].

Q: What will happen to my Knight equity-based awards in the mergers?

A: For information on what happens to your Knight equity-based awards in the mergers, see “The Merger Agreement—Treatment of Equity-Based Awards” beginning on page [    ].

Q: Will KCG’s shares be listed on an exchange?

A: Yes. It is a condition to the completion of the mergers that the shares of common stock of KCG that will be issuable as consideration in the mergers, as well as the shares of KCG common stock issuable upon exercise of the warrants, be approved for listing on the NYSE, subject to official notice of issuance. We intend to apply to the NYSE prior to the completion of the mergers to list KCG common stock and intend that shares of KCG common stock will trade under the symbol “KCG.”

Q: What will happen if Knight’s stockholders do not approve, on an advisory (non-binding) basis, the compensation payable to Knight’s named executive officers in connection with the mergers?

A: The vote on the Knight compensation proposal is a vote separate and apart from the vote to approve the merger agreement and the mergers. Knight stockholders may vote for the compensation proposal and against the merger proposal, and vice versa. Because the vote on the compensation proposal is advisory only, it will not be binding on Knight, GETCO or KCG. Accordingly, because Knight is contractually obligated to pay the

 

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compensation, if the mergers are completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the advisory (non-binding) vote. Knight is seeking this non-binding advisory stockholder approval pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (which we refer to as the Dodd-Frank Act) and Rule 14a-21(c) of the Securities Exchange Act of 1934, as amended (which we refer to as the Exchange Act) which require Knight to provide its stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Knight’s named executive officers in connection with the mergers. The proposal gives Knight’s stockholders the opportunity to express their views on the merger-related compensation of Knight’s named executive officers. Approval of the proposal is not a condition to completion of the mergers, and failure to approve this advisory matter will have no effect on the vote to approve the merger proposal.

Q: What does it mean if I receive more than one set of these materials?

A: This means you own both shares of Knight and voting units of GETCO or you own shares of Knight or voting units of GETCO that are registered under different names. For example, you may own some shares or units directly as a stockholder or unitholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of these proxy materials. You must vote, sign and return all the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards you receive in order to vote all of the shares or units you own. Each proxy card you receive will come with its own postage-paid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanied that proxy card.

Q: What do I need to do now?

A: After carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares, in the case of Knight stockholders, or units, in the case of GETCO voting unitholders, as soon as possible so that your shares or units will be represented at your respective company’s special meeting. For Knight shares held in “street name” in the name of your broker, bank or other nominee, please follow the instructions set forth on the proxy card or on the voting instruction form provided by such firm. Assuming in the case of the Knight special meeting that a quorum is present, if you abstain, fail to vote or fail to instruct your broker, bank or other nominee how to vote with respect to the merger proposal, it will have the same effect as a vote cast “AGAINST” the merger agreement.

For additional information on voting procedures, see “The Knight Special Meeting” beginning on page [    ] and “The GETCO Special Meeting” beginning on page [    ].

Q: How do I vote?

A: If you are a stockholder of record of Knight as of [                    ], 2013, the record date for the Knight special meeting, you may submit your proxy before Knight’s special meeting in one of the following ways:

 

   

use the toll-free number shown on your proxy card;

 

   

visit the website shown on your proxy card to vote via the Internet; or

 

   

complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.

If your Knight shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” stockholders who wish to vote at the Knight special meeting will need to obtain a legal proxy form from their broker, bank or other nominee.

If you are a voting unitholder of GETCO as of [                    ], 2013, the record date for the GETCO special meeting, you may submit your proxy before GETCO’s special meeting by completing, signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope.

 

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Or you may cast your vote in person at Knight’s special meeting or in person or by telephone at GETCO’s special meeting, as applicable.

For additional information on how to vote your Knight shares or your GETCO voting units, see “The Knight Special Meeting—How to Vote” and “The GETCO Special Meeting—How to Vote” beginning on page [    ].

Q: How will my proxy be voted?

A: If you vote by telephone or by Internet (in the case of Knight stockholders), or by completing, signing, dating and returning your signed proxy card, your proxy will be voted in accordance with your instructions. If you sign, date, and send your proxy and do not indicate how you want to vote, your shares will be voted “FOR” the merger proposal, “FOR” the adjournment proposal, if necessary or appropriate, and, in the case of Knight stockholders, “FOR” the Knight compensation proposal.

For additional information on voting procedures, see “The Knight Special Meeting” beginning on page [    ] and “The GETCO Special Meeting” beginning on page [    ].

Q: May I vote in person?

A: Yes. If you are a stockholder of record of Knight common stock or Knight Series A-1 Preferred Stock at the close of business on [                    ], 2013 or of GETCO voting units at the close of business on [                    ], 2013, you may attend your special meeting and vote your shares in person, in lieu of submitting your proxy by telephone or by Internet (in the case of Knight stockholders) or returning your signed proxy card. Holders of GETCO voting units as of the record date may also attend the GETCO special meeting telephonically.

Q: What must I bring to attend my special meeting?

A: Admittance to the special meetings is limited to stockholders of Knight or voting unitholders of GETCO, as the case may be, or their authorized representatives. If you wish to attend your special meeting, bring your proxy or your voter information form. You must also bring photo identification.

Q: What if I do not vote or abstain?

A: For purposes of each of the Knight special meeting and the GETCO special meeting, an abstention occurs when a stockholder attends the applicable special meeting in person and does not vote or returns a proxy with an “ABSTAIN” vote. Assuming, in the case of the Knight special meeting, that a quorum is present, if you abstain, fail to vote or, in the case of the Knight special meeting, fail to instruct your broker, bank or other nominee how to vote with respect to the merger proposal, it will have the same effect as a vote cast “AGAINST” the merger agreement. Assuming a quorum is present at the Knight special meeting, if you as a Knight stockholder respond with an “ABSTAIN” vote, or if you are present in person but do not vote, your proxy will have the same effect as a vote cast “AGAINST” the advisory (non-binding) proposal on specified compensation that may become payable to the named executive officers in connection with the mergers and “AGAINST” the adjournment proposal. If you as a GETCO voting unitholder stockholder respond with an “ABSTAIN” vote, or if you are present in person or by telephone at the GETCO special meeting but do not vote, your proxy will have the same effect as a vote cast “AGAINST” the adjournment proposal.

Q: What do I do if I want to change my vote?

A: If you are a Knight stockholder, to change your vote, send a later-dated, signed proxy card to Knight’s Corporate Secretary prior to the date of the Knight special meeting or attend the Knight special meeting in person and vote. You may also revoke your proxy card by sending a notice of revocation to Knight’s Corporate Secretary at the address listed under “Summary—The Companies” beginning on page [    ]. You may also change your vote by telephone or over the Internet. You may change your vote by using any one of these methods regardless of the procedure used to cast your previous vote.

 

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If you are a GETCO voting unitholder, to change your vote, send a later-dated, signed proxy card to GETCO’s General Counsel prior to the date of the GETCO special meeting or attend the GETCO special meeting in person or by telephone and vote. You may also revoke your proxy card by sending a notice of revocation to GETCO’s General Counsel at the address listed under “Summary—The Companies” beginning on page [    ]. You may change your vote by using any one of these methods regardless of the procedure used to cast your previous vote.

For additional information on changing your vote, see “The Knight Special Meeting—Revoking Your Proxy” beginning on page [    ] and the “The GETCO Special Meeting—Revoking Your Proxy” beginning on page [    ].

Q: If my broker holds my Knight shares in “street name,” will my broker vote my shares?

A: If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote the Knight shares at the Knight special meeting. You should therefore be sure to provide your broker with instructions on how to vote your Knight shares. You should check the voting form used by your broker to see if your broker offers telephone or Internet voting.

If you do not give voting instructions to your broker, your Knight shares will be counted towards a quorum at the Knight special meeting, but will have the same effect as voting “AGAINST” the merger proposal unless you appear and vote in person at the Knight special meeting. If your broker holds your Knight shares and you plan to attend and vote at the Knight special meeting, please bring a letter from your broker identifying you as the beneficial owner of the Knight shares and authorizing you to vote.

Because approval of the merger proposal requires the affirmative vote of a majority of Knight stockholders, if you abstain or fail to vote your shares in favor of approval of the merger proposal, this will have the same effect as voting your shares “AGAINST” approval of the merger proposal.

For additional information on voting your Knight shares if such shares are held in “street name,” see “The Knight Special Meeting—Shares Held in ‘Street Name’” beginning on page [    ].

Q: What are the U.S. federal income tax consequences of the mergers to holders of Knight common stock and GETCO units?

A: The closing of the Knight merger and the GETCO merger is conditioned upon the receipt by Knight and GETCO, respectively, of an opinion from its respective tax counsel that the mergers will for U.S. federal income tax purposes be treated as a transaction described in Section 351 of the Internal Revenue Code, which we refer to as the Code. Assuming the mergers constitute a transaction described in Section 351 of the Code, subject to the limitations and qualifications described in “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers,” the U.S. federal income tax consequences of the mergers to U.S. holders (as defined herein) of Knight common stock or GETCO units generally will be as described below. Furthermore, the U.S. federal income tax consequences to U.S. holders of Knight common stock will depend upon the form of consideration received by such holders in the Knight merger.

U.S. holders of Knight common stock who receive consideration including KCG common stock in the Knight merger will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the KCG common stock and the amount of cash received by such holder in exchange for its shares of Knight common stock exceeds the holder’s adjusted basis in its shares of Knight common stock, and (2) the amount of cash (other than cash received instead of fraction share interests in KCG common stock) received by such holder in exchange for its shares of Knight common stock. The Knight merger will be a fully taxable transaction to a holder of Knight common stock who receives solely cash in the Knight merger.

 

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GETCO unitholders will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the KCG common stock and warrants received by such holder in exchange for its GETCO units exceeds the GETCO unitholder’s adjusted basis in its GETCO units, and (2) the fair market value of the warrants received by such holder in exchange for its GETCO units.

The treatment of any cash received instead of a fractional share interest in KCG common stock is discussed in “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers—Cash Received Instead of a Fractional Share of KCG Common Stock.”

For a more detailed discussion of the material U.S. federal income tax consequences of the merger, see “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page [    ].

The tax consequences of the mergers for any particular Knight common stockholder or GETCO unitholder will depend on that stockholder or unitholder’s particular facts and circumstances. Accordingly, Knight common stockholders and GETCO unitholders are urged to consult their tax advisors to determine the U.S. federal income tax consequences of the mergers to them, including estate, gift, state, local or non-U.S. tax consequences of the mergers.

Q: How do I elect the form of consideration for my Knight shares?

A: If you are a Knight stockholder (other than a holder of restricted stock or other equity awards granted after December 19, 2012), an election form and other appropriate and customary transmittal materials will be mailed to you prior to the anticipated closing date of the mergers. The election form will contain instructions as to how to indicate the form of consideration you wish to receive for each of your Knight shares in the mergers. You need not elect to receive the same form of consideration for all of the Knight shares you own. You should follow the instructions contained in the election form carefully and in their entirety to ensure your election is properly made. Please do NOT indicate what form of consideration you wish to receive for your Knight shares on the enclosed proxy card. If you are a holder of restricted stock granted after December 19, 2012, or of other shares received upon settlement or delivery of equity awards granted after December 19, 2012, your shares will automatically convert into shares of KCG common stock, without election.

For additional information regarding election procedures for Knight stockholders, see “The Merger Agreement—Election Procedures” beginning on page [    ] and “The Merger Agreement—Treatment of Equity-Based Awards” beginning on page [    ].

Q: Should I send in my Knight share certificates now?

A: No. If the mergers are completed, we will send former stockholders of Knight written instructions for exchanging their share certificates.

Q: When do you expect to complete the mergers?

A: Knight and GETCO are working to complete the mergers in the second quarter or early in the third quarter of 2013, although we cannot assure completion of the mergers by any particular date, or at all.

For additional information on completing the mergers, see “The Mergers” beginning on page [    ].

Q: Do I have dissenters’ or appraisal rights?

A: Knight: Under the Delaware General Corporation Law, which we refer to as the DGCL, unless a corporation’s certificate of incorporation contains provisions to the contrary (and Knight’s amended and restated certificate of incorporation does not), Section 262 of the DGCL provides that no appraisal rights are available for shares of any

 

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class or series of stock, which stock, at the record date fixed to determine the stockholders entitled to receive notice of and vote at a meeting of stockholders to act upon an agreement and plan of merger, was either listed on a national securities exchange or held of record by more than 2,000 holders. Section 262 of the DGCL provides certain exceptions to this rule, but none are applicable in the mergers. Knight’s common stock is listed on the NYSE. Consequently, Knight stockholders do not have appraisal rights in connection with the mergers. Knight’s Series A-1 Preferred Stock, however, is not listed on a national exchange. Holders of Knight Series A-1 Preferred Stock outstanding on the date the Knight merger is completed will be entitled to exercise appraisal rights in connection with the Knight merger.

GETCO: Under the Delaware Limited Liability Company Act, which we refer to as the DLLCA, holders of units or other limited liability company interests of a Delaware limited liability company are not entitled to appraisal rights unless such rights are specifically provided for in the limited liability company agreement or an agreement of merger. GETCO’s operating agreement expressly disclaims appraisal rights and no such rights are provided in the merger agreement. As a result, GETCO unitholders will not have appraisal rights in connection with the mergers.

For additional information on appraisal rights, see “The Mergers—Appraisal Rights” beginning on page [    ].

Q: What happens if the mergers are not completed?

A: If the mergers are not completed, Knight stockholders will not receive any consideration for their shares of Knight common stock or Knight Series A-1 Preferred Stock in connection with the mergers. Instead, Knight will remain an independent public company and its common stock will continue to be listed and traded on the NYSE as well as on the Professional Segment of the Paris market of NYSE Euronext. If the mergers are not completed, GETCO unitholders will not receive any consideration for their units in connection with the mergers, and GETCO will remain a private company. Under specified circumstances, Knight or GETCO may be required to pay the other party a fee with respect to the termination of the merger agreement, as described under “The Merger Agreement—Termination of the Merger Agreement” beginning on page [    ].

Q: How important is my vote?

A: Every vote is important. As further described in “The Knight Special Meeting—Vote Required” and “The GETCO Special Meeting—Vote Required,” approval and adoption of the merger agreement and the mergers requires the affirmative vote of (i) holders of a majority of the Knight common stock and Knight Series A-1 Preferred Stock (voting together with the Knight common stock on an as-converted basis) who are entitled to vote at the Knight special meeting, (ii) subject to limited exceptions, holders of a majority of the Knight Series A-1 Preferred Stock who are entitled to vote at the Knight special meeting, voting separately as a class and (iii) 70% of the total number of votes associated with the outstanding GETCO voting units (voting together as a class), and the consent of GA-GTCO, holder of the GETCO Class P units. Accordingly, if you abstain or fail to vote your shares or units in favor of approval and adoption of the merger agreement and the mergers, this will have the same effect as voting your shares “AGAINST” approval and adoption of the merger agreement and the mergers. If the merger agreement and the mergers are not approved by the Knight stockholders and the GETCO voting unitholders, the mergers cannot be completed and the anticipated benefits of the mergers will not be received.

Q: Who can answer any questions I may have about the special meetings or the mergers?

A: Knight stockholders may call Investor Relations at (201) 222-9400 with any questions they may have. Banks and brokers may call collect at 1-800-544-7508.

GETCO unitholders may call John McCarthy, GETCO’s General Counsel, at (312) 931-2200 with any questions they may have.

 

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus and may not contain all of the information that is important to you. To understand the merger agreement and the mergers fully and for a more complete description of the legal terms of the merger agreement and the mergers, you should carefully read this entire joint proxy statement/prospectus, including the annexes hereto, and the other documents to which we have referred you. See “Incorporation of Certain Documents by Reference” beginning on page [    ]. We have included page references parenthetically to direct you to a more complete description of the topics presented in this summary.

The Merger Agreement and the Mergers (page [    ])

The merger agreement is attached as Annex A to this joint proxy statement/prospectus. We encourage you to read the merger agreement in its entirety. It is the principal document governing the mergers and the other related transactions.

Structure of the Mergers (page [    ])

Under the terms of the merger agreement, Knight and GETCO are entering into a strategic business combination which will be effected through the following mergers: (i) Knight Acquisition Corp, a wholly owned direct subsidiary of KCG, will merge with and into Knight, with Knight surviving the merger, (ii) GETCO Acquisition, LLC, a wholly-owned direct subsidiary of KCG, will merge with and into GETCO, with GETCO surviving the merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, a wholly-owned direct subsidiary of KCG, with GA-GTCO Acquisition, LLC surviving the merger. It is intended that each merger will occur substantially simultaneously with the other mergers, but that the GA-GTCO merger will occur immediately before the Knight merger, which will occur immediately before the GETCO merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG. KCG will own all of the outstanding shares of Knight common stock, all of the outstanding GETCO units and all of the outstanding limited liability company interests of GA-GTCO Acquisition, LLC. The holders of Knight common stock, Knight Series A-1 Preferred Stock, GETCO units and GA-GTCO units prior to the mergers will together own all of the outstanding shares of KCG common stock and KCG preferred stock following the mergers.

Consideration to Be Received in the Mergers (page [    ])

If the mergers are completed, each Knight common stockholder (other than GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) will have the right to elect to receive either $3.75 per share in cash or one share of common stock of KCG for each share of Knight common stock they hold prior to the completion of the mergers, which we refer to as the Knight merger consideration. The cash portion of the Knight merger consideration will be subject to pro-ration if the holders of more than 66.7% of the Knight common shares eligible for election in the mergers properly elect to receive the cash consideration for their Knight shares. Jefferies, the largest stockholder in Knight with an approximately 23% ownership (as of February 6, 2013 and assuming conversion of all of the shares of Knight Series A-1 Preferred Stock), has agreed to waive its right to receive cash consideration with respect to up to 50.0% of its Knight shares to the extent the total cash consideration payable in the Knight merger would otherwise exceed $720.0 million. This is intended to enable other Knight stockholders (excluding GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) to receive up to 66.7% of their total merger consideration in cash, while limiting the total cash consideration to be paid by KCG in the Knight merger to not more than $720.0 million in the aggregate.

 

 

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If the mergers are completed, the holders of any then outstanding Knight Series A-1 Preferred Stock will be entitled to receive one share of preferred stock of KCG to be designated, prior to the completion of the mergers, as KCG Series A-1 Preferred Stock. The KCG Series A-1 Preferred Stock will have rights (including conversion rights), preferences, privileges and voting powers that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Knight Series A-1 Preferred Stock immediately prior to the completion of the mergers. The terms of the Knight Series A-1 Preferred Stock provide for an optional conversion into Knight common stock at any time and a mandatory conversion into Knight common stock on the third trading day following the first date as of which the closing price for Knight common stock on the NYSE exceeds $3.00 for 60 consecutive trading days. As of the date of this joint proxy statement/prospectus, the closing price of Knight common stock has been greater than $3.00 for 52 consecutive trading days. If all shares of Knight Series A-1 Preferred Stock convert to Knight common stock prior to the closing of the mergers, KCG will not designate any shares of KCG preferred stock as KCG Series A-1 Preferred Stock, and no KCG preferred shares will be issued in connection with the mergers.

If the mergers are completed, in exchange for their units, GETCO Class A, Class B and Class P unitholders will receive shares of common stock of KCG and warrants to acquire shares of common stock of KCG (in each case, based on the ratios set forth below). Based on the number of GETCO Class A units, Class B units and Class P units outstanding as of January 31, 2013 and the units expected to be issued in connection with the equity financing (as described in “The Mergers—Financing Matters” beginning on page [    ]), approximately 230 million shares of common stock of KCG will be issued to GETCO unitholders in the aggregate. This number may increase or decrease based on the number of GETCO Class A units, Class B units and Class P units outstanding as of the closing date. The warrants will be comprised of 25 million Class A Warrants, having a $4.00 exercise price and exercisable for a four-year term; 25 million Class B Warrants, having a $4.50 exercise price and exercisable for a five-year term; and 25 million Class C Warrants, having a $5.00 exercise price and exercisable for a six-year term. The exact number of shares of common stock of KCG and warrants that each GETCO Class A unitholder, Class B unitholder or Class P unitholder will receive will be based on the ratios set forth in the table below.

 

GETCO Unitholder

  

Number of shares of KCG common

stock to be issued per unit, upon
completion of the mergers

  

Number of warrants to be

issued per unit, upon

completion of the mergers

GA-GTCO and/or its affiliates*

   24.78229148 shares of KCG common stock per GETCO unit    8.498383451 warrants per GETCO unit

Daniel Tierney and affiliates

   16.37638102 shares of KCG common stock per GETCO unit    5.615815052 warrants per GETCO unit

Stephen Schuler and affiliates

   16.37638102 shares of KCG common stock per GETCO unit    5.615815052 warrants per GETCO unit

All other holders of Class A units and Class B units

   17.74370192 shares of KCG common stock per GETCO Class A or Class B unit    6.084698944 warrants per GETCO Class A or Class B unit

 

* The units to be issued to affiliates of General Atlantic in connection with the equity financing will not be subject to the above ratio and will instead convert into a number of shares of KCG common stock equal to the amount of the equity commitment funded divided by $3.75. 14,666,667 shares of KCG common stock are expected to be issued in exchange for the full equity financing. No warrants will be issued in exchange for the units issued to affiliates of General Atlantic in connection with the equity financing. See “The Mergers—Financing Matters” beginning on page [    ], for additional information.

Pursuant to GETCO’s operating agreement, in any transaction that is a “Capital Event”, such as the GETCO merger, the holders of the Class P units have the option to receive either their full liquidation preference or their pro rata share of the merger consideration. As of December 19, 2012, this preference was approximately $311

 

 

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million, which is greater than the Class P units pro rata share of the merger consideration. As an inducement to GETCO to enter into the merger agreement and based on discussions with Daniel Tierney and Stephen Schuler (the holders of substantially all of the Class A units), GA-GTCO, as holder of all Class P units, agreed to waive its right to receive approximately $23 million of its full liquidation preference. In addition, based on those discussions and as an inducement to GETCO to enter into the merger agreement, Daniel Tierney and Stephen Schuler agreed to reduce the amount of consideration they would receive in the mergers as compared to all other holders of Class A units or Class B units. The GETCO ratios above reflect these arrangements, which result in all other holders receiving additional consideration as compared to what they would have received had GA-GTCO received its full liquidation preference or had Mr. Tierney and Mr. Schuler not agreed to accept a lower percentage of the total merger consideration.

Pursuant to GETCO’s operating agreement, in connection with a “Capital Event,” the owners of GA-GTCO may, at their option, sell equity securities of GA-GTCO (in lieu of GETCO units held by GA-GTCO). GA-GTCO’s owners exercised that option in connection with the mergers which is why they are a party to the merger agreement and which is why the holders of GA-GTCO units will receive their merger consideration through the GA-GTCO merger (and not the GETCO merger).

Pursuant to GETCO’s operating agreement, GETCO’s Class E units will not receive any merger consideration and will be cancelled in the GETCO merger.

Stockholders of Knight and unitholders of GETCO and GA-GTCO will receive cash in lieu of fractional shares and units, respectively. Unitholders of GETCO and GA-GTCO will receive whole numbers of warrants rounded to the nearest warrant in lieu of fractional warrants.

For additional information on the consideration to be received in the mergers, see “The Merger Agreement—Merger Consideration; Conversion of Shares and Units” beginning on page [    ].

Treatment of Equity-Based Awards (page [    ])

Each option or other right to acquire Knight common stock granted under any Knight stock plan outstanding as of immediately prior to the completion of the mergers, whether vested or unvested, will automatically become, after the completion of the mergers, an option or right to purchase a number of shares of KCG common stock equal to the number of shares of Knight common stock subject to such stock option immediately prior to the completion of the mergers. The exercise price per share of KCG common stock subject to any such Knight stock option at and after the completion of the mergers will be equal to the exercise price per share of Knight common stock subject to such Knight stock option immediately prior to the completion of the mergers. Pursuant to the terms of the applicable Knight stock plans and award agreements, each option or other right to acquire Knight common stock granted on or prior to December 19, 2012 will automatically vest upon the completion of the mergers and each option or other right to acquire Knight common stock granted after December 19, 2012 will continue to vest in accordance with its existing vesting schedule, subject to acceleration under certain circumstances.

Each holder of a share of Knight common stock subject to vesting, repurchase or lapse restrictions that was granted on or prior to December 19, 2012 and is outstanding under any Knight stock plan immediately prior to the completion of the mergers will have the right to receive the merger consideration as of the effective time of the Knight merger. Each holder of a share of Knight common stock subject to vesting, repurchase or lapse restrictions that was granted after December 19, 2012 and is outstanding under any Knight stock plan will be automatically converted into a share of common stock of KCG (without any right to make a cash / stock election) that is subject to the same vesting, repurchase or lapse restrictions as the award immediately prior to the effective time of the Knight merger.

 

 

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Each restricted stock unit in respect of a share of Knight common stock, which we refer to as a Knight RSU, that is outstanding under any Knight stock plan (including any such Knight RSU held in participant accounts under any employee benefit or compensation plan or arrangement of Knight) as of immediately prior to the completion of the mergers will, as of the completion of the mergers, be converted into a restricted stock unit in respect of a share of common stock of KCG (without any right to make a cash / stock election). Pursuant to the terms of the applicable Knight stock plans and award agreements, each restricted stock unit in respect of a share of Knight common stock granted on or prior to December 19, 2012 (except with respect to restricted stock units that vest based on performance) will automatically vest upon the completion of the mergers. All restricted stock units granted on or prior to December 19, 2012 that vest based on performance will vest in accordance with their existing terms. Each restricted stock unit in respect of a share of Knight common stock granted after December 19, 2012 will continue to vest in accordance with its existing vesting schedule, subject to acceleration under certain circumstances.

Subject to such conditions as GETCO may agree, each incentive unit of GETCO issued under the GETCO Amended and Restated 2006 Incentive Unit Plan and the GETCO Amended and Restated 2012 Incentive Unit Plan, which we refer to as a GETCO incentive unit, that is outstanding immediately prior to the completion of the mergers will be automatically converted into a number of phantom units in respect of a number of shares of KCG common stock, based on the value of the consideration received in the GETCO merger by a holder of a GETCO Class B unit.

Recommendations by the Boards of Directors (page [    ])

Knight

At its meeting on December 18, 2012, after due consideration, the Knight board of directors:

 

   

determined that the mergers are advisable, fair to, and in the best interests of, Knight and its stockholders;

 

   

adopted the merger agreement and the mergers; and

 

   

recommended that Knight stockholders vote “FOR” the approval and adoption of the merger agreement and the mergers.

In addition, Knight’s board of directors recommends that Knight stockholders vote “FOR” the adjournment proposal, if necessary or appropriate, and “FOR” the Knight compensation proposal.

For a more complete description of Knight’s reasons for the mergers and the recommendations of the Knight board of directors, see “The Mergers—Knight’s Reasons for the Mergers and Recommendation of Knight’s Board of Directors” beginning on page [    ].

GETCO

At its meeting on December 18, 2012, after due consideration, the GETCO board of directors unanimously approved the merger agreement and the mergers and recommended that the voting unitholders of GETCO vote “FOR” the approval of the merger agreement and the mergers.

In addition, GETCO’s board of directors recommends that the voting unitholders of GETCO vote “FOR” the adjournment proposal, if necessary or appropriate.

For a discussion of the material factors considered by the GETCO board of directors in reaching its conclusions, see “The Mergers—GETCO’s Reasons for the Mergers and Recommendation of GETCO’s Board of Directors” beginning on page [    ].

 

 

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Financing Matters (page [    ])

Knight and GETCO estimate that the total amount of funds required to pay the cash portion of the merger consideration, refinance substantially all of Knight’s and GETCO’s existing long-term debt, and pay related fees and expenses, will be approximately $1.3 billion (assuming a full cash election payment of $720.0 million to Knight stockholders). GETCO’s obligation to complete the mergers is not subject to a financing condition. GETCO expects this amount to be funded through a combination of cash on hand at Knight and GETCO, the contribution in cash of $55.0 million to GETCO by affiliates of General Atlantic, which we refer to as the equity financing, and the proceeds of first lien credit facilities and either a second lien bridge loan facility or an offering of senior secured second lien notes.

On December 19, 2012, GETCO entered into a commitment letter, which we refer to as the commitment letter, with Jefferies Finance LLC, which we refer to as Jefferies Finance. Pursuant to the commitment letter, Jefferies Finance committed to provide a first lien term loan facility in an aggregate principal amount of $450.0 million, a first lien revolving facility in an aggregate principal amount of $20.0 million and a second lien bridge loan facility in an aggregate principal amount of up to $550.0 million. On February 5, 2013, GETCO and Jefferies Finance entered into a joinder agreement, which we refer to as the joinder agreement, with Goldman Sachs Bank USA, which we refer to as Goldman Sachs. Pursuant to the joinder agreement, Goldman Sachs agreed to provide a portion of the financing agreed to in the commitment letter for the first lien term loan facility, the first lien revolving facility and the second lien bridge loan facility. In addition, Jefferies & Company, Inc. and Goldman Sachs & Co. are expected to arrange an offering of senior secured second lien notes by KCG yielding aggregate gross proceeds of up to $550.0 million. The proceeds of the senior secured second lien notes, if any, would reduce or eliminate the need for the second lien bridge loan facility or, if the second lien bridge loan facility were previously funded, be used to repay the bridge loans made thereunder.

The first lien term loan facility will be reduced on the closing date on a dollar-for-dollar basis by an amount equal to the cash proceeds of each special tax reimbursement received by Knight or GETCO on or prior to the closing date. In addition, the aggregate principal amount of the first lien term loan facility and the second lien bridge loan facility (or the senior secured second lien notes, as applicable) shall be reduced on the closing date on a dollar-for-dollar basis if, and in the amount that, the aggregate cash consideration paid to Knight stockholders is less than $720.0 million as a result of the election by Knight stockholders (other than GETCO) to receive less than the maximum cash consideration offered in connection with the mergers (and with the allocation of any such reduction to be applied to reduce the senior secured first lien term loan facility and the second lien bridge loan facility (or the senior secured second lien notes, as applicable) pro rata based on the relative amounts thereof).

For a more complete description of the financing for the transaction, see the section entitled “The Mergers—Financing Matters” beginning on page [    ].

Opinion of Sandler O’Neill + Partners, L.P. (page [    ])

By letter dated October 9, 2012, Knight retained Sandler O’Neill + Partners, L.P., which we refer to as Sandler O’Neill, to act as its financial advisor in connection with Knight’s consideration of a possible strategic transaction. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor to Knight in connection with the proposed mergers and participated in certain of the negotiations leading to the execution of the merger agreement. At the December 18, 2012 meeting at which Knight’s board of directors considered and approved the merger agreement, Sandler

 

 

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O’Neill delivered to the board its oral opinion, subsequently confirmed in writing, that, as of such date, the merger consideration was fair to the holders of Knight common stock, other than Jefferies and GETCO and certain of their respective affiliates, from a financial point of view. The full text of Sandler O’Neill’s written opinion, dated December 18, 2012, is attached as Annex B to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. Knight stockholders are urged to read the entire opinion carefully in connection with their consideration of the proposed mergers.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Knight’s board of directors and is directed only to the fairness of the merger consideration to the holders of Knight common stock, other than Jefferies and GETCO, from a financial point of view. It does not address the underlying business decision of Knight to engage in the mergers or any other aspect of the mergers and is not a recommendation to any Knight stockholder as to how such stockholder should vote at the special meeting with respect to the merger agreement and the mergers or any other matter.

For additional information on the opinion of Sandler O’Neill, see “The Mergers—Opinion of Sandler O’Neill” on page [    ].

Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (page [    ])

In connection with the mergers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as BofA Merrill Lynch, delivered to GETCO’s board of directors a written opinion, dated December 18, 2012, as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of the GETCO units and the GA-GTCO units of the aggregate GETCO merger consideration and the aggregate GA-GTCO merger consideration, which we refer to, collectively, as the aggregate GETCO/GA-GTCO merger consideration, to be received collectively by the holders of GETCO units and GA-GTCO units in connection with the mergers as provided for in the merger agreement. The full text of the written opinion, dated December 18, 2012, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached to this joint proxy statement/prospectus as Annex C and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to GETCO’s board of directors (in its capacity as such) for the benefit and use of GETCO’s board of directors in connection with and for purposes of its evaluation of the aggregate GETCO/GA-GTCO merger consideration to be received collectively by the holders of the GETCO units and the GA-GTCO units from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the mergers and no opinion or view was expressed as to the relative merits of the mergers in comparison to other strategies or transactions that might be available to GETCO or in which GETCO might engage or as to the underlying business decision of GETCO to proceed with or effect the mergers. BofA Merrill Lynch’s opinion does not address any other aspect of the mergers and does not constitute a recommendation to any unitholder or stockholder as to how to vote or act in connection with the proposed mergers or any related matter.

Interests of Directors and Executive Officers in the Mergers (page [    ])

Knight stockholders and GETCO unitholders should note that some Knight directors and executive officers and some GETCO directors and executive officers have interests in the mergers as directors or officers that are different from, or in addition to, the interests of other Knight stockholders or GETCO unitholders, respectively.

For additional information relating to the interests of Knight’s directors and executive officers in the mergers, see “The Mergers—Interests of Certain of Knight’s Directors and Executive Officers in the Mergers” beginning on page [    ] and for additional information relating to the interests of GETCO’s directors and executive officers in the mergers, see “The Mergers—Interests of Certain of GETCO’s Directors and Executive Officers in the Mergers” beginning on page [    ].

 

 

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Interests of Jefferies in the Mergers (page [    ])

Jefferies, one of GETCO’s financial advisors, is providing certain debt financing in connection with the mergers and is the largest beneficial owner of Knight stock. As a result, Jefferies may have interests in the transactions that are different from, or in addition to, the interests of Knight stockholders and GETCO unitholders generally. For additional information relating to Jefferies’ role in the mergers, see “The Mergers—Interests of Jefferies in the Mergers” beginning on page [    ].

Conditions to the Completion of the Mergers (page [    ])

The obligations of Knight, GETCO and GA-GTCO to complete the mergers are subject to the satisfaction of the following conditions:

 

   

the approval of the merger agreement and proposed mergers by the Knight stockholders and by the GETCO voting unitholders, as described herein;

 

   

the authorization for listing on the NYSE of the shares of KCG common stock that will be issuable in connection with the mergers, including the KCG common stock that will be issuable upon exercise of the warrants;

 

   

the effectiveness of the registration statement on Form S-4, of which this document is a part, and the absence of a stop order suspending the effectiveness of the registration statement or proceedings initiated or threatened by the SEC for that purpose; and

 

   

the receipt of all required regulatory approvals and the absence of any injunction, governmental action or other legal prohibition or restraint preventing the closing of the transactions contemplated by the merger agreement.

The obligations of GETCO and GA-GTCO to complete the mergers are subject to the satisfaction or waiver of the following additional conditions:

 

   

the execution of a registration rights agreement by KCG with each of Stephen Schuler, Daniel Tierney and GA-GTCO Interholdco, LLC;

 

   

the execution of a warrant agreement by KCG relating to the warrants;

 

   

the accuracy of Knight’s representations and warranties in the merger agreement as of the closing date of the mergers or such other applicable date, subject to applicable materiality qualifiers;

 

   

the prior performance by Knight, in all material respects, of its obligations under the merger agreement;

 

   

the receipt by each party of the required closing certificates from Knight, certifying that the closing conditions applicable to Knight have been fulfilled; and

 

   

the receipt by each of GETCO and GA-GTCO of a legal opinion from its counsel with respect to certain tax matters.

In addition, the obligation of Knight to complete the mergers is subject to the satisfaction or waiver of the following additional conditions:

 

   

the accuracy of GETCO’s and GA-GTCO’s representations and warranties in the merger agreement as of the closing date of the mergers or such other applicable date, subject to applicable materiality qualifiers;

 

   

the prior performance by GETCO and GA-GTCO, in all material respects, of their obligations under the merger agreement;

 

 

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the receipt by Knight of the required closing certificates from GETCO and GA-GTCO, certifying that the closing conditions applicable to GETCO and GA-GTCO, respectively, have been fulfilled; and

 

   

the receipt by Knight of a legal opinion from its counsel with respect to certain tax matters.

For additional information relating to the conditions to the completion of the merger, see “The Merger Agreement—Conditions to the Completion of the Mergers” beginning on page [    ].

Termination of the Merger Agreement (page [    ])

The merger agreement may be terminated at any time prior to the completion of the mergers by the mutual written consent of Knight and GETCO, authorized by their respective boards. It can also be terminated by either Knight or GETCO under certain specified circumstances, including if:

 

   

the mergers have not been consummated on or before July 19, 2013, which we refer to as the end date, unless the failure of the mergers to occur by such date is the result of the failure of the party seeking to terminate the merger agreement to perform or observe the covenants or agreements of such party in the merger agreement, other than a breach of such party’s representations and warranties;

 

   

any required regulatory approval has been denied by the relevant regulatory authority and this denial has become final and non-appealable, or a regulatory authority has issued a final, non-appealable injunction permanently enjoining or otherwise prohibiting the completion of the mergers or the other transactions contemplated by the merger agreement;

 

   

there is a breach by the other party that would cause the failure of the closing conditions described above, and the breach is not cured prior to the earlier of the end date and 30 days following written notice of the breach, or the breach is not capable of being cured in such period, provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement in the merger agreement; or

 

   

the Knight stockholders or the GETCO unitholders do not approve the merger agreement at the special meetings called for such purpose.

Furthermore, subject to specified conditions, the merger agreement may be terminated by either Knight or GETCO if the other party:

 

   

submits the merger agreement to its stockholders or unitholders without a recommendation for approval or withdraws, modifies or qualifies such recommendation in a manner adverse to the other party;

 

   

fails to comply with its obligations to solicit approval and adoption of the merger agreement and the mergers by its stockholders or unitholders, as applicable, or fails to comply with its obligation not to solicit certain alternative transactions or competing proposals; or

 

   

approves, recommends or endorses an alternative transaction or competing proposal.

For additional information on termination of the merger agreement, see “The Merger Agreement—Termination of the Merger Agreement” beginning on page [    ].

Termination Fees (page [    ])

If the merger agreement is terminated under certain circumstances, including circumstances involving an alternative transaction or a change in Knight’s or GETCO’s board of directors’ recommendation with respect to the merger agreement and the mergers, Knight or GETCO, as applicable, may be required, subject to certain conditions, to pay the other party a termination fee of $53.0 million or a portion thereof.

 

 

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For additional information on the termination fees, see “The Merger Agreement—Termination Fees” beginning on page [    ].

No Solicitation (page [    ])

The merger agreement restricts the ability of each of Knight and GETCO to solicit or engage in discussions or negotiations with a third-party regarding a proposal to acquire a significant interest in Knight or GETCO, respectively. If, however, prior to obtaining the approval of its stockholders or unitholders (as applicable), either party receives an unsolicited proposal from a third-party and the party’s board of directors determines in good faith, after consultation with its outside legal counsel, that it would be a breach of such directors’ fiduciary duties not to engage in discussions relating to such proposal, that party may furnish information to the third-party and engage in negotiations regarding such proposal with the third-party, subject to specified conditions.

For additional information on the restriction against solicitation of an alternative proposal, see “The Merger Agreement—Agreement Not to Solicit Other Offers” beginning on page [    ].

Appraisal Rights (page [    ])

Knight: Unless a corporation’s certificate of incorporation contains provisions to the contrary (and Knight’s amended and restated certificate of incorporation does not), Section 262 of the DGCL provides that no appraisal rights are available for shares of any class or series of stock, which stock, at the record date fixed to determine the stockholders entitled to receive notice of and vote at a meeting of stockholders to act upon an agreement and plan of merger, was either listed on a national securities exchange or held of record by more than 2,000 holders. Section 262 of the DGCL provides certain exceptions to this rule, but none is applicable in the mergers. Knight’s common stock is listed on the NYSE. Consequently, Knight stockholders do not have appraisal rights in connection with the merger. Knight’s Series A-1 Preferred Stock, however, is not listed on a national exchange. Holders of Knight Series A-1 Preferred Stock outstanding on the date the Knight merger is completed will be entitled to exercise appraisal rights in connection with the Knight merger.

GETCO: The DLLCA, which governs GETCO, does not provide for statutory appraisal rights but allows a limited liability company to grant appraisal rights to its members pursuant to the limited liability company operating agreement or a plan of merger. GETCO’s operating agreement expressly disclaims appraisal rights and no such rights are provided in the merger agreement. Therefore unitholders of GETCO are not entitled to appraisal rights in connection with the GETCO merger.

For additional information on appraisal rights, see “The Mergers—Appraisal Rights” beginning on page [    ].

Board of Directors and Executive Officers of KCG (page [    ])

Upon completion of the mergers, the KCG board of directors will be comprised of nine directors and will include (i) four persons selected by the board of directors of Knight prior to the completion of the mergers who were members of the board of directors of Knight on the date of the merger agreement, whom we refer to as the Knight directors, and (ii) Daniel Tierney, Stephen Schuler, two persons selected by GA-GTCO immediately prior to the completion of the mergers, whom we refer to as the GETCO directors, and the Chief Executive Officer of KCG, Daniel Coleman. The Knight directors will include Thomas M. Joyce, currently the Chief Executive Officer of Knight. At least three of the Knight directors and at least two of the GETCO directors will satisfy the independence requirements of the NYSE and the KCG amended and restated certificate of incorporation and amended and restated bylaws.

Following the completion of the mergers, Mr. Coleman will serve as Chief Executive Officer of KCG, Mr. Joyce will serve as Executive Chairman of the board of directors of KCG, and Steven Bisgay, currently the Executive Vice President, Chief Operating Officer and Chief Financial Officer of Knight, will serve as Chief

 

 

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Financial Officer of KCG, in each case until their successors have been duly elected or appointed and qualified. Except for the foregoing, it has not yet been determined which members of Knight’s or GETCO’s senior management will also become executive officers of KCG following the mergers or what such persons’ titles or functions will be. From time to time prior to closing of the mergers, decisions may be made with respect to the management and operations of KCG following the completion of the mergers, including the selection of additional executive officers of KCG.

For additional information on directors and officers of KCG after the mergers, see “The Mergers—Board of Directors and Executive Officers of KCG” beginning on page [    ].

Legal Proceedings Relating to the Mergers (page [    ])

Since the announcement of the mergers, several putative class action and/or derivative lawsuits have been filed by purported stockholders of Knight challenging the mergers. The actions generally allege, among other things, that Knight’s directors breached their fiduciary duties by approving the merger agreement and the mergers at an unfairly low price, by agreeing to certain provisions in the merger agreement and to certain voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight, and that certain of Knight’s directors have conflicts of interest in connection with the transaction because they were appointed by an investor group that included GETCO. Some of the actions allege that certain stockholders of Knight breached alleged fiduciary duties in connection with the Knight board’s approval of the mergers. Various of the actions further allege that Knight, GETCO, GA-GTCO and/or General Atlantic aided and abetted the Knight board’s alleged breaches of fiduciary duty. The actions seek, among other relief, to enjoin the mergers. In addition, one action asserts derivative claims against the seven Knight directors who served as of August 1, 2012, alleging that those directors breached their fiduciary duties and wasted corporate assets by failing to erect and oversee effective safeguards to prevent against trading incidents, such as the one that occurred on August 1, 2012, for which Knight incurred a realized pre-tax loss of approximately $457.6 million. The derivative claims seek, among other things, an order requiring the relevant Knight directors to pay restitution and/or compensatory damages.

For additional information on legal proceedings relating to the mergers, see “The Mergers—Litigation Relating to the Mergers” beginning on page [    ].

Accounting Treatment (page [    ])

The mergers will be accounted for as a purchase by GETCO under accounting principles generally accepted in the U.S. Under the purchase method of accounting, the assets and liabilities of Knight will be recorded, as of completion of the mergers, at their respective fair values and added to the carrying value of GETCO. Any excess of purchase price over the fair value is recorded as goodwill. Any excess of fair value over the purchase price is recorded in earnings as a bargain purchase gain. The reported financial condition and results of operations of KCG after completion of the mergers will reflect Knight’s and GETCO’s balances and results after completion of the mergers, but will not be restated retroactively to reflect the historical financial position or results of operations of Knight. Following completion of the mergers, the earnings of the combined company will reflect purchase accounting adjustments, including increased amortization and depreciation expense for acquired assets.

See “Experts” beginning on page [    ].

Material U.S. Federal Income Tax Consequences of the Mergers (page [    ])

The closing of the Knight merger and GETCO merger is conditioned upon the receipt by Knight and GETCO, respectively, of an opinion from its respective tax counsel that the mergers will for U.S. federal income tax purposes be treated as a transaction described in Section 351 of the Internal Revenue Code, which we refer to as the Code. Assuming the mergers constitute a transaction described in Section 351 of the Code, subject to the

 

 

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limitations and qualifications described in “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers,” the U.S. federal income tax consequences of the mergers to U.S. holders (as defined herein) of Knight common stock or GETCO units generally will be as described below. Furthermore, the U.S. federal income tax consequences to U.S. holders of Knight common stock will depend upon the form of consideration received by such holders in the Knight merger.

U.S. holders of Knight common stock who receive consideration including KCG common stock in the Knight merger will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the KCG common stock and the amount of cash received by such holder in exchange for its shares of Knight common stock exceeds the holder’s adjusted basis in its shares of Knight common stock, and (2) the amount of cash (other than cash received instead of fraction share interests in KCG common stock) received by such holder in exchange for its shares of Knight common stock. The Knight merger will be a fully taxable transaction to a holder of Knight common stock who receives solely cash in the Knight merger.

GETCO unitholders will recognize gain (but not loss) in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the KCG common stock and warrants received by such holder in exchange for its GETCO units exceeds the GETCO unitholder’s adjusted basis in its GETCO units, and (2) the fair market value of the warrants received by such holder in exchange for its GETCO units.

The treatment of any cash received instead of a fractional share interest in KCG common stock is discussed in “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers—Cash Received Instead of a Fractional Share of KCG Common Stock.”

For a more detailed discussion of the material U.S. federal income tax consequences of the merger, see “The Mergers—Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page [    ].

The tax consequences of the mergers for any particular Knight common stockholder or GETCO unitholder will depend on that stockholder or unitholder’s particular facts and circumstances. Accordingly, Knight common stockholders and GETCO unitholders are urged to consult their tax advisors to determine the U.S. federal income tax consequences of the mergers to them, including estate, gift, state, local or non-U.S. tax consequences of the mergers.

Regulatory Matters (page [    ])

The approval of, among others, the following regulatory authorities must be obtained before the mergers can be completed:

 

   

the Financial Industry Regulatory Authority, which we refer to as FINRA;

 

   

the Financial Services Authority, which we refer to as the FSA;

 

   

the NYSE Arca; and

 

   

the Securities and Futures Commission of Hong Kong, which we refer to as the Hong Kong SFC.

In addition, prior to completing the mergers, the applicable waiting period under the U.S. federal antitrust law, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, must expire or terminate. On February 5, 2013, Knight and GETCO received early termination of the applicable waiting period under the HSR Act.

Each of Knight, GETCO and KCG is in the process of obtaining the remaining approvals required by applicable law or regulations for the completion of the mergers.

 

 

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For additional information on regulatory matters, see “The MergersRegulatory Matters” beginning on page [    ].

The Special Meetings (page [    ])

Knight

The Knight special meeting will be held at [    ]:00 [    ].m., local time, on [                    ], 2013, at [        ] to consider and vote upon the following matters:

 

   

a proposal to approve and adopt the merger agreement and the mergers;

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement; and

 

   

a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Knight’s named executive officers in connection with the mergers.

Knight’s board of directors has fixed the close of business on [                    ], 2013 as the record date for determining the holders of Knight common stock and Knight Series A-1 Preferred Stock entitled to receive notice of and to vote at the Knight special meeting. Only holders of record of Knight common stock and Knight Series A-1 Preferred Stock at the close of business on the Knight record date will be entitled to receive notice of and to vote at the Knight special meeting and any adjournment or postponement thereof.

As of the Knight record date, there were [            ] shares of Knight common stock and [            ] shares of Knight Series A-1 Preferred Stock outstanding and entitled to vote at the Knight special meeting held by [            ] holders of record. Each share of Knight common stock entitles the holder to one vote on each proposal to be considered at the Knight special meeting. When voting together (on an as-converted basis) with the Knight common stock at the Knight special meeting, each share of Knight Series A-1 Preferred Stock entitles the holder to a number of votes equal to the largest number of whole shares of Knight common stock that such share of Knight Series A-1 Preferred Stock could be converted into on the record date for the Knight special meeting; each share of Knight Series A-1 Preferred Stock is currently convertible into 666.67 shares of Knight common stock. When voting separately as a class on the merger proposal at the Knight special meeting, each share of Knight Series A-1 Preferred Stock entitles the holder to one vote on such proposal. As of the record date, directors and executive officers of Knight and their affiliates owned and were entitled to vote [            ] shares of Knight common stock and [            ] shares of Knight Series A-1 Preferred Stock, representing, in aggregate, approximately [    ]% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and [    ]% of the shares of Knight Series A-1 Preferred Stock outstanding on that date. Knight currently expects that Knight’s directors and executive officers will vote their shares in favor of the merger agreement and the mergers, although none of them has entered into any agreements obligating them to do so. As of the record date, GETCO beneficially held [            ] shares of Knight common stock and [            ] shares of Knight Series A-1 Preferred Stock, representing an aggregate voting percentage of approximately [    ]% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and [    ]% of the shares of Knight Series A-1 Preferred Stock outstanding on that date.

As more fully described under “The Merger Agreement—Voting and Support Agreements,” beginning on page [    ], TD Ameritrade, as of February 6, 2013, beneficially owned no shares of Knight common stock and 39,000 shares of Knight Series A-1 Preferred Stock, representing, in aggregate, approximately 7.3% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and 16.3% of the shares of Knight Series A-1 Preferred Stock outstanding on that date. TD Ameritrade entered into a voting and support agreement with GETCO pursuant to which it has agreed to vote all of the Knight common stock and Knight Series A-1 Preferred Stock owned by it in favor of approval and adoption of the merger agreement and the mergers.

 

 

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As further described in “The Knight Special Meeting—Vote Required,” approval of the merger agreement and the mergers requires the affirmative vote of (i) holders of a majority of the Knight common stock and Knight Series A-1 Preferred Stock (voting together with the Knight common stock on an as-converted basis) and (ii) subject to limited exceptions, holders of a majority of the Knight Series A-1 Preferred Stock who are entitled to vote at the Knight special meeting, voting separately as a class, who are entitled to vote at the Knight special meeting.

GETCO

The special meeting of the voting unitholders of GETCO is scheduled to be held at [        ], on [                    ], 2013 at [        ], Central time to consider and vote upon the following matters:

 

   

a proposal to approve the merger agreement and the mergers; and

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement.

Only holders of GETCO Class A units and Class P units as of the close of business on [                    ], 2013, which is the record date for the GETCO special meeting, will be entitled to receive notice of and to vote at the GETCO special meeting. As of the record date, there were [            ] Class A units and [            ] Class P units entitled to vote at the special meeting, held by [            ] GETCO voting unitholders. Each Class A unit entitles a voting member of GETCO to one vote. GA-GTCO is the holder of all of the GETCO Class P units, and as such, is entitled to a fixed voting interest of 21.875% of the total voting shares.

As more fully described under “The Merger Agreement—Voting and Support Agreements,” beginning on page [    ], Stephen Schuler and Daniel Tierney, as of January 31, 2013, each beneficially owned 1,565,825 Class A units, and GA-GTCO owns all 2,785,689 Class P units, which together represent approximately 88% of the units of GETCO entitled to vote at the GETCO special meeting. Mr. Schuler, Mr. Tierney and GA-GTCO each entered into a voting and support agreement with Knight pursuant to which they have agreed to vote all of the Class A units or Class P units owned by them, as the case may be, in favor of approval and adoption of the merger agreement and the mergers. Consequently, GETCO currently believes that approval of the GETCO merger proposal at the GETCO special meeting is assured.

No units of GETCO are currently held by Knight or KCG.

Approval of the merger agreement and the mergers and the adjournment proposal requires the affirmative vote of 70% or more of the total number of votes associated with the issued and outstanding Class  A units and Class P units (voting together as a class).

Information About the Companies (page [    ])

KNIGHT CAPITAL GROUP, INC.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Capital Group, Inc., a Delaware corporation, is a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms and corporations.

Knight was organized in January 2000 as the successor to the business of Knight/Trimark Group, Inc. Knight/Trimark Group, Inc. was organized in April 1998 as the successor to the business of Roundtable Partners,

 

 

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LLC, which was formed in March 1995. In May 2000, the company changed its name from Knight/Trimark Group, Inc. to Knight Trading Group, Inc., and in May 2005 the company further changed its name to Knight Capital Group, Inc. As of September 30, 2012, Knight had consolidated total assets of $8.6 billion and aggregate stockholders’ equity and preferred shares of $1.5 billion. Knight had 1,524 full-time employees as of December 31, 2012.

GETCO HOLDING COMPANY, LLC

350 N. Orleans Street

Chicago, IL 60654

(312) 931-2200

Founded in 1999 by Stephen Schuler and Dan Tierney, GETCO is a global financial services firm that specializes in helping investors efficiently manage risk via proprietary market making and routing orders on behalf of clients in securities, futures and foreign exchange instruments. GETCO operates through its broker-dealers and other subsidiaries and maintains a diversified footprint across asset classes, trading venues and geographies. GETCO trades on more than 50 exchanges and venues in North and South America, Europe and Asia-Pacific and employs over 400 Associates in Chicago, New York, Palo Alto, London, Singapore, Mumbai and Hong Kong.

On December 19, 2012 GETCO and Knight entered into an agreement for a strategic business combination whereby GETCO and Knight will merge and become subsidiaries of a new publicly traded holding company. The business combination of Knight and GETCO creates a leading global market-making and agency execution solutions provider that leverages each of Knight’s and GETCO’s proprietary technologies, operations and human capital.

GA-GTCO, LLC

c/o General Atlantic Service Company, LLC

Three Pickwick Plaza

Greenwich, Connecticut 06830

(917) 206-1944

GA-GTCO, LLC is a Delaware limited liability company, through which investment funds affiliated with General Atlantic LLC hold GETCO Class P units. GA-GTCO is a wholly-owned subsidiary of GA-GTCO Interholdco, LLC, a Delaware limited liability company whose principal place of business is in Connecticut. GA-GTCO Interholdco, LLC is a subsidiary of such investment funds. As of the date of this joint proxy statement/prospectus, GA-GTCO is the holder of all 2,785,689 GETCO Class P units and 71,802 Class B units. GA-GTCO does not undertake any business other than ownership of the GETCO units and actions incidental thereto.

KNIGHT HOLDCO, INC.

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Holdco, Inc. is a Delaware corporation and a direct, wholly owned subsidiary of Knight. We refer to Knight Holdco, Inc. as KCG throughout this joint proxy statement/prospectus. KCG was formed in connection with the merger agreement and the mergers for the purpose of holding Knight, GETCO and GA-GTCO Acquisition, LLC as direct wholly-owned subsidiaries following completion of the mergers. The business of KCG will be the combined business of Knight and GETCO. Knight Holdco, Inc. is expected to change its name prior to the closing; however, the new name has not been selected.

 

 

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The Merger Subsidiaries

KNIGHT ACQUISITION CORP

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Acquisition Corp is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. Knight Acquisition Corp was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, Knight Acquisition Corp will merge with and into Knight and cease to exist.

GETCO ACQUISITION, LLC

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

GETCO Acquisition, LLC is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. GETCO Acquisition, LLC was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, GETCO Acquisition, LLC will merge with and into GETCO and cease to exist.

GA-GTCO ACQUISITION, LLC

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

GA-GTCO Acquisition, LLC is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. GA-GTCO Acquisition, LLC was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, with GA-GTCO Acquisition, LLC continuing as the surviving corporation in the merger and as a direct wholly owned subsidiary of KCG.

For additional information on the companies, see “Information About the Companies” beginning on page [    ].

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KNIGHT

Set forth below is selected data from Knight’s consolidated financial data as of and for the years ended December 31, 2007 through December 31, 2011 and consolidated financial data as of and for the nine months ended September 30, 2012 and 2011. Results for the nine months ended September 30, 2012 and 2011 are unaudited and not necessarily indicative of results which may be expected for any other interim period or for the fiscal year as a whole. In the opinion of Knight management, this information reflects a fair presentation of this data for those dates.

The following should be read in conjunction with the annual, quarterly and special reports, proxy statements and other business and financial information Knight files with the SEC. The Consolidated Statements of Operations Data for 2011, 2010 and 2009 and the Consolidated Statements of Financial Condition Data at December 31, 2011 and 2010 have been derived from Knight’s audited Consolidated Financial Statements included in Knight’s Annual Report on Form 10-K for the year ended December 31, 2011, as updated by the Consolidated Financial Statements included in Knight’s Current Report on Form 8-K filed with the SEC on August 6, 2012, which has been incorporated by reference into this joint proxy statement/prospectus. The Consolidated Statements of Operations Data for 2008 and 2007 and the Consolidated Statements of Financial Condition Data at December 31, 2009, 2008 and 2007 are derived from Knight’s audited Consolidated Financial Statements not included in this document. You should not assume the results of operations for any past periods indicate results for any future period. See “Incorporation of Certain Documents by Reference” on page [    ].

The selected historical consolidated statement of operations data and other financial data for the nine months ended September 30, 2012 and 2011 and the summary consolidated statement of financial position data as of September 30, 2012 have been derived from Knight’s unaudited condensed consolidated financial statements, included in Knight’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which has been incorporated by reference into this joint proxy statement/prospectus. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

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    For the year ended December 31,  
    2011     2010     2009     2008     2007  
    (In thousands, except per share amounts)  

Consolidated Statements of Operations Data:

         

Revenues

         

Commissions and fees

  $ 749,911      $ 660,527      $ 670,406      $ 478,126      $ 386,128   

Net trading revenue

    631,989        489,394        486,684        446,707        286,199   

Interest, net

    4,649        2,092        (1,712     7,644        16,133   

Investment income (loss) and other, net

    17,978        (2,957     7,053        6,380        28,699   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,404,527        1,149,056        1,162,431        938,857        717,159   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

         

Employee compensation and benefits

    583,786        546,748        527,327        331,311        257,486   

Execution and clearance fees

    229,209        176,116        169,805        107,402        120,261   

Communications and data processing

    87,109        69,597        61,071        45,359        35,363   

Payments for order flow

    85,269        37,700        71,629        43,639        54,564   

Depreciation and amortization

    54,000        42,773        34,368        26,535        21,567   

Interest

    42,068        25,896        4,777        5,052        182   

Occupancy and equipment rentals

    28,084        26,632        23,177        19,642        13,194   

Business development

    23,360        19,493        18,807        17,279        14,611   

Professional fees

    21,305        17,463        13,043        14,749        14,491   

Restructuring

    28,624        16,731        —          —          —     

Writedown of assets and lease loss accrual (benefit), net

    2,978        1,032        (9,704     1,236        (2,470

Other

    31,606        18,909        15,326        8,969        11,951   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    1,217,398        999,090        929,626        621,173        541,200   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Income

         

Non-operating gain from subsidiary stock issuance

    —          —          —          15,947        8,757   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    187,129        149,966        232,805        333,631        184,716   

Income tax expense

    71,488        57,969        81,189        139,921        70,155   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of tax

    115,641        91,997        151,616        193,710        114,561   

(Loss) income from discontinued operations, net of tax

    (404     (359     (34,514     (15,799     7,679   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

  $ 115,237      $ 91,638      $ 117,102      $ 177,911      $ 122,240   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share from continuing operations

  $ 1.26      $ 1.02      $ 1.70      $ 2.19      $ 1.18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share from continuing operations

  $ 1.22      $ 0.97      $ 1.60      $ 2.11      $ 1.14   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share from discontinued operations

  $ —        $ —        $ (0.39   $ (0.18   $ 0.08   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share from discontinued operations

  $ —        $ —        $ (0.37   $ (0.17   $ 0.08   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

  $ 1.26      $ 1.02      $ 1.31      $ 2.01      $ 1.26   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

  $ 1.21      $ 0.97      $ 1.24      $ 1.94      $ 1.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of basic earnings per share

    91,490        90,167        89,095        88,407        97,050   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of diluted earnings per share

    95,013        94,447        94,504        91,760        100,796   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31,  
    2011     2010     2009     2008     2007  

Consolidated Statements of Financial Condition Data:

         

Cash and cash equivalents

  $ 467,633      $ 375,569      $ 427,106      $ 416,957      $ 190,924   

Financial instruments owned, at fair value

         

Securitized HECM loan inventory

    1,722,631        —          —          —          —     

Other

    2,059,160        1,603,139        926,589        476,111        412,565   

Total assets

    7,152,951        4,670,211        3,014,024        2,025,426        1,782,944   

Financial instruments sold, not yet purchased, at fair value

    1,721,892        1,311,324        639,259        385,003        335,280   

Long-term debt

    424,338        311,060        —          —          —     

Credit facility

    —          —          140,000        140,000        70,000   

Total Knight Capital Group, Inc. stockholders’ equity

    1,462,025        1,360,237        1,213,502        1,027,358        885,378   

 

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Table of Contents
     (Unaudited)  
     For the nine months
ended September 30,
 
     2012     2011  
    

(In thousands, except

per share amounts)

 

Revenues

    

Commissions and fees

   $ 501,920      $ 585,324   

Net trading revenue

     (90,396     463,578   

Interest, net

     17,874        4,205   

Investment income and other, net

     19,043        10,093   
  

 

 

   

 

 

 

Total revenues

     448,441        1,063,200   
  

 

 

   

 

 

 

Expenses

    

Employee compensation and benefits

     402,770        446,290   

Execution and clearance fees

     153,179        175,775   

Communications and data processing

     72,545        65,552   

Payments for order flow

     61,942        66,031   

Interest

     39,769        30,242   

Depreciation and amortization

     38,713        40,480   

Professional fees

     18,933        15,398   

Occupancy and equipment rentals

     20,007        21,526   

Business development

     16,040        16,870   

Writedown of assets and lease loss accrual

     143,034        2,278   

Restructuring

     —          28,624   

Other

     25,014        30,152   
  

 

 

   

 

 

 

Total expenses

     991,946        939,218   
  

 

 

   

 

 

 

(Loss) Income from continuing operations before income taxes

     (543,505     123,982   

Income tax (benefit) expense

     (189,980     48,605   
  

 

 

   

 

 

 

(Loss) Income from continuing operations, net of tax

     (353,525     75,377   

Loss from discontinued operations, net of tax

     —          (378
  

 

 

   

 

 

 

Net (loss) income

   $ (353,525   $ 74,999   

Dividend on convertible preferred shares

     (1,051     —     

Deemed dividend related to beneficial conversion feature of convertible preferred shares

     (373,364     —     
  

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

   $ (727,940   $ 74,999   
  

 

 

   

 

 

 

Basic (loss) earnings per share from continuing operations

   $ (7.20   $ 0.82   
  

 

 

   

 

 

 

Diluted (loss) earnings per share from continuing operations

   $ (7.20   $ 0.80   
  

 

 

   

 

 

 

Basic (loss) earnings per share

   $ (7.20   $ 0.82   
  

 

 

   

 

 

 

Diluted (loss) earnings per share

   $ (7.20   $ 0.79   
  

 

 

   

 

 

 

Shares used in computation of basic earnings per share

     101,044        91,877   
  

 

 

   

 

 

 

Shares used in computation of diluted earnings per share

     101,044        94,803   
  

 

 

   

 

 

 
     September 30,  
     2012      2011  

Consolidated Statements of Financial Condition Data:

     

Cash and cash equivalents

   $ 420,808       $ 449,773   

Financial instruments owned, at fair value

     

Securitized HECM loan inventory

     3,410,607         1,211,214   

Other

     1,703,989         2,338,502   

Total assets

     8,585,854         7,062,904   

Financial instruments sold, not yet purchased, at fair value

     1,296,140         1,866,208   

Short-term debt

     25,000         —     

Long-term debt

     410,089         420,962   

Convertible Preferred Stock

     259,278         —     

Total equity

     1,216,810         1,446,028   

 

-29-


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA AND OTHER DATA OF GETCO

Set forth below is selected data from GETCO’s consolidated financial data and operating metrics as of and for each of the years ended December 31, 2007 through December 31, 2011 and consolidated financial data as of and for the nine months ended September 30, 2012 and 2011. Results for the nine months ended September 30, 2012 and 2011 are unaudited and not necessarily indicative of results which may be expected for any other interim period or for the fiscal year as a whole. In the opinion of GETCO management, this information reflects a fair presentation of this data for those dates.

GETCO is a private company and is not subject to periodic reporting requirements under the Exchange Act. The following should be read in conjunction with GETCO’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GETCO” included elsewhere in this joint proxy statement/prospectus.

The selected historical consolidated statement of comprehensive income data and other financial data for the years ended December 31, 2011, 2010 and 2009 and the summary consolidated statements of financial condition as of December 31, 2011 and 2010 have been derived from GETCO’s audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus.

The selected historical consolidated statement of comprehensive income data and other financial data for the nine months ended September 30, 2012 and 2011 and the summary consolidated statement of financial condition as of September 30, 2012 have been derived from GETCO’s unaudited condensed consolidated financial statements included elsewhere in this joint proxy statement/prospectus. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The summary consolidated statement of financial condition as of December 31, 2009 and selected historical consolidated statement of comprehensive income data and other financial data for the years ended December 31, 2008 and 2007 are derived from GETCO’s audited consolidated financial statements that are not included in this joint proxy statement/prospectus.

You should not assume the results of operations for any past periods are indicative of results for any future period.

 

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Table of Contents
    (Unaudited)
Nine Months  Ended
September 30,
    For the year ended December 31,  
(amounts in millions except per unit data)       2012             2011         2011     2010     2009     2008     2007  

Consolidated Statement of Comprehensive Income: 1

             

Revenue

             

Trading gains and losses, net

  $ 413.6      $ 722.2      $ 893.3      $ 865.0      $ 955.6      $ 1,194.6      $ 685.1   

Interest, dividends, income on investments, other income (loss), net

    11.8        (3.2     22.2        1.9        1.2        7.4        18.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    425.3        719.0        915.5        866.9        956.8        1,201.9        704.0   

Expenses

             

Regulatory, exchange and execution fees

    144.7        234.5        289.0        303.6        307.0        338.1        252.3   

Employee compensation and related benefits

    113.9        188.1        244.9        222.1        248.4        319.1        156.5   

Colocation and data line expenses

    63.0        59.4        81.4        55.2        36.3        20.4        11.8   

Depreciation and amortization

    27.2        34.4        45.7        46.6        29.5        23.4        8.2   

Professional fees

    12.6        14.1        23.2        15.4        11.5        8.9        6.5   

Occupancy, communication, and office

    11.6        9.0        13.3        10.1        8.4        2.3        1.3   

Travel and entertainment

    7.5        9.5        12.7        10.1        8.8        7.9        3.3   

Computer supplies and maintenance

    3.8        3.9        5.2        6.1        7.0        5.9        3.1   

Other expenses 2

    6.2        5.2        6.4        8.1        7.9        5.8        3.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    390.4        558.1        721.9        677.3        664.7        731.8        446.8   

Income before income taxes

    34.9        160.9        193.5        189.7        292.1        470.1        257.2   

Provision for income taxes

    10.4        26.1        30.8        27.8        29.0        39.7        25.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

  $ 24.6      $ 134.8      $ 162.7      $ 161.9      $ 263.1      $ 430.4      $ 232.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per common unit

  $ 1.96      $ 10.75      $ 12.79      $ 12.12      $ 21.78      $ 35.20      $ 18.13   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income

             

Unrealized gains on available for sale securities 3

    66.7        —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

  $ 91.3      $ 134.8      $ 162.7      $ 161.9      $ 263.1      $ 430.4      $ 232.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GETCO” beginning on page [    ] for explanations and key drivers of GETCO’s financial statement line items during the periods covered thereby.
2. Includes order flow expense, interest expense on corporate borrowings and capital lease obligations, exchange fees/dues, exchange memberships, regulatory dues, and bank fees.
3. Represents GETCO’s unrealized gain on the Knight preferred stock investment.

 

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Table of Contents
     (Unaudited)
September 30,
2012
     For the year ended December 31,  
(amounts in millions)       2011      2010      2009      2008      2007  

Consolidated Statements of Financial Condition:

                 

Cash and cash equivalents 1

   $ 423.5       $ 607.7       $ 614.0       $ 638.3       $ 436.7       $ 187.9   

Total assets 2

     1,774.5         1,302.4         1,185.1         965.8         802.3         501.7   

Long term debt

     89.3         39.5         21.7         20.0         20.0         20.0   

Total liabilities

     828.2         364.9         314.5         175.9         264.2         135.0   

Members’ equity

     946.3         937.5         870.6         789.9         538.1         366.7   

 

1. GETCO defines cash equivalents as all highly liquid investments purchased with an original maturity of three months or less.
2. At September 30, 2012 and December 31, 2011, $1,322.1 million (74.5%) and $980.1 million (75.2%), respectively, of total assets consisted of cash and other assets readily convertible into cash.

 

     (Unaudited)
Nine Months Ended
September 30,
     For the year ended December 31,  
(amounts in millions)        2012              2011          2011      2010      2009      2008      2007  

Consolidated Statements of Cash Flows:

                    

Purchase of software, furniture, equipment and leasehold improvements

   $ 35.6       $ 47.5       $ 62.8       $ 48.7       $ 49.3       $ 35.5       $ 14.1   

Discretionary distributions 1

     14.9         34.8         109.6         85.0         —           —           15.0   

Cash paid for interest 2

     4.3         1.9         3.6         1.7         2.3         7.4         2.1   

 

1. Discretionary distributions exclude mandatory distributions required to cover the expected tax liability for each member’s allocable share of partnership income.
2. Cash paid for interest represents interest on capital lease obligations and interest paid on GETCO’s secured and unsecured bank facilities.

 

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Table of Contents
     (Unaudited)  
     Nine Months Ended
September 30,
    For the year ended December 31,  
     2012     2011     2011     2010     2009     2008     2007  

Other Operating Metrics:

              

Ending Headcount

     409        372        414        310        247        189        155   

Total Revenue per NYSE trading day (in millions)

   $ 2.3      $ 3.8      $ 3.6      $ 3.4      $ 3.8      $ 4.8      $ 2.8   

Total expenses per NYSE trading day (in millions)

   $ 2.1      $ 3.0      $ 2.9      $ 2.7      $ 2.6      $ 2.9      $ 1.8   

Compensation and benefits as a % of total revenue

     27     26     27     26     26     27     22

Select Market Volume Metrics 1

              

U.S. cash equities (in billions) 2

     6.5        7.9        7.8        8.5        9.8        8.8        6.2   

U.S. equity options (in billions) 3

     16.2        18.5        18.1        15.5        14.3        14.2        11.4   

CME interest rate (in millions) 4

     5.1        6.5        6.0        5.4        4.3        6.1        7.1   

European cash equities (total notional € in billions; lit volume) 5

   5,596.1      7,270.8      9,254.8      8,697.6      7,134.4      10,669.9        N/A   

Korean 200 options (in millions) 6

     7.7        15.8        14.8        14.0        11.5        11.2        11.0   

Volatility

              

VIX (average for the period)

     18.1        22.3        24.2        22.5        31.5        32.7        17.5   

S&P 500 (average realized 20-day volatility)

     13.0        18.1        20.8        17.2        26.2        35.0        15.0   

Euro Stoxx 50 (average realized 20-day volatility)

     21.9        21.9        25.9        22.2        27.5        34.8        14.9   

10-yr treasury future (average realized 20-day volatility)

     4.7        6.5        6.5        6.4        9.1        9.6        4.8   

 

1. N/A = not available. Amounts reflect average daily share/contract volume except for European cash equities, which reflects total period notional volume.
2. Share volumes compiled based on data reported by NYSE, NASDAQ, BATS, and Bloomberg.
3. Contract volumes based on data reported by the Options Clearing Corporation.
4. Contract volume based on data reported by the Chicago Mercantile Exchange.
5. Notional turnover, for lit venues only, as reported by Thomson Reuters.
6. Contract volumes based on data reported by KRX; a 400% increase in the size of the KOSPI 200 index option contract went into effect in the first half of 2012.

 

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Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED

CONSOLIDATED FINANCIAL DATA

The following tables present selected unaudited pro forma condensed combined consolidated financial data from KCG’s consolidated statements of income and balance sheet. The information under “Pro Forma Consolidated Statements of Operations Data” in the tables below gives effect to the mergers as if they had been consummated on January 1, 2011, the beginning of the earliest period presented. The information under “Pro Forma Consolidated Balance Sheet Data” in the tables below assumes the mergers had been consummated on September 30, 2012. This unaudited pro forma condensed combined consolidated financial data was prepared using the acquisition method of accounting with GETCO considered the acquirer of Knight. See “The Mergers—Accounting Treatment” beginning on page [    ].

The selected unaudited pro forma condensed combined consolidated financial data has been derived from and should be read in conjunction with Knight’s and GETCO’s audited consolidated financial statements as of and for the year ended December 31, 2011, their respective unaudited consolidated financial statements as of and for the nine months ended September 30, 2012, and the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements included on page [    ].

The pro forma selected data is provided under two scenarios. The minimum case assumes that existing Knight stockholders elect to receive no cash in the Knight merger. The maximum case assumes that existing Knight stockholders elect to receive the maximum amount of cash in the Knight merger of approximately $720.0 million as described in “The Merger Agreement—Merger Consideration; Conversion of Shares and Units” beginning on page [    ].

 

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Table of Contents

The following selected unaudited pro forma condensed combined consolidated financial data is for illustrative purposes only and does not purport to indicate the financial results of KCG had the mergers taken place on January 1, 2011 for consolidated statements of operations purposes, and on September 30, 2012 for consolidated balance sheet purposes, and is not intended to be a projection of future results. The selected unaudited pro forma condensed combined consolidated financial data does not represent the impact of possible business model changes or potential changes to asset valuations due to changes in market conditions. The unaudited pro forma condensed combined consolidated financial data also does not consider any potential impacts of changes in market conditions on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors. Future results are anticipated to vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” on page [    ]. The following selected unaudited pro forma condensed combined consolidated financial data should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” and related notes included in this document on page [    ].

 

Minimum Case

 

   (Unaudited)  

(in millions except per share data)

   Nine Months Ended
September 30,
    Year Ended
December 31,
 
     2012     2011  

Pro Forma Consolidated Statements of Operations Data:

    

Total revenues

   $ 873.7      $ 2,320.0   

Total expenses

     1,244.9        1,954.4   
  

 

 

   

 

 

 

Total income (loss) before income taxes

     (371.2     365.6   

Provision for income taxes

     (129.6     141.1   
  

 

 

   

 

 

 

Net income attributable to the combined company

   $ (241.6   $ 224.5   
  

 

 

   

 

 

 
    

Earnings per share:

    

Basic

   $ (0.45   $ 0.42   

Diluted

   $ (0.45   $ 0.42   
    
    

Pro Forma Consolidated Balance Sheet Data:

    

Cash and cash equivalents

   $ 572.5     

Financial instruments owned, at fair value

     5,858.8     

Investments

     184.9     

Total assets

     9,833.8     

Long-term debt

     307.5     

Total liabilities

     7,720.8     

Total equity

     2,113.0     

 

-35-


Table of Contents

Maximum Case

 

   (Unaudited)  
(in millions except per share data)    Nine Months Ended
September 30,
    Year Ended
December 31,
 
     2012     2011  

Pro Forma Consolidated Statements of Operations Data:

    

Total revenues

   $ 873.7      $ 2,320.0   

Total expenses

     1,293.5        2,023.6   
  

 

 

   

 

 

 

Total income (loss) before income taxes

     (419.8     296.4   

Provision for income taxes

     (148.7     113.8   
  

 

 

   

 

 

 

Net income attributable to the combined company

   $ (271.1   $ 182.6   
  

 

 

   

 

 

 
    

Earnings per share:

    

Basic

   $ (0.78   $ 0.52   

Diluted

   $ (0.78   $ 0.52   
    
    

Pro Forma Consolidated Balance Sheet Data:

    

Cash and cash equivalents

   $ 572.5     

Financial instruments owned, at fair value

     5,858.8     

Investments

     184.9     

Total assets

     9,833.8     

Long-term debt

     1,027.5     

Total liabilities

     8,440.8     

Total equity

     1,393.0     

 

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Table of Contents

COMPARATIVE PER SHARE/UNIT DATA

The following table presents unaudited historical per share/unit data for Knight and GETCO and pro forma per share data for KCG as of the nine months ended September 30, 2012 and the year ended December 31, 2011. Except for basic and diluted earnings per share/unit data of Knight and GETCO for the year ended December 31, 2011, the information provided in the table below is unaudited. The pro forma per share data gives effect to the mergers as if the mergers had occurred on September 30, 2012, in the case of book value data presented, and as if the mergers had occurred on January 1, 2011, in the case of earnings and dividend / distribution data presented.

The pro forma per share data is provided under two scenarios. The minimum case assumes that existing Knight stockholders elect to receive no cash in the Knight merger. The maximum case assumes that existing Knight stockholders elect to receive the maximum amount of cash in the Knight merger of approximately $720.0 million as described in “The Merger Agreement—Merger Consideration; Conversion of Shares and Units” beginning on page [    ].

The KCG pro forma per share data was derived by combining information from the historical consolidated financial statements of Knight and GETCO giving effect to the mergers under the acquisition method of accounting for business combinations. As a result, the pro forma combined per share data has been based upon certain assumptions and adjustments as discussed in “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” beginning on page [    ]. You should read the table in conjunction with the historical audited and unaudited consolidated financial statements of GETCO contained in this joint proxy statement/prospectus and the historical audited and unaudited consolidated financial statements of Knight that are filed with the SEC and incorporated by reference in this joint proxy statement/prospectus. See “Index to GETCO Financial Statements” beginning on page [    ] and “Incorporation of Certain Documents by Reference” beginning on page [    ]. The pro forma data below is presented for illustrative purposes only and you should not rely on the pro forma per share data as indicative of actual results had the mergers occurred in the past, or of future results KCG will achieve after the merger.

 

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Unaudited Comparative Per Share/Unit Data

 

     Nine Months Ended
September 30,

2012
    Year Ended
December 31,
2011
 

Knight Capital Group, Inc—Historical Data

  

 

Earnings (loss) per share (3):

    

Basic

   $ (7.20   $ 1.26   

Diluted

   $ (7.20   $ 1.22   

Dividends declared per share of common stock

   $ —        $ —     

Book value per share of common stock (1)

   $ 4.05      $ 15.13   

GETCO Holding Company, LLC—Historical Data

    

Earnings per unit (3):

    

Basic

   $ 1.96      $ 12.79   

Diluted

   $ 1.96      $ 12.79   

Distributions per unit (2)

   $ 1.17      $ 8.52   

Book value per unit

   $ 81.51      $ 74.67   

KCG Pro Forma Combined Data—Minimum Case

    

Earnings per share (3):

    

Basic

   $ (0.45   $ 0.42   

Diluted

   $ (0.45   $ 0.42   

Cash dividend/ distribution per share

   $ 0.03      $ 0.20   

Book value per share

   $ 3.91        N/A   

KCG Pro Forma Combined Data—Maximum Case

    

Earnings per share (3):

    

Basic

   $ (0.78   $ 0.52   

Diluted

   $ (0.78   $ 0.52   

Cash dividend/ distribution per share

   $ 0.04      $ 0.31   

Book value per share

   $ 3.99        N/A   

 

(1) Knight book value per shares as of September 30, 2012 includes conversion of all shares of Knight preferred stock into common stock
(2) Distributions per unit does not include distributions of $0.6 million and $3.3 million related to 386,557 and 491,066 Participating Class E units outstanding on a weighted average basis for the nine months ended September 30, 2012 and for the year ended December 31, 2011, respectively. These distributions are excluded because of certain limitations on distributions per unit that can be received pursuant to the Class E Unit Award Agreements.
(3) Earnings per share/unit from continuing operations.

 

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RISK FACTORS

Risk Factors Relating to the Mergers

Knight stockholders and GETCO unitholders cannot be sure of the market price of the KCG common stock they will receive as consideration

Upon completion of the mergers, some Knight stockholders will, and all GETCO unitholders will, receive shares of KCG common stock. Shares of KCG common stock are not currently listed for trading on a national securities exchange, although such shares will be approved for listing on the NYSE prior to the completion of the mergers. Although shares of Knight are currently listed for trading on the NYSE, units of GETCO are not listed for trading on a national securities exchange and GETCO has not been subject to the reporting requirements of the Exchange Act.

The trading price of a share of KCG common stock is currently uncertain and we can provide no assurance as to the values at which shares of KCG will publicly trade. In addition, after completion of the mergers, the trading price of KCG common stock will be dependent on a number of conditions, including general market and economic conditions, changes in the Knight and GETCO businesses prior to the completion of the mergers, operations and prospects, and regulatory considerations, among other things. Some of these factors and conditions are beyond the control of Knight and GETCO.

In addition, although the shares of KCG common stock issuable in the mergers will be listed on the NYSE upon completion of the mergers, an active public market may not develop or be sustained after the completion of the mergers, which could affect the ability to sell, or depress the market price of, shares of KCG common stock. KCG cannot predict the extent to which a trading market will develop or how liquid that market might become.

The exchange ratios are fixed and will not be adjusted for changes affecting Knight or GETCO

The exchange ratio for Knight common stock and the GETCO ratios are fixed and will not be adjusted prior to completion of the mergers, including for changes affecting Knight or GETCO or for share or unit repurchases or issuances of common stock by Knight or units by GETCO, as permitted in limited circumstances by the merger agreement. Such changes may affect the value that Knight stockholders and GETCO Class A, Class B and Class P unitholders will receive upon completion of the mergers or may impact the market value of Knight common stock prior to completion of the mergers. GETCO is not permitted to terminate the merger agreement or resolicit the vote of voting unitholders solely because of changes in the market price of Knight’s common stock.

Knight stockholders may receive a form of consideration different from what they elect

Although each Knight stockholder may elect to receive all cash in the mergers, the pool of cash available for all Knight stockholders will be limited based on a fixed percentage of the number of shares of Knight common stock eligible for election in the mergers being converted into the merger consideration. As a result, if the aggregate cash election by Knight stockholders exceeds the maximum available, some consideration received by Knight stockholders who elected cash will be in a form that they did not choose.

The total number of shares of Knight common stock that will be converted into the right to receive cash will in no event exceed 66.7% of the total number of shares of Knight common stock that were converted into the right to receive consideration as a result of the mergers, which we refer to as the Cash Election Shares Limit. Within 3 business days after the consummation of the mergers as contemplated by the merger agreement, which we refer to as the effective time, if the cash consideration option is oversubscribed, KCG will cause the exchange agent to effect the allocation among the former holders of Knight common stock of rights to receive the Knight merger consideration as follows: (A) all holders of Knight common stock who elected consideration in the form of KCG common stock and those who made no election will receive the right to receive KCG common stock, (B) the exchange agent will then select from among the Knight common stock that elected the cash consideration, by a pro rata selection process, a sufficient number of shares to receive the KCG common stock

 

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consideration such that the aggregate number of shares of Knight common stock that will be paid the cash consideration equals the Cash Election Shares Limit; and (C) the shares of Knight Common Stock that elected cash that were not set aside by the exchange agent as those that would receive KCG common stock will be converted into the right to receive the cash consideration.

Jefferies, the largest stockholder in Knight with an approximately 23% ownership (as of February 6, 2013 and assuming conversion of all of the shares of Knight Series A-1 Preferred Stock), has agreed to waive its right to receive cash consideration with respect to up to 50.0% of its Knight shares to the extent the total cash consideration would exceed $720.0 million. This is intended to enable other Knight stockholders (excluding GETCO and holders of Knight restricted stock or other equity awards granted after December 19, 2012) to receive up to 66.7% of their total consideration in cash, while limiting the total cash consideration to be paid by KCG to not more than $720.0 million in the aggregate.

Accordingly, even if a Knight stockholder (other than Jefferies) elects to receive cash in respect of 100% of their shares of Knight common stock, due to proration, such stockholder may only receive 66.7% of his, her or its consideration in cash.

Knight stockholders who make elections may be unable to sell their shares in the market pending the mergers

Knight stockholders may elect to receive cash, stock or mixed consideration in the mergers by completing an election form that will be sent under separate cover and is not being provided with this document. Elections will require that stockholders making the election turn in their Knight stock certificates. This means that during the time between when the election is made and the date the mergers are completed, Knight stockholders will be unable to sell their Knight common stock. If the mergers are unexpectedly delayed, this period could extend for a significant period of time. Knight stockholders can shorten the period during which they cannot sell their shares by delivering their election shortly before the election deadline. However, elections received after the election deadline will not be accepted or honored.

Knight stockholders will have a reduced ownership and voting interest after the mergers and will exercise less influence over management

Knight stockholders currently have the right to vote in the election of the board of directors of Knight and on other matters affecting Knight. Upon the completion of the mergers, each Knight stockholder who receives shares of KCG common stock will become a stockholder of KCG with a percentage ownership of KCG that is smaller than the stockholder’s current percentage ownership of Knight. It is currently expected that the former stockholders of Knight as a group will receive shares in the mergers constituting approximately between 35% and 58% of the outstanding shares of KCG common stock immediately after the mergers (assuming full conversion of the Knight Series A-1 Preferred Stock to common stock). Because of this, Knight stockholders may have less influence on the management and policies of KCG than they now have on the management and policies of Knight. In addition, Knight stockholders are subject to additional potential dilution due to the issuance of the warrants.

The market price for KCG common stock may be affected by factors different from those that historically have affected Knight

Upon completion of the mergers, certain holders of Knight common stock will become holders of KCG common stock. KCG’s businesses may differ from those of Knight, and accordingly the results of operations of KCG will be affected by some factors that are different from those currently affecting the results of operations of Knight. For a discussion of the businesses of KCG and Knight and of some important factors to consider in connection with those businesses, see the documents incorporated by reference in this joint proxy statement/

 

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prospectus and referred to under “Incorporation of Certain Documents by Reference” beginning on page [    ]. For a discussion of the businesses of GETCO and of some important factors to consider in connection with those businesses, see “Information About the Companies—GETCO Holding Company, LLC” beginning on page [    ] and “Management’s Discussion and Analysis Financial Condition and Results of Operations of GETCO” beginning on page [    ].

KCG will have significant leverage

As a result of the mergers, KCG will have significantly more leverage than either Knight or GETCO did independently. In connection with the mergers, it is estimated that the total amount of funds required to pay the cash portion of the merger consideration, refinance substantially all of Knight’s and GETCO’s existing long-term debt, and pay related fees and expenses, will be approximately $1.3 billion (assuming a full cash election payment of $720.0 million to Knight stockholders). GETCO expects this amount to be funded through a combination of cash on hand at Knight and GETCO, the contribution in cash of $55.0 million by affiliates of General Atlantic and the proceeds of first lien credit facilities and either a second lien bridge loan facility or an offering of senior secured second lien notes as described elsewhere in this joint proxy statement/prospectus. For a description of the terms of the financing, see “The Mergers—Financing Matters” beginning on page [    ].

As a result of the credit facilities entered into, or the notes issued, in connection with the mergers, KCG will have a significant amount of leverage following the mergers. This leverage may have important consequences for KCG, including:

 

   

increasing its vulnerability to general adverse economic and industry conditions;

 

   

requiring it to dedicate a portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;

 

   

making it difficult for it to optimally manage the cash flow for its businesses;

 

   

limiting its flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates;

 

   

placing it at a competitive disadvantage compared to its competitors that have less debt;

 

   

subjecting it to a number of restrictive covenants that, among other things, limit its ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments, and require it to maintain certain levels of available cash; and

 

   

exposing it to interest rate risk due to the variable interest rate on borrowings under its credit facilities.

KCG’s ability to make payments of the principal on and refinance its indebtedness, will depend on its future performance, its ability to generate cash flow and market conditions, each of which is subject to economic, financial, competitive and other factors beyond its control. KCG’s business may not continue to generate cash flow from operations sufficient to service its debt and make necessary capital expenditures. If KCG is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as selling assets, restructuring debt, undertaking additional borrowings or issuing additional debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. KCG’s ability to refinance all or a portion of its indebtedness will depend on the capital markets, the credit markets and its financial condition at such time. KCG may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in increased financing costs or a default on its debt obligations.

 

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KCG may fail to realize the anticipated benefits of the mergers

The success of the mergers will depend on, among other things, KCG’s ability to combine the businesses of GETCO and Knight in a manner that permits growth opportunities and does not materially disrupt the existing customer relationships of Knight or GETCO nor result in decreased revenues due to loss of customers. If KCG is not able to successfully achieve these objectives, the anticipated benefits of the mergers may not be realized fully or at all or may take longer to realize than expected.

GETCO and Knight have operated and, until the completion of the mergers, will continue to operate, independently. Certain employees of Knight and GETCO may not be employed after the mergers. In addition, employees of Knight and GETCO that KCG wishes to retain may elect to terminate their employment as a result of the mergers, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of GETCO’s or Knight’s ongoing businesses or cause issues with standards, controls, procedures and policies that adversely affect the ability of GETCO or Knight to maintain relationships with customers and employees or to achieve the anticipated benefits of the mergers.

The market price of KCG common stock may decline if, among other factors, the integration of the Knight and GETCO businesses is unsuccessful, the operational cost savings estimates are not realized or the transaction costs related to the mergers are greater than expected. The market price of KCG common stock also may decline if KCG does not achieve the perceived benefits of the mergers as rapidly as, or to the extent, anticipated by financial or industry analysts or if the effect of the mergers on KCG’s financial results is not consistent with the expectations of financial or industry analysts.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met

Before the mergers may be completed, various approvals must be obtained from FINRA, the FSA and other regulatory bodies and self-regulatory organizations. These governmental entities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the mergers or of imposing additional costs or limitations on KCG following the mergers. The regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the mergers.

The merger agreement may be terminated in accordance with its terms and the mergers may not be completed

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the mergers. Those conditions include: approval of the merger agreement by Knight stockholders and GETCO voting unitholders, receipt of requisite regulatory approvals, absence of orders prohibiting completion of the mergers, effectiveness of the registration statement of which this document is a part, approval of the shares of KCG common stock to be issued to Knight stockholders and GETCO unitholders (including upon exercise of the warrants) for listing on the NYSE, the continued accuracy of the representations and warranties by both parties (subject to applicable materiality qualifiers) and the performance by both parties, in all material respects, of their covenants and agreements, and the receipt by Knight, GETCO and GA-GTCO of legal opinions from their respective tax counsels. These conditions to the closing of the mergers may not be fulfilled and, accordingly, the mergers may not be completed. In addition, if the mergers are not completed by July 19, 2013, either GETCO or Knight may choose not to proceed with the mergers, and the parties can mutually decide to terminate the merger agreement at any time, before or after stockholder approval. In addition, GETCO or Knight may elect to terminate the merger agreement in certain other circumstances. For a more complete description of these circumstances, see “The Merger Agreement—Termination of the Merger Agreement” beginning on page [    ].

 

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Termination of the merger agreement could negatively impact Knight and GETCO

In the event the merger agreement is terminated, Knight’s or GETCO’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the mergers, and the market price of Knight common stock might decline to the extent that the current market price reflects a market assumption that the mergers will be completed. If the merger agreement is terminated and Knight’s or GETCO’s board of directors seeks another merger or business combination, Knight stockholders or GETCO unitholders (as applicable) cannot be certain that Knight or GETCO will be able to find a party willing to offer equivalent or more attractive consideration than the merger consideration provided in the mergers. If the merger agreement is terminated under certain circumstances, the terminating party may be required to pay a termination fee of $53.0 million or a portion thereof. See “The Merger Agreement—Termination Fees” beginning on page [    ].

Knight and GETCO will be subject to business uncertainties and contractual restrictions while the mergers are pending

Uncertainty about the effect of the mergers on employees and customers may have an adverse effect on Knight or GETCO and consequently on KCG. These uncertainties may impair Knight’s or GETCO’s ability to attract, retain and motivate key personnel until the mergers are completed, and could cause customers and others that deal with Knight or GETCO to seek to change existing business relationships, or cause potential new customers to delay doing business with Knight, GETCO or KCG until the mergers have been successfully completed. Retention of certain employees may be challenging during the pendency of the mergers, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, KCG’s business following the mergers could be negatively impacted. In addition, the merger agreement restricts Knight and GETCO from making certain acquisitions and taking other specified actions until the mergers are completed without the consent of the other party. These restrictions may prevent Knight or GETCO from pursuing attractive business opportunities that may arise prior to the completion of the mergers. See “The Merger Agreement—Covenants of Knight, GETCO and GA-GTCO” beginning on page [    ] for a description of the restrictive covenants applicable to Knight and GETCO.

Knight and GETCO directors and officers may have interests in the mergers different from the interests of Knight stockholders and GETCO unitholders

The interests of some of the directors and executive officers of Knight and GETCO may be different from those of Knight stockholders and GETCO unitholders, and directors and officers of Knight and GETCO may be participants in arrangements that are different from, or are in addition to, those of Knight stockholders and GETCO unitholders. These interests may present such directors or executive officers with actual or potential conflicts of interest. For a more detailed description of these interests, see “The Mergers—Interests of Certain of Knight’s Directors and Executive Officers in the Mergers” beginning on page [    ] and “The Mergers—Interests of Certain of GETCO’s Directors and Executive Officers in the Mergers” beginning on page [    ].

Shares of KCG common stock to be received by Knight stockholders as a result of the mergers will have rights different from the shares of Knight common stock

Upon completion of the mergers, the rights of former Knight stockholders who become KCG stockholders will be governed by the amended and restated certificate of incorporation and amended and restated bylaws of KCG. The rights associated with Knight common stock are different from the rights associated with KCG common stock. See “Comparison of Stockholder and Unitholder Rights” beginning on page [    ] for a discussion of the different rights associated with KCG common stock.

Shares of KCG common stock to be received by GETCO unitholders as a result of the mergers will have rights different from the units of GETCO

Upon completion of the mergers, the rights of former GETCO unitholders will be governed by the amended and restated certificate of incorporation and amended and restated bylaws of KCG. The rights associated with

 

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GETCO units are materially different from the rights associated with KCG common stock. See “Comparison of Stockholder and Unitholder Rights” beginning on page [    ] for a discussion of the different rights associated with KCG common stock.

Shares of KCG common stock will be subject to dilution as a result of exercise of the warrants or conversion of the KCG Series A-1 Preferred Stock

The shares of KCG common stock issued in connection with the mergers will be subject to dilution upon exercise of the warrants or conversion of outstanding shares of KCG Series A-1 Preferred Stock. Up to 75 million shares of KCG common stock may be issued in connection with exercise of the warrants issued as part of the aggregate GETCO/GA-GTCO merger consideration. These warrants have exercise prices ranging from $4.00 to $5.00 and terms of between four and six years. The warrants may be exercised at any time, even if the current market price of the KCG common stock is below the applicable exercise price.

In addition, as of the record date for the Knight special meeting, [            ] shares of Knight Series A-1 Preferred Stock are outstanding. These shares are convertible at any time into Knight common stock at the rate of 666.67 shares of Knight common stock for each share of Knight Series A-1 Preferred Stock, subject to certain customary anti-dilution adjustments. Conversion of all outstanding shares of Knight Series A-1 Preferred Stock would result in the issuance of approximately [            ] shares of Knight common stock. If not converted prior to the completion of the mergers, each outstanding share of Knight Series A-1 Preferred Stock will be exchanged for a share of KCG Series A-1 Preferred Stock with rights that are not materially less favorable, including conversion rights.

In addition to potentially diluting KCG common stock, KCG Series A-1 Preferred Stock may also adversely affect the market price of KCG’s common stock. The market price of KCG’s common stock will likely be influenced by the preferred stock and warrants. For example, the market price of KCG’s common stock could become more volatile and could be depressed by:

 

   

investors’ anticipation of the potential resale in the market of a substantial number of additional shares of KCG’s common stock received upon conversion of the preferred stock or exercise of the warrants;

 

   

possible sales of KCG’s common stock by investors who view the preferred stock as a more attractive means of equity participation in KCG than owning shares of KCG’s common stock; and

 

   

hedging or arbitrage trading activity that may develop involving the preferred stock and KCG common stock.

The merger agreement and related voting and support agreements contain provisions that may discourage other companies from trying to acquire Knight or GETCO for greater merger consideration

The merger agreement contains provisions that may discourage a third party from submitting a business combination proposal to Knight or GETCO that might result in greater value to Knight’s stockholders or GETCO’s unitholders than the mergers. These provisions include a general prohibition on Knight and GETCO from soliciting, or, subject to certain exceptions, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. Moreover, certain Knight stockholders and GETCO unitholders have entered into voting and support agreements to vote in favor of the mergers and not to support any other merger proposal by a third party. For further information, see “The Merger Agreement—Voting and Support Agreements” beginning on page [    ].

In addition, Knight or GETCO may be required to pay a termination fee of $53.0 million in certain circumstances involving acquisition proposals for competing transactions. For further information, please see the section entitled “The Merger Agreement—Termination Fees” beginning on page [    ].

 

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The unaudited pro forma combined condensed consolidated financial information included in this joint proxy statement/prospectus is preliminary and the actual financial condition and results of operations after the mergers may differ materially

The unaudited pro forma combined condensed consolidated financial information in this document is presented for illustrative purposes only and is not necessarily indicative of what KCG’s actual financial condition or results of operations would have been had the mergers been completed on the dates indicated. The unaudited pro forma combined condensed consolidated financial information reflects adjustments, which are based upon preliminary estimates, to record the Knight identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Knight as of the date of the completion of the mergers. Accordingly, the final acquisition accounting adjustments may differ materially from the unaudited pro forma adjustments reflected in this document. For more information, see “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page [    ].

The opinions of Knight’s and GETCO’s financial advisors will not reflect changes in circumstances between the signing of the merger agreement and the completion of the mergers

Knight and GETCO have not obtained updated opinions from their respective financial advisors as of the date of this document. Changes in the operations and prospects of Knight or GETCO, general market and economic conditions and other factors that may be beyond the control of Knight or GETCO, and on which Knight’s and GETCO’s financial advisors’ opinions were based, may significantly alter the value of Knight or GETCO, the prices of the shares of Knight common stock by the time the mergers are completed or the future price at which KCG’s common stock trades. The opinions do not speak as of the time the mergers will be completed or as of any date other than the date of such opinions. The opinions will not address the fairness of the merger consideration from a financial point of view at the time a Knight stockholder or GETCO unitholder votes or at the time the mergers are completed. Knight’s Board of Directors’ recommendation that Knight stockholders vote “FOR” adoption of the merger agreement and GETCO’s Board of Directors’ recommendation that GETCO unitholders vote “FOR” approval of the merger agreement, however, are made as of the date of this document. For a description of the opinions that GETCO and Knight received from their respective financial advisors, please refer to “The Mergers—Opinion of Sandler O’Neill” beginning on page [    ] and “The Mergers—Opinion of BofA Merrill Lynch” beginning on page [    ].

GETCO’s unaudited prospective financial information is based on various assumptions that may not prove to be correct

The unaudited prospective financial information set forth in the forecast included under “The Mergers—Certain Unaudited Prospective Financial Information” beginning on page [    ] is based on assumptions of, and information available to, GETCO, at the time they were prepared and provided to Knight and Knight’s and GETCO’s financial advisors. GETCO does not know whether the assumptions they made will prove correct. Any or all of such information may turn out to be wrong. Such information can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond GETCO’s control. Many factors mentioned in this joint proxy statement/prospectus, including the risks outlined in “Risk Factors” beginning on page [    ], the events and/or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [    ] and the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GETCOQuantitative and Qualitative Disclosures About Market Risks” beginning on page [    ] will be important in determining GETCO’s and/or KCG’s future results. As a result of these contingencies, actual future results may vary materially from GETCO’s estimates. In view of these uncertainties, the inclusion of certain GETCO unaudited prospective financial information in this joint proxy statement/prospectus is not and should not be viewed as a representation that the forecasted results will be achieved.

 

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The unaudited prospective financial information presented herein was prepared solely for internal use and not prepared with a view toward public disclosure or toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made. GETCO reviews and updates its internal projections regularly and has revised its internal projections included in this joint proxy statement/prospectus since December 2012 based on, among other things, actual experience and business developments. However, neither GETCO nor KCG undertakes any obligation to update the unaudited prospective financial information herein to reflect events or circumstances after the date such unaudited prospective financial information was prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The unaudited prospective financial information included in this joint proxy statement/prospectus has been prepared by GETCO. Moreover, neither GETCO’s independent accountants, PricewaterhouseCoopers LLP, nor any other independent accountants have compiled, examined or performed any procedures with respect to GETCO’s unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and, accordingly, PricewaterhouseCoopers LLP assumes no responsibility for GETCO’s unaudited prospective financial information. The PricewaterhouseCoopers LLP report included in this joint proxy statement/prospectus related to the GETCO financial statements and related notes for the year ended December 31, 2011, which appear in this document under the heading “Index to GETCO Financial Statements” on page [    ], relates to the historical financial information of GETCO. It does not extend to the unaudited prospective financial information and should not be read to do so. See “The Mergers—Certain Unaudited Prospective Financial Information” beginning on page [    ] for more information.

Purported stockholder class action/derivative complaints have been filed against Knight, GETCO, GA-GTCO, the members of Knight’s board of directors, and certain large stockholders of Knight; an unfavorable judgment or ruling in these lawsuits could prevent or delay the consummation of the mergers and result in substantial costs

Since the announcement of the mergers, several putative class action and/or derivative lawsuits have been filed by purported stockholders of Knight challenging the mergers. The actions generally allege, among other things, that Knight’s directors breached their fiduciary duties by approving the merger agreement and the mergers at an unfairly low price, by agreeing to certain provisions in the merger agreement and to certain voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight, and that certain of Knight’s directors have conflicts of interest in connection with the transaction because they were appointed by an investor group that included GETCO. Some of the actions allege that certain stockholders of Knight breached alleged fiduciary duties in connection with the Knight board’s approval of the merger. Various of the actions also allege that Knight, GETCO, GA-GTCO and/or General Atlantic aided and abetted the Knight board of directors’ alleged breaches of fiduciary duty. The actions seek, among other relief, to enjoin the mergers. In addition, one action asserts derivative claims against the seven Knight directors who served as of August 1, 2012, alleging that those directors breached their fiduciary duties and wasted corporate assets by failing to erect and oversee effective safeguards to prevent against trading incidents, such as the one that occurred on August 1, 2012, for which Knight incurred a realized pre-tax loss of approximately $457.6 million. The derivative claims seek, among other things, an order requiring the relevant Knight directors to pay restitution and/or compensatory damages. The defense or settlement of any lawsuit or claim may adversely affect KCG’s business, financial condition or results of operations. See “The Mergers—Litigation Relating to the Mergers.”

If the financing contemplated by the commitment letter is not available, the mergers may not be completed or the terms of any alternative financing that is obtained may be less favorable than those contemplated by the commitment letter

On December 19, 2012, GETCO entered into a commitment letter with Jefferies Finance and, on February 5, 2013, GETCO and Jefferies Finance entered into a related joinder agreement with Goldman Sachs.

 

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Pursuant to the commitment letter and the joinder agreement, Jefferies Finance and Goldman Sachs committed to provide a first lien term loan facility in an aggregate principal amount of $450.0 million, a first lien revolving facility in an aggregate principal amount of $20.0 million and a second lien bridge loan facility in an aggregate principal amount of up to $550.0 million. In addition, Jefferies & Company, Inc. and Goldman Sachs & Co. are expected to arrange an offering of senior secured second lien notes by KCG that, if consummated, would yield aggregate gross proceeds of $550.0 million. The proceeds of the senior secured second lien notes would reduce or eliminate the need for the second lien bridge loan facility or, if the second lien bridge loan facility were previously funded, be used to repay the bridge loans made thereunder. The debt financing commitment is subject to various conditions, including no event having occurred that would have a material adverse effect on Knight, GETCO having a sufficient level of cash, the contribution in cash of $55.0 million by affiliates of General Atlantic, the execution of satisfactory documentation and other customary closing conditions. For a more detailed discussion of the conditions to the debt financing commitment, see “The Mergers—Financing Matters—Conditions to the First Lien Credit Facilities and Second Lien Bridge Loan Facility” beginning on page [    ].

GETCO’s obligation to complete the mergers is not subject to a financing condition. If the financing cannot be obtained the mergers may not be completed. In the event the financing contemplated by the commitment letter becomes unavailable and alternative financing is obtained, such alternative financing might be on less favorable terms and conditions than those contemplated by the commitment letter.

Jefferies is one of GETCO’s financial advisors, has committed to provide financing for the mergers and is the largest beneficial owner of stock in Knight, and may have interests that are different from those of GETCO unitholders generally

Jefferies may have interests in the transactions that are different from, or in addition to, the interests of GETCO unitholders and Knight stockholders generally. These interests may present Jefferies with actual or potential conflicts of interest. Jefferies is acting as financial advisor to GETCO in connection with the mergers and has committed to provide financing for the mergers, for which it will receive compensation. Jefferies is also a stockholder of Knight and, prior to consummation of the proposed transactions, may be deemed to beneficially own approximately 23% of the shares of Knight common stock (assuming conversion of all of the shares of Knight Series A-1 Preferred Stock), making it the largest beneficial holder. For more information relating to Jefferies’ role, see “The Mergers—Interests of Jefferies in the Mergers” beginning on page [    ].

Knight and GETCO will incur substantial transaction-related costs in connection with the mergers

Knight and GETCO expect to incur a number of non-recurring transaction-related costs associated with completing the mergers, combining the operations of the two companies and achieving desired synergies. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of Knight and GETCO. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time. Thus, any net benefit may not be achieved in the near term, the long term or at all.

Risk Factors Relating to the Warrants

For a complete description of the warrant agreement and the warrants, see “The Merger Agreement—Warrant Agreement and the Warrants” beginning on page [    ].

The value of the warrants to be issued in the GETCO merger is speculative

The value of the warrants to be issued as part of the GETCO merger consideration is speculative. In the event that the value of KCG common stock does not exceed the exercise price of the warrants during the periods

 

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when the warrants are exercisable, the warrants may have limited or no value. Because the market for the warrants may be limited, volatile or sporadic, warrant holders may have to bear the economic consequences of holding such warrants for the entire term of the warrants.

There may not be a trading market for the warrants

The warrants will not be listed or displayed on any securities exchange or electronic communications network. There can be no assurance that any market will develop for the warrants. Even if there is a secondary market, it may not provide significant liquidity and transactions costs may be high. As a result, the difference between bid and asked prices for the warrants in any secondary market could be substantial.

Holders who exercise their warrants for shares of KCG common stock will incur immediate and future dilution

Upon exercise of warrants for shares of KCG common stock, holders could experience immediate and substantial dilution if the exercise price of the warrants at the time were higher than the net tangible book value per share of the outstanding KCG common stock. In addition, holders will experience dilution (subject to the anti-dilution protections contained in the warrants and described herein) when KCG issues additional shares of common stock.

Holders of the warrants will have no rights as common stockholders of KCG until they acquire KCG common stock

Until a holder acquires shares of KCG common stock upon exercise of the warrants, such holder will have no rights with respect to KCG common stock, including rights to receive dividend payments, to vote or to respond to tender offers. Upon exercise of the warrants, a holder will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

The exercise price of, and the number of shares underlying, the warrants may not be adjusted for all dilutive events

The exercise price of, and the number of shares underlying, the warrants are subject to adjustment for certain events, including, but not limited to, stock splits, subdivisions, reclassifications or combinations, certain issuances of common shares or convertible securities, certain distributions of securities, indebtedness, assets, rights or warrants, certain share repurchases and certain cash dividends as described in “The Merger Agreement—Warrant Agreement and the Warrants—Adjustments to Prevent Dilution” on page [    ]. The exercise price will not be adjusted, however, for other events, such as a third-party tender or exchange offer, a merger or reorganization in which KCG common stock is acquired for cash or an issuance of common stock for cash, that may adversely affect the trading price of the warrants or KCG common stock. Other events that adversely affect the value of the warrants may occur that do not result in an adjustment to such exercise price.

The warrant agreement is not an indenture qualified under the Trust Indenture Act, and the obligations of the warrant agent are limited

The warrant agreement is not an indenture qualified under the Trust Indenture Act of 1939, as amended, which we refer to as the TIA, and the warrant agent is not a trustee qualified under the TIA. Accordingly, warrantholders will not have the benefits of the protections of the TIA. Under the terms of the warrant agreement, the warrant agent will have only limited obligations to the warrantholders. Accordingly, it may in some circumstances be difficult for warrantholders, acting individually or collectively, to take actions to enforce their rights under the warrants or the warrant agreement.

Risk Factors Relating to the Combined Company Following the Mergers

A number of industry-related risks may adversely affect the business, financial condition and operating results of KCG. The risks described below are not the only risks facing KCG. Additional risks and uncertainties not currently known to us also may adversely affect our business, financial condition and/or operating results in a material manner. In addition, KCG may also be affected by general risks not directly related to its business, including, but not limited to, acts of war, terrorism and natural disasters.

 

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Conditions in the financial services industry and the securities markets may adversely affect KCG’s trading volumes and market liquidity

KCG’s business will be primarily transaction-based, and declines in trading volumes, volatility, prices, commission rates or market liquidity could adversely affect its business and profitability. Declines in the volume of equities, fixed income and other financial instruments transactions and in volatility and market liquidity generally result in lower revenues from market making and transaction execution activities. Lower price levels of securities and other instruments and tightening spreads may also result in reduced revenue capture, and thereby reduced revenues from trade executions. Declines in market values of securities or other financial instruments can result in illiquid markets, losses on securities or other instruments held in inventory, the failure of buyers and sellers to fulfill their obligations and settle their trades, and increases in claims and litigation. Accordingly, reductions in trading volumes, volatility, prices, commission rates or market liquidity could materially affect KCG’s business and profitability.

KCG’s future operating results may fluctuate significantly as a result of numerous factors

KCG may experience significant variation in its future results of operations. These fluctuations in KCG’s future performance may result from numerous factors, including, among other things, market conditions and the resulting volatility, credit and counterparty risks that may result; introductions of, or enhancements to, trade execution services by KCG or its competitors; the value of KCG’s securities positions and other financial instruments and KCG’s ability to manage the risks attendant thereto; the volume of KCG’s market making and trade execution activities; the dollar value of securities and other instruments traded; the composition and profile of KCG’s order flow; KCG’s market share with institutional and broker-dealer clients; the performance, size and volatility of KCG’s client market making portfolios; the performance, size and volatility of KCG’s non-client principal trading activities (including high frequency trading); KCG’s ability to design, build and effectively deploy the necessary low-latency technologies and operations to support all of its trading activities and enable KCG to remain competitive; movements of credit spreads; origination of home equity conversion mortgages, which we refer to as HECMs, and HECM mortgage backed securities, which we refer to as HMBS; securitization volumes; the overall size of KCG’s balance sheet and capital usage; KCG’s high level of indebtedness and covenants that limit its operational flexibility; the potential impairment of goodwill and/or intangible assets; the performance of KCG’s global operations, trading technology and technology infrastructure; costs associated with overall business growth; the effectiveness of KCG’s self-clearing and futures platforms and KCG’s ability to manage risk related thereto; the availability of credit and liquidity in the marketplace; erroneous trade orders being submitted by KCG on account of technology or other issues (such as occurred at Knight on August 1, 2012) and consequences thereof; the performance, operation and connectivity to various market centers; KCG’s ability to manage personnel, compensation, overhead and other expenses; the strength of KCG’s client relationships; changes in payments for order flow; changes to execution quality and changes in clearing, execution and regulatory transaction costs; interest rate movements; the addition or loss of executive management, sales, trading and technology professionals; legislative, legal, regulatory and financial reporting changes; legal, regulatory matters or proceedings; geopolitical risk; the amount, timing and cost of capital expenditures, acquisitions and divestitures; the integration of the businesses of Knight and GETCO and KCG’s ability to eliminate certain duplicative costs and realize other efficiencies and revenue opportunities related to such integration; the integration, performance and operation of acquired businesses; the incurrence of costs associated with acquisitions and dispositions; investor sentiment; technological changes and events; seasonality; competition; and other economic conditions.

Such factors may also have an impact on KCG’s ability to achieve its strategic objectives, including, without limitation, increases in market share, growth and profitability in its operating segments. If demand for KCG’s services declines or its performance deteriorates significantly due to any of the above factors, and KCG is unable to adjust its cost structure on a timely basis, its operating results could be materially and adversely affected.

 

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KCG trading activities will expose it to the risk of significant losses

Each of Knight and GETCO has, historically, conducted and KCG will, following the completion of the mergers, conduct the vast majority of its trading activities as a principal, which subjects its capital to significant risks. These activities will involve the purchase, sale or short sale of securities and other financial instruments for KCG’s own account and, accordingly, will involve risks of price fluctuations and illiquidity, or rapid changes in the liquidity of markets that may limit or restrict KCG’s ability to either resell securities or other financial instruments KCG purchases or to repurchase securities or other financial instruments KCG sells in such transactions. From time to time, KCG may have large position concentrations in securities or other financial instruments of a single issuer or issuers engaged in a specific industry, which could result in higher trading losses than would occur if KCG’s positions and activities were less concentrated. The performance of KCG’s trading activities primarily will depend upon its ability to attract order flow, the composition and profile of its order flow, the dollar value of securities and other financial instruments traded, the performance, size and volatility of KCG’s market making portfolios, the performance, size and volatility of KCG’s client and non-client principal trading activities (including high frequency trading), market interaction, the skill of KCG’s trading personnel, the ability of KCG to design, build and effectively deploy the necessary low-latency technologies and operations to support all of its trading activities and enable KCG to remain competitive, general market conditions, effective hedging strategies and risk management processes, the price volatility of specific securities or other financial instruments, and the availability and allocation of capital. To attract order flow, KCG will have to be competitive on price, size of securities positions and other financial instruments traded, liquidity offerings, order execution speed, technology, reputation, payment for order flow, and client relationships and service. In KCG’s role as a market maker, it will attempt to derive a profit from the difference between the prices at which it buys and sells securities. However, competitive forces and regulatory requirements often will require KCG to match, or improve upon, the quotes other market makers display and to hold varying amounts of securities in inventory. By having to maintain inventory positions, KCG will be subject to a high degree of risk. There can be no assurance that KCG will be able to manage such risk successfully or that KCG will not experience significant losses from such activities. For example, on August 1, 2012, at the open of trading at the NYSE, Knight experienced a technology issue related to the installation of trading software which resulted in Knight’s broker dealer subsidiary, Knight Capital Americas LLC, sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. Knight Capital Americas LLC subsequently traded out of its entire erroneous trade position, which resulted in a realized pre-tax loss of approximately $457.6 million. All of the above factors could have a material adverse effect on KCG’s business, financial condition and operating results.

Regulatory and legal uncertainties could harm KCG’s business

The capital markets industry in the U.S. and abroad where KCG will conduct its business is subject to extensive oversight under federal, state and applicable foreign laws, rules and regulations, as well as the rules of self-regulatory organizations, which we refer to as SROs. Broker-dealers, investment advisors, mortgage brokers and financial services firms are subject to regulations concerning all aspects of their businesses, including trade practices, best execution practices, capital adequacy, record-keeping, anti-money laundering, fair and requisite disclosure, and the conduct of their officers, supervisors and employees. KCG’s operations and profitability may be directly affected by, among other things, additional legislation or regulation, or changes in rules promulgated by domestic or foreign governments or regulators; and changes in the interpretation or enforcement of existing laws, regulations and rules. Failure to comply with these laws, rules or regulations could result in, among other things, administrative or court proceedings, censure, fines, the issuance of cease-and-desist orders or injunctions, loss of membership, or the suspension or disqualification of the market participant or broker-dealer, and/or their officers, supervisors or employees. KCG’s ability to comply with applicable laws, regulations and rules will be largely dependent on its internal systems to ensure compliance, as well as its ability to attract and retain qualified compliance personnel. Each of KCG’s regulators will engage in a series of periodic and special examinations and investigations to monitor compliance with such laws, rules and regulations that may result in disciplinary actions in the future due to alleged noncompliance.

 

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Federal, state and foreign legislators, regulators and SROs are constantly proposing, or enacting, new regulations which may impact KCG’s business. These rules include rules regarding: a consolidated audit trail, dark pool regulation, increased transaction and other fees, transaction taxes, enhanced requirements regarding market access (including SEC Rule 15c3-5) and for technology testing and implementation, increased obligations for market makers, higher capital requirements, and market access and order routing limitations. In addition, a number of new regulations were either adopted or implemented in 2012 that impact market makers. Additionally, the SEC could raise its Section 31 fees substantially in the future in order to meet its budgetary needs.

Further, in January 2010, the SEC issued a Concept Release seeking public comment on certain market structure issues such as high frequency trading, co-location, internalization, and markets that do not publicly display price quotations including dark liquidity pools. In particular, high frequency trading continues to be the focus of extensive and rigorous regulatory scrutiny by federal, state and foreign regulators and SROs, and such scrutiny is likely to continue. Although no rules have yet been proposed in the U.S., there are market participants that continue to call upon the U.S. Congress and the SEC to propose and adopt rules that could curtail (or eliminate) high-frequency trading in some fashion, including: restrictions on colocation, order-to-execution ratios, minimum quote life, and further transaction taxes.

In addition, the financial services industry in many countries is heavily regulated, much like the U.S. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit KCG’s ability to conduct business or expand internationally. For example, the Markets in Financial Instruments Directive, which we refer to as the MiFID, which was implemented in November 2007, continues to be under review by the European Parliament. In addition, public debate in Europe regarding high-frequency trading is leading policymakers to consider laws and regulations that may impact KCG’s business. For example, financial transactions taxes in France and Italy have been adopted. In addition, in Germany, proposed legislation could, among other things, place limits on order-to-execution ratios and require all high-frequency traders on German exchanges to be authorized to trade in Germany.

Any of these laws, rules or regulations, if adopted, as well as any regulatory or legal actions or proceedings, changes in legislation or regulation, and changes in market customs and practices could have a material adverse effect on KCG’s business, financial condition and operating results.

Urban Financial Group, Inc., which we refer to as Urban, which was acquired by Knight in 2010, is subject to a complex and diverse framework of federal, state, and local laws and regulations. Failure to adhere to these laws and regulations could result in written citation, fines, suspension, or potential loss of licensing. For additional information on Urban, see “—Urban’s business is subject to substantial risks.”

KCG’s business will be subject to substantial risk from litigation, regulatory investigations and potential liability under federal, state and international laws, rules and regulations

Many aspects of KCG’s business will involve substantial risks of liability. KCG will be exposed to liability under federal, state and foreign securities laws, other federal, state and foreign laws and court decisions, as well as rules and regulations promulgated by U.S. and foreign regulators. KCG will also be subject to the risk of litigation. From time to time, Knight and GETCO, and certain of its past and present officers, directors and employees, have been, and KCG may be in the future, named as parties in legal actions, regulatory investigations and proceedings, arbitrations and administrative claims and have been subject to claims alleging the violation of such laws, rules and regulations, some of which have resulted in the payment of fines, awards, judgments and settlements. Moreover, KCG may be required to indemnify past and present officers, directors and employees in regards to these matters. Certain corporate events, such as a reduction in KCG’s workforce, could also result in additional litigation or arbitration.

 

 

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KCG could incur significant legal expenses in defending such litigations or proceedings. An adverse resolution of any current or future lawsuits, legal or regulatory proceedings or claims against KCG could have a material adverse effect on its business and reputation, financial condition and operating results. By way of example, litigation, regulatory and liability risks may arise, and the Knight technology issue of August 1, 2012 and related events are an example of developments that may result in these risks being realized. In addition, several putative class action and/or derivative lawsuits have been filed by purported stockholders of Knight challenging the mergers as described in “—Purported stockholder class action/derivative complaints have been filed against Knight, GETCO, GA-GTCO, the members of Knight’s board of directors, and certain large stockholders of Knight; an unfavorable judgment or ruling in these lawsuits could prevent or delay the consummation of the mergers and result in substantial costs.”

Substantial competition could reduce KCG’s market share and harm KCG’s financial performance

All aspects of KCG’s business will be intensely competitive. KCG will face competition in its businesses primarily from global, national and regional broker-dealers, exchanges, alternative trading systems, which we refer to as ATSs, crossing networks, electronic communication networks, which we refer to as ECNs, and dark liquidity pools. Equities competition will be based on a number of factors, including KCG’s execution standards (e.g., price, liquidity, speed and other client-defined measures), client relationships and service, reputation, payment for order flow, market structure, product and service offerings, and technology. KCG will continue to face intense competition in connection with its high frequency trading activities, and KCG’s ability to effectively compete will depend on a number of factors including its ability to design, build and effectively deploy the necessary low-latency technologies and operations to support all of its trading activities. In KCG’s fixed income and other businesses, it will face competition from global, national and regional broker-dealers who provide fixed income trade execution services, fixed income research firms, spot foreign exchange execution firms and capital markets service firms. Competition in KCG’s fixed income business will primarily be on the basis of the quality of trade execution services, quality of research, market intelligence, quality of professional personnel, price execution, consistency of performance, ability to make markets in a variety of securities, balance sheet utilization and reputation. A number of competitors of KCG’s businesses have greater financial, technical, marketing and other resources than KCG will have. Some of KCG’s competitors offer a wider range of services and financial products than KCG does and have greater name recognition and a more extensive client base. These competitors may be able to respond more quickly than KCG will be able to due to new or evolving opportunities and technologies, market changes, and client requirements and may be able to undertake more extensive promotional activities and offer more attractive terms to clients. Moreover, potential competitors have established or may establish cooperative relationships among themselves or with third parties or may consolidate to enhance their services and products. It is possible that new competitors, or alliances among competitors, may also emerge and they may acquire significant market share. The anticipated trend toward increased competition in KCG’s businesses is expected to continue and it is possible that KCG’s competitors may acquire increased market share.

As a result of the above, there can be no assurance that KCG will be able to compete effectively, which could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG could lose significant sources of revenues if it loses any of its larger clients

At times, a limited number of clients could account for a significant portion of KCG’s order flow, revenues and profitability, and KCG will expect a large portion of the future demand for, and profitability from, its trade execution services to remain concentrated within a limited number of clients. None of KCG’s clients will contractually be obligated to utilize KCG for trade execution services and, accordingly, these clients may direct their trade execution activities to other execution providers or market centers at any time. Some of these clients will have grown organically or acquired market makers and specialist firms to internalize order flow or will have

 

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entered into strategic relationships with competitors. There can be no assurance that KCG will be able to retain these major clients or that such clients will maintain or increase their demand for KCG’s trade execution services. There is a risk that the mergers themselves (i.e., the combination of Knight and GETCO), could cause certain clients of either firm to reduce the orders they send to KCG or to cease trading with KCG altogether. The loss of that order flow could have a material adverse impact on KCG’s business. Further, the integration process could result in disruption to GETCO’s or Knight’s ongoing businesses or cause issues with standards, controls, procedures and policies that adversely affect the ability of GETCO or Knight to maintain relationships with customers, or to solicit new customers. The loss, or a significant reduction, of demand for KCG’s services from any of these clients could have a material adverse effect on KCG’s business, financial condition and operating results. By way of example, as a result of the aforementioned Knight technology issue on August 1, 2012 relating to the trading software and the resultant loss, Knight experienced reduced order flow from its clients and lost certain clients. These losses could have a material adverse impact on KCG’s business. There is a risk that even after the mergers, order flow from Knight’s clients may not return to historical levels and Knight’s clients may not return or resume placing orders with Knight at prior levels.

Exposure to credit risk may adversely affect KCG’s results of operations

KCG will be at risk if issuers whose securities or other instruments KCG will hold, customers, trading counterparties, counterparties under derivative contracts or financing agreements, clearing agents, exchanges, clearing houses or other financial intermediaries or guarantors default on their obligations to KCG due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. Such defaults could have a material adverse effect on KCG’s results of operations, financial condition and cash flows.

KCG will conduct the majority of its trade executions as principal or riskless-principal with broker-dealers, financial services firms and institutional counterparties. KCG will be exposed to credit risk from its counterparties when it self-clears the securities transactions and when it clears the securities transactions through an unaffiliated clearing broker, the latter of which will be the case with a minority of KCG’s trade executions. Under the terms of the agreements between KCG and its clearing brokers, the clearing brokers will have the right to charge KCG for losses that result from a counterparty’s failure to fulfill its contractual obligations. No assurance can be given that any such counterparty will not default on its obligations, which default could have a material adverse effect on KCG’s business, financial condition and operating results.

Self-clearing exposes KCG to significant operational, financial, and liquidity risks

In 2009, Knight undertook an initiative to self-clear its securities transactions using an internally-developed platform. In addition, GETCO has historically self-cleared a portion of its transactions. These practices will remain with KCG, and it will self-clear substantially all of its domestic and international equities transactions using proprietary platforms and intends to expand across product offerings and asset classes in the future. Self-clearing will require KCG to finance the majority of its inventory and maintain margin deposits at clearing organizations. Self-clearing will expose KCG’s business to operational risks, including business disruption, operational inefficiencies, liquidity and financing risks and potentially increased expenses and lost revenue opportunities. While KCG’s clearing platform, operational processes, enhanced infrastructure, and current and future financing arrangements, have been carefully designed, KCG may nevertheless encounter difficulties that may lead to operating inefficiencies, including dissatisfaction amongst KCG’s client base, disruption in the infrastructure that supports the business, inadequate liquidity, increased margin requirements with clearing organizations and counterparties who provide financing with respect to inventories, reductions in available borrowing capacity and financial loss. Any such delay, disruption, expense or failure could adversely affect KCG’s ability to effect transactions and manage its exposure to risk. Moreover, any of these events could have a material adverse effect on KCG’s business, financial condition and operating results.

 

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KCG may not be able to keep up with rapid technological and other changes or adequately protect its intellectual property

The markets in which KCG will compete are characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, introductions and enhancements, and changing client demands. If KCG is not able to keep up with these rapid changes on a timely and cost-effective basis, it may be at a competitive disadvantage. The widespread adoption of new internet, networking or telecommunications technologies or other technological changes could require KCG to incur substantial expenditures to modify or adapt our services or infrastructure. Any failure by KCG to anticipate or respond adequately to technological advancements (including advancements related to low-latency technologies, execution and messaging speeds), client requirements or changing industry standards or to adequately protect its intellectual property, or any delays in the development, introduction or availability of new services, products or enhancements, could have a material adverse effect on KCG’s business, financial condition and operating results.

Capacity constraints, systems failures and delays could harm KCG’s business

KCG’s business activities will be heavily dependent on the integrity and performance of the computer and communications systems supporting them and the services of certain third parties. KCG’s systems and operations will be vulnerable to damage or interruption from human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, terrorism and other similar events. Extraordinary trading volumes or other events could cause KCG’s computer systems to operate at an unacceptably low speed or even fail. In addition, the challenges associated with integrating Knight’s and GETCO’s technology platforms following the completion of the mergers may heighten such vulnerabilities or constraints. While KCG will have invested significant amounts of capital to upgrade the capacity, reliability and scalability of its systems, there can be no assurance that its systems will be sufficient to handle such extraordinary trading volumes and modifications themselves may result in unanticipated and undesirable consequences. For example, the August 1, 2012 Knight technology issue that led to the aforementioned trading losses related to an update of trading software. Although KCG will continually update and modify its trading software in response to changes in its business, rule changes and for various other reasons, there will be no assurances that such updates and modifications to KCG’s trading software will not result in future trading losses. Many of KCG’s systems will be, and much of its infrastructure will be, designed to accommodate additional growth without material redesign or replacement; however, KCG may need to make significant investments in additional hardware and software to accommodate growth. Failure to make necessary expansions and upgrades to its systems and infrastructure could lead to failures and delays. Such failures and delays could cause substantial losses for KCG and for its clients and could subject KCG to claims from its clients for losses, including litigation claiming, among other matters, fraud or negligence. In the past, the trading systems of both Knight and GETCO have experienced performance issues that resulted in some clients’ orders being executed at prices they did not anticipate. From time to time, Knight and GETCO have reimbursed their respective clients for losses incurred in connection with systems failures and delays.

Capacity constraints, systems failures and delays may occur in the future and could cause, among other things, unanticipated problems with KCG’s trading or operating systems, disruptions in our client and non-client market making activities, disruptions in service to our clients, slower system response times resulting in transactions not being processed as quickly as KCG’s clients desire, decreased levels of client service and client satisfaction, and harm to KCG’s reputation. If any of these events were to occur, KCG could suffer substantial financial losses, a loss of clients, or a reduction in the growth of its client base, increased operating expenses, litigation or other client claims, and regulatory sanctions or additional regulatory burdens.

For example, the aforementioned technology issue resulted in Knight’s trading systems not functioning properly, which resulted in Knight’s broker dealer subsidiary, Knight Capital Americas LLC, sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. As a result of trading out of its entire erroneous trade position, Knight realized a pre-tax loss of approximately $457.6 million. There is no assurance that KCG will not be faced with the same or similar occurrence in the future.

 

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Knight and GETCO developed business continuity capabilities that can be utilized in the event of a disaster or disruption, and KCG will have inherited these. The challenges associated with integrating Knight’s and GETCO’s business continuity capabilities following the completion of the mergers may heighten such vulnerabilities or constraints. Since the timing and impact of disasters and disruptions are unpredictable, KCG will have to be flexible in responding to actual events as they occur. Significant business disruptions can vary in their scope. A disruption might only affect KCG, a building that KCG occupies, a business district in which KCG is located, a city in which KCG is located or an entire region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. KCG’s business continuity facilities will be designed to allow it to substantially continue operations if KCG is prevented from accessing or utilizing its primary offices for an extended period of time. Although KCG will have employed significant effort to develop, implement and maintain reasonable business continuity plans, KCG will not be able to guarantee its systems will fully recover after a significant business disruption in a timely fashion. If KCG is prevented from using any of its current trading operations or any third party services, or if its business continuity operations do not work effectively, KCG may not have complete business continuity. This could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG could experience additional losses and liabilities as a result of the technology issue that arose and impacted Knight on August 1, 2012, and the events of August 1, 2012 could cause customers and counterparties to lose confidence in KCG’s systems and adversely affect KCG’s reputation, results of operations and ability to attract and maintain its business, and may also result in lawsuits, regulatory investigations and other burdensome costs for KCG

Knight experienced a technology issue at the opening of trading at the NYSE on August 1, 2012. This issue was related to its installation of trading software and resulted in Knight’s broker dealer subsidiary, Knight Capital Americas LLC, sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. Although this software was subsequently removed from Knight’s systems and the software issue was limited to the routing of certain NYSE-listed stocks, it resulted in Knight realizing a pre-tax loss of approximately $457.6 million. This severely impacted Knight’s capital base and business operations, and Knight experienced reduced order flow, liquidity pressures and harm to customer and counterparty confidence.

On account of this technology issue and its impact, Knight is currently subject to litigation by stockholders alleging that they have been damaged by this technology issue. In addition, Knight is subject to an investigation by the SEC relating to the technology issue, and other regulatory or governmental agencies may decide to conduct further investigations into the technology issue. While KCG is unable to predict the outcome of any existing or future litigation or governmental investigation, an unfavorable outcome in one or more of these matters could have a material adverse effect on KCG’s financial condition or ongoing operations. In addition, KCG may incur significant expenses in defending against the existing litigation or any other future litigation, or in connection with any governmental investigations, and in implementing technical changes and remedial measures which may be necessary or advisable. KCG may also be required to take remedial steps that could be burdensome for its business operations.

Any inability to demonstrate that KCG has fully resolved and remediated the technology issues stemming from the events of August 1, 2012 or concerns about future technology issues could cause existing customers to lose confidence in KCG’s systems and could adversely affect its reputation and its ability to attract or maintain customers and counterparties. Following the events of August 1, 2012, Knight began an internal review into such event and associated controls in order to take appropriate remedial measures based on the findings of such review and KCG will continue this endeavor. However, in the event that KCG is not able to restore the confidence of former Knight customers or counterparties as a result of the events of August 1, 2012, KCG may experience reduced business activity in its trading, market making and other businesses, which could adversely impact the results of KCG’s operations.

 

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KCG will be highly dependent on key personnel

KCG will be highly dependent on a limited number of key personnel. KCG’s success will be dependent to a large degree on our ability to retain the services of its existing key executives and to attract and retain additional qualified personnel in the future. Competition for such personnel is intense. The loss of the services of any of KCG’s key executives or the inability to identify, hire and retain necessary highly qualified executive management in the future could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG’s success will also depend, in part, on the highly skilled, and often specialized, individuals KCG employs. KCG’s ability to attract and retain management, trading, market-making, sales and technology professionals, as well as quantitative analysts and programmers will be important to KCG’s business strategy. KCG will strive to provide high quality services that will allow it to establish and maintain long-term relationships with its clients. KCG’s ability to do so will depend, in large part, upon the individual employees who represent KCG in its dealings with such clients. There can be no assurance that KCG will not lose such professionals due to increased competition or other factors in the future, or that such professionals will not leave KCG voluntarily as a result of the mergers and/or the integration of Knight and GETCO. The loss of sales, trading or technology professionals, particularly senior professionals with broad industry or technical expertise, could have a material adverse effect on KCG’s business, financial condition and operating results.

For example, in order to retain such key personnel, on December 19, 2012, Knight extended the employment contract it had with Thomas Joyce, Knight’s Chief Executive Officer and Chairman at the time to continue his service for Knight through the earlier of (i) the completion of the mergers contemplated by the merger agreement and (ii) December 31, 2014. The original employment agreement would have expired on December 31, 2012, but was extended in consideration of the desire of the Knight board of directors to ensure Mr. Joyce’s service to Knight through at least the consummation of the proposed transactions as contemplated by the merger agreement. The term of employment was consequently extended to expire on the first to occur of (i) the completion of the mergers contemplated by the merger agreement and (ii) December 31, 2014. In consideration, Mr. Joyce agreed to receive a lump sum cash payment equal to $7.5 million in lieu of his right to receive severance payments and benefits upon the completion of the transactions contemplated by the merger agreement.

KCG’s failure to achieve and maintain effective internal control in accordance with Section 404 of the Sarbanes-Oxley Act could cause investors to lose confidence in its financial statements and have a material adverse effect on KCG’s business and stock price 

Although Knight is currently subject to the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC, which we refer to as the Sarbanes-Oxley Act, GETCO and its subsidiaries have not previously been subject to the requirements of Section 404 or 302 of the Sarbanes-Oxley Act. Following the mergers it is possible that KCG’s internal control over financial reporting will not meet all of the requirements of the Sarbanes-Oxley Act.

After the mergers, KCG expects to devote considerable resources, including management’s time and other internal resources, to complying with regulatory requirements relating to internal control and the preparation of financial statements. In particular, these efforts will focus on compliance by GETCO and its subsidiaries with Section 404 and 302 of the Sarbanes-Oxley Act. If KCG cannot successfully integrate the two companies’ financial reporting processes with adequate internal controls over financial reporting, management’s assessment may be negative and/or KCG’s independent registered public accounting firm may be unable to issue an unqualified attestation report on the effectiveness of KCG’s internal control over financial reporting. This could lead to a negative reaction in the financial markets due to a loss in investor confidence, and, in turn, the market price of KCG common stock could be materially adversely affected.

 

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Urban’s business is subject to substantial risks

In July 2010, Knight acquired Urban. Urban is principally an originator of HECMs, commonly referred to as reverse mortgages, insured by the FHA. Urban originates, funds, buys and sells HECMs and securitizes and sells the HECMs as HMBS. Urban is subject to approval of, and is heavily regulated by, federal and state regulatory agencies as a mortgage lender, Government National Mortgage Association, which we refer to as GNMA, issuer, broker and servicer. The reverse mortgage business is subject to substantial risks, including market, credit, interest rate, liquidity, reputational, operational and legal risks. For example, values of mortgage assets or revenues can be adversely affected by changes in market conditions or interest rates; the secondary market for the FHA insured HECM loans is not assured; to the extent the program requires Congressional appropriations in future years, which are not forthcoming, the program could be jeopardized; and/or, consumer demand could be reduced if FHA actions result in a reduction of initial principal limit available to borrowers. In limited instances, reverse mortgages are also subject to cross-over risk that the total outstanding loan balance will exceed the value of the home securing the loan. Urban can be requested to repurchase loans under various conditions, or required to indemnify the United States Department of Housing and Urban Development, which we refer to as HUD, with respect to mortgage insurance claims. In addition, Urban faces greater responsibility and has potential administrative liability in connection with the selection and supervision of its third party originator business partners. As a GNMA issuer, Urban has additional risks and liabilities associated with the funding of advances and repurchasing of loans. Urban may be required to purchase loans under certain conditions, and repurchased loans that have become due and payable may not be assigned to HUD and must be serviced to termination. Urban will also be responsible for funding any payments due to borrowers in a timely manner, remitting to investors interest accrued, and paying for interest shortfalls. Urban is also subject to market risk on unpooled HECM balances to be securitized in subsequent HMBS participations.

All of the above factors could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG will face risks to the extent it expands its capital markets and mortgage-related activities

Expansion of KCG’s business, including its capital markets business, mortgage trading and secondary bank debt transactions may increase credit-related, liquidity, legal liability, operational and reputational concerns. In addition, as an underwriter, a broker-dealer and investment adviser, KCG will be exposed to substantial liability under the federal and state securities laws, other federal and state laws and court decisions, including decisions with respect to underwriters’ liability and limitations on the ability of issuers to indemnify underwriters, as well as with respect to the handling of customer accounts. Underwriters may be held liable for material misstatements or omissions of fact in a prospectus or other offering documents used in connection with the securities being offered, and broker-dealers may be held liable for statements made by their securities analysts or other personnel. KCG’s activities may subject it to the risk of significant legal liability to KCG’s clients and third parties, including KCG’s clients’ stockholders, under securities or other laws for materially false or misleading statements made in connection with securities and other transactions and potential liability for advice provided to participants in corporate transactions.

Acquisitions, strategic investments, divestitures and other strategic relationships involve certain risks

KCG will be the product of strategic relationships and acquisitions, and it may continue to pursue opportunistic strategic acquisitions of, investments in, or divestitures of businesses and technologies. Acquisitions may entail numerous risks, including difficulties in assessing values for acquired businesses, intangible assets and technologies, difficulties in the assimilation of acquired operations and products, diversion of management’s attention from other business concerns, employee retention issues, assumption of unknown material liabilities of acquired companies, amortization of acquired intangible assets and the potential writedown of goodwill due to impairment, which could reduce future reported earnings, or result in potential loss of clients or key employees of acquired companies. KCG may not be able to integrate successfully certain operations,

 

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personnel, services or products that it has acquired or may acquire in the future. Divestitures also entail numerous risks. The divestiture of an existing business could reduce KCG’s future operating cash flows and revenues, make our financial results more volatile, and/or cause a decline in revenues and profits. A divestiture could also cause a decline in the price of KCG’s common stock and increased reliance on other elements of our core business operations. If we do not successfully manage the risks associated with a divestiture, our business, financial condition, and results of operations could be adversely affected. KCG also may not find suitable purchasers for businesses it may wish to divest. In addition, the decision to pursue acquisitions, divestitures or other strategic transactions may jeopardize KCG’s ability to retain the services of its existing key employees and to attract and retain additional qualified personnel in the future. Strategic investments may also entail some of the other risks described above. If these investments are unsuccessful, KCG may need to incur charges against earnings. KCG may build and establish a number of strategic relationships. These relationships and others KCG may enter into in the future may be important to its business and growth prospects. KCG may not be able to maintain these relationships or develop new strategic alliances.

International activities involve certain risks

KCG will have international operations which expose it to cultural, regulatory and governmental risks. The financial services industry in many foreign countries is heavily regulated, much like the U.S. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit KCG’s ability to successfully conduct or expand our business internationally. It also may increase KCG’s costs of investment. Additionally, operating international locations involves execution risk. KCG may not be able to manage these costs or risks effectively.

The market price of KCG’s common stock could fluctuate significantly

The U.S. securities markets in general have experienced significant price fluctuations in recent years. If the market price of KCG common stock fluctuates significantly, KCG may become the subject of securities class action litigation which may result in substantial costs and a diversion of management’s attention and resources. KCG’s future quarterly operating results may not consistently meet the expectations of securities analysts or investors, which could have a material adverse effect on the market price of KCG’s common stock.

KCG has not yet determined its dividend policy and may not pay dividends

KCG has not yet determined its dividend policy, but it does not currently expect to pay dividends on its common stock. Any determination to pay dividends in the future will be at the discretion of the KCG board of directors and will depend upon among other factors, KCG’s cash requirements, financial condition, requirements to comply with the covenants under its debt instruments, earnings and legal considerations. If KCG does not pay dividends, then the return on an investment in its common stock will depend entirely upon any future appreciation in its stock price. There is no guarantee that KCG’s common stock will appreciate in value or maintain its value.

Fluctuations in currency exchange rates could adversely affect KCG’s earnings

A significant portion of KCG’s international business will be conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses. Potential exposures as a result of these fluctuations in currencies are closely monitored, and, where cost-justified, strategies are adopted that are designed to reduce the impact of these fluctuations on KCG’s financial performance. These strategies may include the financing of non-U.S. dollar assets with borrowings in the same currency and the use of various hedging transactions related to net assets, revenues, expenses or cash flows. Any material fluctuations in currencies could have a material effect on our operating results.

 

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KCG is a holding company and will depend on its subsidiaries for dividends, distributions and other payments

At the completion of the mergers, KCG will be a legal entity separate and distinct from its broker-dealer and other subsidiaries. KCG’s principal source of cash flow, including cash flow to pay principal and interest on its outstanding debt, will be dividends and distributions from its subsidiaries. There are statutory and regulatory limitations on the payment of dividends or distributions by regulated subsidiaries, such as broker-dealers. If KCG’s subsidiaries are unable to make dividend payments or distributions to it and sufficient cash or liquidity is not otherwise available, KCG may not be able to make principal and interest payments on its outstanding debt. In addition, KCG’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.

KCG may be unable to remain in compliance with the financial maintenance, liquidity and other affirmative and negative covenants contained in its debt instruments and the obligation to comply with such covenants may adversely affect its ability to operate its business

As contemplated by the commitment letter, the first lien credit facilities and the second lien bridge loan facility, if entered into, which we collectively refer to as the KCG debt facilities, will contain financial maintenance, liquidity and other affirmative and negative covenants that impose significant requirements on KCG and limit its ability to engage in certain transactions or activities. In addition, in the future KCG may enter into other debt instruments with covenants different from, and potentially more onerous than, those expected to be included in the KCG debt facilities. These covenants could limit KCG’s flexibility in managing its businesses. Further, there can be no assurance that KCG will be able to generate sufficient earnings to enable KCG to satisfy the financial maintenance, liquidity and other affirmative and negative covenants included in its debt instruments. In the event that KCG is unable to either comply with these restrictions and other covenants or obtain waivers from its lenders, KCG would be in default under these debt instruments and, among other things, KCG’s debt could be accelerated by its lenders. In such case, KCG might not be able to repay its debt or borrow sufficient funds to refinance its debt on commercially reasonable terms, or on terms that are acceptable to KCG, which could have an adverse effect on its financial condition.

In connection with the mergers, KCG will enter into a first lien credit facility and may enter into a second lien bridge loan facility, each of which will contain customary financial maintenance, liquidity and other affirmative and negative covenants for facilities of its type and customary exceptions, qualifications and “baskets” to be agreed upon. The negative covenants will include, among other things, limitations on liens, sale and lease back transactions, asset sales, mergers and acquisitions, capital expenditures, limitations on issuance of capital stock and creation of subsidiaries and limitations on business activities.

The first lien credit facilities are expected to have the following financial maintenance covenants:

 

   

a maximum consolidated first lien leverage ratio of 1.75:1.00;

 

   

a minimum consolidated interest coverage ratio at a level to be mutually agreed upon;

 

   

a minimum consolidated tangible net worth of $1.0 billion;

 

   

a maximum ratio of (a) consolidated tangible assets to (b) consolidated tangible net worth (excluding assets of, and that portion of consolidated tangible net worth attributable to, Urban, a subsidiary of Knight) of 6.00:1.00; and

 

   

unrestricted cash and cash equivalents of KCG (on a stand-alone basis) of not less than $150.0 million (subject to certain exceptions).

The second lien bridge loan facility, if entered into, is expected to have the following financial maintenance covenants:

 

   

a minimum consolidated tangible net worth of $900.0 million;

 

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a maximum ratio of (a) consolidated tangible assets to (b) consolidated tangible net worth (excluding assets of, and that portion of consolidated tangible net worth attributable to, Urban) of 6.00:1.00; and

 

   

unrestricted cash and cash equivalents of KCG (on a stand-alone basis) of not less than $150.0 million (subject to certain exceptions).

The terms of the senior secured second lien notes have not yet been determined and are subject to negotiation with the initial purchasers at the time of the offering. The senior secured second lien notes are expected to be guaranteed and secured on the same terms as the second lien bridge loan facility.

For a more detailed discussion of the terms of the financing, see “The Mergers—Financing Matters” beginning on page [    ].

KCG’s futures business will present various risks

Knight acquired certain assets of the futures division of Penson Financial Services, Inc. in June 2012, and KCG’s continuation of this business presents various risks. This Futures Commission Merchant business, which we refer to as the FCM business, is relatively new, and moreover, client activities could expose KCG to risk in the event the FCM client is unable to fulfill its contracted obligation as KCG guarantees the performance of its clients to the respective clearing houses or other brokers. There can be no assurance that KCG will be able to continue to integrate the FCM business into KCG’s own operations successfully, manage the credit risk effectively, or that KCG will profitably operate the FCM. Additionally, the bankruptcy of MF Global Holdings, Ltd., Penson Financial Services, Inc. and the fraud allegations against Peregrine Financial Group Inc. in 2012 have led to increased regulatory scrutiny and decreased client confidence in the U.S. futures industry. Any additional regulatory restrictions enacted in response to these developments could be costly or KCG may be unable to comply. Reduced client confidence in the futures industry may lead to significantly decreased trading volume. If any of these risks were to materialize, they could cause KCG to experience losses that could affect the profitability of KCG’s FCM business and potentially restrict KCG’s ability to grow the FCM business.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document, including information included or incorporated by reference in this document contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 giving Knight’s, GETCO’s and/or KCG’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could” or “may”, or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties which change over time. Forward-looking statements include, among other information, the information concerning possible or assumed future results of operations contained under “Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Data” beginning on page [    ], “Comparative Per Share/Unit Data” beginning on page [    ], “Information About the Companies—Knight Holdco, Inc.” beginning on page [    ], “Knight’s Reasons for the Mergers and Recommendation of Knight’s Board of Directors” beginning on page [    ], “Opinion of Sandler O’Neill” beginning on page [    ], “GETCO’s Reasons for the Mergers and Recommendation of GETCO’s Board of Directors” beginning on page [    ], “Opinion of BofA Merrill Lynch” beginning on page [    ], “Certain GETCO Unaudited Prospective Financial Information” beginning on page [    ] and “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page [    ]. Forward-looking statements speak only as of the date they are made and Knight, GETCO and KCG assume no duty to update forward-looking statements.

In addition to factors previously disclosed in Knight’s reports filed with the SEC and those identified elsewhere in this filing (including the “Risk Factors” beginning on page [    ]), the following factors among others, could cause actual results to differ materially from forward-looking statements or historical performance:

 

   

fluctuations in the market price of KCG common stock and the related effect on the market value of the merger consideration that Knight stockholders and GETCO unitholders will receive upon completion of the merger;

 

   

ability to obtain regulatory approvals and meet other closing conditions to the mergers, including approval by Knight stockholders and GETCO voting unitholders, on the expected terms and schedule;

 

   

delay in closing the merger;

 

   

difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits;

 

   

business disruption following the mergers;

 

   

the possibility that the mergers and the related integration process could result in the loss of key employees, in the disruption of on-going business and in the loss of customers;

 

   

business uncertainties and contractual restrictions while the mergers are pending;

 

   

changes in circumstances between the signing of the merger agreement and the completion of the mergers, which will not be reflected in the opinions obtained by Knight or GETCO from their respective financial advisors;

 

   

potential negative impacts on Knight or GETCO if the merger agreement is terminated;

 

   

changes in asset quality and credit risk;

 

   

inability to sustain revenue and earnings growth;

 

   

changes in interest rates and capital markets;

 

   

inflation or deflation;

 

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the exposure of litigation, including the possibility that litigation related to the merger agreement and related transactions could delay or impede completion of the mergers;

 

   

customer acceptance of Knight and GETCO’s products and services, and of the mergers;

 

   

the introduction, withdrawal, success and timing of business initiatives;

 

   

competitive conditions;

 

   

the inability to maintain relationships with customers and key employees;

 

   

the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures;

 

   

economic conditions;

 

   

the challenges of integrating the companies’ financial reporting and internal control systems, particularly in light of the fact that GETCO, as a private company, has not been subject to the requirements of Section 404 of the Sarbanes-Oxley Act;

 

   

the impact, extent and timing of technological changes, capital management activities, and regulatory requirements; and

 

   

the factors set forth in or incorporated by reference into this joint proxy statement/prospectus in the section entitled “Risk Factors” beginning on page [    ].

Additional factors that could cause Knight’s results to differ materially from those described in the forward-looking statements can be found in Knight’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. See “Incorporation of Certain Documents by Reference” on page [    ] for a description of where you can find this information. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to Knight, GETCO or KCG or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to within this joint proxy statement/prospectus. Forward-looking statements speak only as of the date on which such statements are made. Knight, GETCO and KCG undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

 

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THE KNIGHT SPECIAL MEETING

General

This section contains information from Knight for Knight common stockholders and holders of Knight Series A-1 Preferred Stock about the special meeting Knight has called to consider and vote upon the following matters:

 

   

a proposal to approve and adopt the merger agreement and the mergers;

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement and the mergers; and

 

   

a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Knight’s named executive officers in connection with the mergers.

We are mailing this joint proxy statement/prospectus to you, as a Knight common stockholder or holder of Knight Series A-1 Preferred Stock, on or about [                    ], 2013. Together with this joint proxy statement/prospectus, we are also sending to you a notice of the special meeting of Knight stockholders and a form of proxy card that Knight’s board of directors is soliciting for use at the special meeting and at any adjournments, postponements or continuations of the special meeting.

This joint proxy statement/prospectus is also being furnished by KCG to Knight stockholders as a prospectus in connection with the issuance of shares of KCG common stock and KCG Series A-1 Preferred Stock upon completion of the mergers.

Date, Time and Place of the Knight Special Meeting

On [                    ], 2013, the special meeting will be held at [            ], at [            ]:00 [            ].m., local time.

Knight Record Date; Shares Entitled to Vote

The Knight board of directors has fixed the close of business on [                    ], 2013 as the record date for determining the holders of Knight common stock and Knight Series A-1 Preferred Stock entitled to receive notice of and to vote at the Knight special meeting. As of the record date, [            ] shares of Knight common stock were issued and outstanding and held by approximately [            ] record holders, and [            ] shares of Knight Series A-1 Preferred Stock were issued and outstanding and held by approximately [            ] record holders. Each share of Knight common stock entitles the holder to one vote on each proposal to be considered at the Knight special meeting. When voting together (on an as-converted basis) with the Knight common stock at the Knight special meeting, each share of Knight Series A-1 Preferred Stock entitles the holder to a number of votes equal to the largest number of whole shares of Knight common stock that such share of Knight Series A-1 Preferred Stock could be converted into on the record date for the Knight special meeting; each share of Knight Series A-1 Preferred Stock is currently convertible into 666.67 shares of Knight common stock. When voting separately as a class on the merger proposal at the Knight special meeting, each share of Knight Series A-1 Preferred Stock entitles the holder to one vote on such proposal.

Quorum

The representation (in person or by proxy) of holders of at least a majority of the votes entitled to be cast on the matters to be voted on at the Knight special meeting constitutes a quorum for transacting business at the Knight special meeting. All shares of Knight common stock and Knight Series A-1 Preferred Stock, whether present in person or represented by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Knight special meeting.

Vote Required

We cannot complete the mergers described above unless holders of a majority of the Knight common stock and Knight Series A-1 Preferred Stock (voting together with the Knight common stock on an as-converted basis)

 

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who are entitled to vote at the Knight special meeting vote to approve the merger proposal. Pursuant to the terms of the Knight Series A-1 Preferred Stock, as long as at least 133,334 shares of Knight Series A-1 Preferred Stock remain issued and outstanding, certain authorizations or issuances of capital stock of Knight or of certain related parties cannot be completed without the affirmative vote of the holders of a majority of the issued and outstanding Knight Series A-1 Preferred Stock, voting separately as a class. As of February 6, 2012, there were 239,844 shares of Knight Series A-1 Preferred Stock issued and outstanding. Accordingly, we currently expect that we also will not be able to complete the mergers unless holders of a majority of the Knight Series A-1 Preferred Stock who are entitled to vote at the Knight special meeting, voting separately as a class, vote to approve the merger proposal. However, if fewer than 133,334 shares of Knight Series A-1 Preferred Stock are issued and outstanding at the time of the Knight special meeting (including as a result of a mandatory conversion of the Knight Series A-1 Preferred Stock into Knight common stock, as described in “The Merger Agreement—Merger Consideration; Conversion of Shares and Units” beginning on page [    ]), approval of the merger proposal will not require the affirmative vote of the holders of a majority of the issued and outstanding Knight Series A-1 Preferred Stock, voting separately as a class, and no such vote will be held.

If a quorum is present at the Knight special meeting, the Knight compensation proposal will be approved if the holders of a majority of the total number of votes present in person or represented by proxy and entitled to vote on the Knight compensation proposal (including votes cast by holders of the Knight common stock and the Knight Series A-1 Preferred Stock, voting together with the Knight common stock on an as-converted basis) vote “FOR” the proposal. The adjournment proposal will be approved if the holders of a majority of the total number of votes present in person or represented by proxy and entitled to vote on the adjournment proposal (including votes cast by holders of the Knight common stock and the Knight Series A-1 Preferred Stock, voting together with the Knight common stock on an as-converted basis) vote “FOR” the proposal, even if a quorum is not present. There is no separate class vote of the Knight Series A-1 Preferred Stock for either the adjournment proposal or the Knight compensation proposal.

Recommendation of the Board of Directors

The Knight Board of Directors recommends that you vote “FOR” approval of the merger proposal, “FOR” the approval of the adjournment proposal, if necessary or appropriate, and “FOR” the approval of the Knight compensation proposal.

Voting by Knight’s Directors and Executive Officers; GETCO Ownership

As of the record date, directors and executive officers of Knight and their affiliates owned and were entitled to vote [            ] shares of Knight common stock and [            ] shares of Knight Series A-1 Preferred Stock, representing, in aggregate, approximately [    ]% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and [    ]% of the shares of Knight Series A-1 Preferred Stock outstanding on that date. Knight currently expects that Knight’s directors and executive officers will vote their shares in favor of the merger proposal, although none of them has entered into any agreements obligating them to do so. As of the record date, GETCO beneficially held [            ] shares of Knight’s common stock and [            ] shares of Knight Series A-1 Preferred Stock, representing an aggregate voting percentage of approximately [    ]% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and [    ]% of the shares of Knight Series A-1 Preferred Stock outstanding on that date.

Voting by TD Ameritrade

On December 19, 2012, GETCO entered into a voting and support agreement with TD Ameritrade, pursuant to which TD Ameritrade agreed to vote or cause to be voted all the Knight common stock and Knight Series A-1 Preferred Stock owned by it and entitled to vote on the merger agreement in favor of the merger proposal. As of February 6, 2013, TD Ameritrade owned 39,000 shares of Knight Series A-1 Preferred Stock, representing, in

 

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the aggregate, approximately 7.3% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and 16.3% of the Knight Series A-1 Preferred Stock outstanding as of that date. The shares covered by TD Ameritrade’s voting agreement, taken together with the shares of Knight Series A-1 Preferred Stock owned by GETCO as of that date, represented approximately 23% of the total voting power of Knight (taking into account the Knight Series A-1 Preferred Stock on an as-converted basis) and 52% of the Knight Series A-1 Preferred Stock outstanding as of that date. TD Ameritrade also agreed, generally, not to dispose of its Knight shares prior to the Knight special meeting, to refrain from procuring any competitive proposal that would interfere with the merger and to vote in favor of the adjournment proposal if there are insufficient votes for approving and adopting the merger agreement at the Knight special meeting.

Voting of Proxies

Each copy of this document mailed to holders of Knight common stock and Knight Series A-1 Preferred Stock is accompanied by a form of proxy with instructions for voting. Giving a proxy means that you authorize the persons named in the enclosed proxy card to vote your shares at the Knight special meeting in the manner you direct. You may vote by proxy or in person at the Knight special meeting.

If any proxy is returned without indication as to how to vote, the shares of Knight common stock or Knight Series A-1 Preferred Stock represented by the proxy will be voted as recommended by the Knight board of directors. Unless you check the box on your proxy card to withhold discretionary authority, the proxyholders may use their discretion to vote on other matters relating to the Knight special meeting, if any.

If your shares are held in “street name” by a broker, bank or other nominee, you should check the voting form used by that firm to determine whether you may vote by telephone or the Internet.

How to Vote

If you own shares of Knight common stock or Knight Series A-1 Preferred Stock in your own name, you are an “owner of record.” This means that you may use the enclosed proxy card(s) to tell the persons named as proxies how to vote your shares of Knight common stock or Knight Series A-1 Preferred Stock. If you fail to vote, the proxies cannot vote your shares of Knight stock at the Knight special meeting. If you hold your shares of Knight common stock or Knight Series A-1 Preferred Stock in your name as a stockholder of record, to submit a proxy, you, as a Knight stockholder, may use one of the following methods:

 

   

By telephone: Use any touch-tone telephone to vote your proxy 24 hours a day, seven days a week. Have your proxy card handy when you call. You will be prompted to enter your control number(s), which is located on your proxy card, and then follow the directions given. The telephone voting system is available until 11:59 p.m., Eastern time, on the day preceding the meeting.

 

   

Through the Internet: Use the Internet to vote your proxy 24 hours a day, seven days a week. Have your proxy card handy when you access the website. You will be prompted to enter your control number(s), which is located on your proxy card, to create and submit an electronic ballot. The Internet voting system is available until 11:59 p.m., Eastern time, on the day preceding the meeting.

 

   

By mail: Complete and return the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the U.S.

 

   

In person: You may come to the Knight special meeting and cast your vote there. If your shares of Knight common stock are held in a stock brokerage account or through a bank, broker or other nominee, or, in other words, in street name, you must bring a letter from your bank, broker or nominee identifying you as the beneficial owner of the shares and authorizing you to vote such shares at the Knight special meeting.

Knight requests that Knight stockholders vote by telephone, over the Internet or by completing and signing the accompanying proxy and returning it to Knight as soon as possible in the enclosed postage-paid envelope.

 

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When the accompanying proxy is returned to Knight properly executed, the shares of Knight stock represented by it will be voted at the Knight special meeting in accordance with the instructions contained on the proxy card.

The named proxies will vote all shares at the meeting that have been properly voted (whether by Internet, telephone or mail) and not revoked. If you sign and return your proxy card(s) but do not mark your card(s) to tell the proxies how to vote your shares on the proposal, your proxy will be voted “FOR” the merger proposal, “FOR” the adjournment proposal, if necessary or appropriate and “FOR” the Knight compensation proposal.

Shares Held in “Street Name”

If you are a Knight stockholder and your shares are held in “street name” through a bank, broker or other holder of record, you must provide such firm holding your shares with instructions on how to vote the shares. Please follow the voting instructions provided by the bank or broker. You may not vote shares held in street name by returning a proxy card directly to Knight or by voting in person at the Knight special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Further, brokers, banks or other nominees who hold shares of Knight common stock or Knight Series A-1 Preferred Stock on behalf of their customers may not give a proxy to Knight to vote those shares with respect to any of the proposals without specific instructions from their customers, since brokers, banks and other nominees do not have discretionary voting power on these matters. Therefore, if you are a Knight stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

   

your broker, bank or other nominee may not vote your shares on the merger agreement and the mergers, which will have the same effect as a vote “AGAINST” the merger proposal; and

 

   

your broker, bank or other nominee may not vote your shares with respect to the adjournment proposal or the Knight compensation proposal.

A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in street name to direct their vote over the Internet or by telephone. This option, if available, will be reflected in the voting instructions from the bank or brokerage firm that accompany this joint proxy statement/prospectus. If your shares are held in an account at a bank or other brokerage firm that participates in such a program, you may direct the vote of these shares by the Internet or telephone by following the voting instructions enclosed with the proxy form from the bank or brokerage firm.

The Internet and telephone proxy procedures are designed to authenticate stockholders identities, to allow stockholders to give their proxy voting instructions and to confirm that these instructions have been properly recorded. Votes directed by the Internet or telephone through such a program must be received by 11:59 p.m., Eastern Time, on [                    ], 2013. Directing the voting of your Knight shares will not affect your right to vote in person if you decide to attend the Knight special meeting.

Revoking Your Proxy

You have the power to change your vote at any time before your shares of Knight common stock and Knight Series A-1 Preferred Stock are voted at the Knight special meeting by:

 

   

attending and voting in person at the Knight special meeting;

 

   

giving notice of revocation of the proxy at the Knight special meeting; or

 

   

delivering to the Corporate Secretary of Knight at 545 Washington Boulevard, Jersey City, NJ 07310 (i) a written notice of revocation or (ii) a duly executed proxy card relating to the same shares and matters to be considered at the Knight special meeting, bearing a date later than the proxy card previously executed.

Attendance at the Knight special meeting will not in and of itself constitute a revocation of a proxy.

 

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If you choose to send a completed proxy card bearing a later date than your original proxy card, the new proxy card must be received before the beginning of the Knight special meeting. If you have instructed a bank, broker or other nominee to vote your shares of Knight common stock, you must follow the directions you receive from your bank, broker or other nominee in order to change or revoke your vote.

Proxy Solicitations

The cost of solicitation of proxies for the Knight special meeting will be borne by Knight. In addition to solicitation of proxies by mail, Knight will request that banks, brokers and other such firms send proxies and proxy materials to the beneficial owners of Knight common stock and Knight Series A-1 Preferred Stock and secure their voting instructions. Knight will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable expenses in taking those actions.

Knight intends to, in the near future, retain a proxy solicitation firm, to assist in the solicitation of proxies. In addition to solicitations by mail, Knight may use its directors, officers and employees, who will not be specially compensated, to solicit proxies from Knight stockholders, either personally or by telephone, facsimile, letter or other electronic means.

Other Business; Adjournment

The Knight board of directors is not aware of any other business to be acted upon at the special meeting. The persons named as proxies by a Knight stockholder may propose and vote for one or more adjournments of the Knight special meeting, including adjournments to permit further solicitations of proxies, if necessary or appropriate. Any adjournment may be made from time to time by approval of the Knight stockholders holding a majority of the voting power present in person or by proxy at the Knight special meeting (including votes cast by holders of the Knight common stock and the Knight Series A-1 Preferred Stock, voting together with the Knight common stock on an as-converted basis), whether or not a quorum exists, without further notice other than by an announcement made at the Knight special meeting.

Assistance

If you need assistance in completing your proxy card or have questions regarding Knight’s special meeting, please contact Investor Relations at (212) 222-9400 with any questions you may have. Banks and brokers may call collect at 1-800-544-7508.

 

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THE GETCO SPECIAL MEETING

General

This joint proxy statement/prospectus is being provided to voting unitholders of GETCO as part of the solicitation of votes by GETCO’s board of directors for use at the GETCO special meeting. Only holders of GETCO Class A units or Class P units as of the record date are entitled to vote at the GETCO special meeting. GETCO commenced mailing of this document to the voting unitholders on [                    ], 2013.

Together with this joint proxy statement/prospectus, we are also sending to you a notice of the special meeting of GETCO voting unitholders and a form of proxy card that GETCO’s board of directors is soliciting for use at the special meeting and at any adjournments, postponements or continuations of the special meeting.

This joint proxy statement/prospectus is also being furnished by KCG to GETCO Class A, Class B and Class P unitholders as a prospectus in connection with the issuance of shares of KCG common stock and warrants upon completion of the mergers.

Date, Time and Place of the GETCO Special Meeting

The special meeting of the voting unitholders of GETCO is scheduled to be held at [            ], on [                    ], 2013 at [            ], Central time.

Purpose of the GETCO Special Meeting

The purpose of the special meeting is to consider and vote upon the following matters:

 

   

a proposal to approve the merger agreement and the mergers; and

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the approval of the merger agreement and the mergers.

GETCO Record Date; Units Entitled to Vote

Only holders of GETCO Class A units and Class P units as of the close of business on [                    ], 2013, which is the record date for the GETCO special meeting, will be entitled to receive notice of and to vote at the GETCO special meeting. As of the record date, there were [            ] Class A units and [            ] Class P units entitled to vote at the special meeting, held by [            ] GETCO voting unitholders. Each Class A unit entitles a voting member of GETCO to one vote. GA-GTCO is the holder of all of the GETCO Class P units, and as such, is entitled to a fixed voting interest of 21.875% of the total voting shares.

Quorum

There is no quorum requirement under the DLLCA or GETCO’s operating agreement.

Vote Required

Approval of the merger proposal requires the affirmative vote of 70% or more of the total number of votes associated with the issued and outstanding Class A units and Class P units (voting together as a class). Because the required vote is based upon the total number of outstanding Class A units and Class P units, the failure to vote in person or by telephone at the GETCO special meeting (or to submit a proxy card) or the abstention from voting by a holder of Class A units or Class P units will have the same effect as a vote “AGAINST” the approval of the merger agreement and the mergers and the adjournment proposal.

Recommendation of the Board of Directors

The GETCO board of directors unanimously recommends that the voting unitholders of GETCO vote “FOR” approval of the merger proposal and “FOR” approval of the adjournment proposal, if necessary or

 

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appropriate. For a discussion of the material factors considered by the GETCO board of directors in reaching its conclusions, see “The Mergers—GETCO’s Reasons for the Mergers and Recommendation of GETCO’s Board of Directors” beginning on page [    ].

Voting Agreements

As more fully described under “The Merger Agreement—Voting and Support Agreements,” beginning on page [    ], Stephen Schuler and Daniel Tierney, as of January 31, 2013, each beneficially own 1,565,825 Class A units, and GA-GTCO owns all 2,785,689 Class P units, which together represent approximately 88% of the units of GETCO entitled to vote at the GETCO special meeting. Mr. Schuler, Mr. Tierney and GA-GTCO each entered into a voting and support agreement with GETCO pursuant to which they have agreed to vote all of the Class A units or Class P units owned by them, as the case may be, in favor of the merger proposal. Consequently, GETCO currently believes that approval of the GETCO merger proposal at the GETCO special meeting is assured.

No units of GETCO are currently held by Knight or KCG.

Voting by GETCO’s Directors and Executive Officers

As of the record date, directors and executive officers of GETCO and their affiliates owned and were entitled to vote GETCO units, representing, in aggregate, approximately [    ]% of the total voting power of GETCO. As described above, directors Stephen Schuler and Daniel Tierney, each entered voting agreements obligating them to vote their shares in favor of the merger agreement and the mergers.

In addition, Rene Kern and John Morris were selected as directors of GETCO by GA-GTCO pursuant to GETCO’s operating agreement. Messrs. Kern and Morris are employed by an entity affiliated with GA-GTCO. By virtue of such relationship, each of Messrs. Kern and Morris may be deemed to beneficially own the Class P units that are beneficially owned by GA-GTCO.

Voting of Proxies

If you are a holder of Class A units or Class P units of GETCO as of the record date referred to above, you may vote by attending the GETCO special meeting, either in person or by telephone, or may vote by proxy using the enclosed proxy card.

All properly executed proxies that are not revoked will be voted at the GETCO special meeting in accordance with the instructions contained in the proxy. If a GETCO voting member executes and returns a proxy and does not specify otherwise, the units represented by that proxy will be voted “FOR” approval of the merger agreement and the mergers, and “FOR” approval of the adjournment of the special meeting, if necessary or appropriate.

How to Vote

To vote in person, you may come to the GETCO special meeting and GETCO will give you a ballot when you arrive. If you would like to participate in the special meeting telephonically, prior to the special meeting GETCO will provide you with the conference call information. You may communicate your vote by telephone at that time.

To vote by proxy, simply fill out, sign and date your proxy card and mail it in the prepaid envelope included with this joint proxy statement/prospectus. Submitting a proxy now will not prevent you from being able to vote in person or telephonically at the GETCO special meeting.

Every GETCO voting member’s vote is important. Accordingly, please sign, date and return the enclosed proxy card, whether or not you plan to attend the GETCO special meeting by person or by telephone. Proxies must be received by 11:59 p.m., Central time on [                    ], 2013.

 

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Revoking Your Proxy

You have the power to change your vote at any time before your Class A units or Class P units are voted at the GETCO special meeting by:

 

   

filing a notice of revocation stating that you would like to revoke your proxy to John McCarthy, GETCO’s general counsel, at:

GETCO Holding Company, LLC

350 N. Orleans Street

Chicago Illinois, 60654

 

   

sending a completed proxy card bearing a later date than your original proxy card;

 

   

attending the GETCO special meeting and voting in person; or

 

   

participating in the special meeting telephonically as described above.

If you choose to send a completed proxy card bearing a later date than your original proxy card, the new proxy card must be received by the deadline noted above under “How to Vote.”

Proxy Solicitations

The cost associated with the preparation of the proxy statement and related materials and solicitation of proxies will be borne by GETCO. In addition to solicitations by mail, GETCO’s directors, officers and regular employees may solicit proxies personally or by telephone without additional compensation.

Other Business

The board of directors of GETCO is not currently aware of any other business to be acted upon at the special meeting.

Assistance

If you have any questions about the proxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this document or the enclosed proxy card, you should contact John McCarthy, GETCO’s general counsel, at (312) 931-2200.

 

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INFORMATION ABOUT THE COMPANIES

Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Capital Group, Inc., a Delaware corporation, is a global financial services firm that provides access to the capital markets across multiple asset classes to a broad network of clients, including buy- and sell-side firms and corporations.

Knight was organized in January 2000 as the successor to the business of Knight/Trimark Group, Inc. Knight/Trimark Group, Inc. was organized in April 1998 as the successor to the business of Roundtable Partners, LLC, which was formed in March 1995. In May 2000, the company changed its name from Knight/Trimark Group, Inc. to Knight Trading Group, Inc., and in May 2005 the company further changed its name to Knight Capital Group, Inc. As of September 30, 2012, Knight had consolidated total assets of $8.6 billion and aggregate stockholders’ equity and preferred shares of $1.5 billion. Knight had 1,524 full-time employees as of December 31, 2012. Knight common stock is listed on the NYSE as well as on the Professional Segment of the Paris market of NYSE Euronext and is quoted under the symbol “KCG.”

Knight has four operating segments: (i) Market Making, (ii) Institutional Sales and Trading, (iii) Electronic Execution Services and (iv) Corporate and Other.

 

   

Market Making—Knight’s Market Making segment principally consists of market making in global equities and listed domestic options. As a market maker, Knight commits capital for trade executions by offering to buy securities from, or sell securities to, institutions and broker-dealers. The Market Making segment primarily includes client, and to a lesser extent, non-client electronic market making activities in which Knight operates as a market maker in equity securities quoted and traded on the NASDAQ Stock Market, the over-the-counter, which we refer to as the OTC, market for NYSE, NYSE Amex Equities, which we refer to as NYSE Amex, NYSE Arca listed securities and several European exchanges. As a complement to electronic market making, Knight’s cash trading business handles specialized orders and also transacts on the OTC Bulletin Board, the OTC Pink Markets and the Alternative Investment Market, which we refer to as the AIM, of the London Stock Exchange. Knight provides trade executions as an equities Designated Market Maker, which we refer to as DMM, on the NYSE and NYSE Amex. Market Making also includes Knight’s option market making business which trades on substantially all domestic electronic exchanges.

 

   

Institutional Sales and Trading—Knight’s Institutional Sales and Trading segment includes global equity, exchange traded fund, which we refer to as ETF, and fixed income sales; reverse mortgage origination and securitization; capital markets; and asset management activities. The primary business of the Institutional Sales and Trading segment is to execute and facilitate equities, ETFs and fixed income transactions as agent on behalf of institutional clients, and Knight commits capital on behalf of its clients when needed. This is predominantly a full-service execution business, in which much of the interaction is based on Knight’s client relationships. This segment also facilitates client orders through program and block trades and riskless principal trades and provides capital markets services, including equity and debt private placement.

 

   

Electronic Execution Services—Knight’s Electronic Execution Services segment offers access via its electronic agency-based platforms to markets and self-directed trading in equities, options, fixed income, foreign exchange and futures. In contrast to Market Making, Knight generally does not act as a principal to transactions that are executed within this segment and generally earns commissions for acting as agent between the principals to the trade.

 

   

Corporate and Other—Knight’s Corporate and Other segment invests in strategic financial services-oriented opportunities, allocates, deploys and monitors all capital, and maintains corporate overhead

 

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expenses and all other income and expenses that are not attributable to the other segments. The Corporate and Other segment houses functions that support Knight’s other segments such as self-clearing services, including stock lending activities. Beginning in the second quarter of 2012, Knight’s Corporate and Other segment includes its futures commission merchant (“FCM”), which comprises certain assets and liabilities that Knight acquired or assumed from the futures division of Penson Financial Services, Inc. on June 1, 2012. This business primarily provides futures execution, clearing and custody services to facilitate transactions among brokers, institutions and non-clearing FCMs on major U.S. and European futures and options exchanges.

Knight is headquartered in Jersey City, New Jersey, and, as of December 31, 2012, had 1,524 full-time employees.

Additional information about Knight can be found in Knight’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. See “Incorporation of Certain Documents by Reference” on page [    ] for a description of where you can find this information.

Recent Developments

Knight Results for Fourth Quarter Ended December 31, 2012—Unaudited

On January 24, 2013, Knight announced its unaudited consolidated financial results for the quarter ended December 31, 2012. Consolidated earnings for the fourth quarter of 2012 were $6.5 million, or $0.01 per diluted share, compared to consolidated earnings of $40.2 million, or $0.43 per diluted share for the fourth quarter of 2011. The fourth quarter 2012 GAAP net income attributable to common stockholders was $5.2 million, or $0.01 per diluted share, which includes a $7.4 million, or $0.02 per diluted share, non-cash write down of a strategic investment as well as professional fees related to the announced merger and August 1st technology issue of $5.0 million, or $0.01 per diluted share, and a $1.2 million dividend on convertible preferred shares. Revenues for the fourth quarter of 2012 were $287.7 million, compared to $341.3 million for the fourth quarter of 2011.

At December 31, 2012, Knight had $413.9 million in cash and cash equivalents. Knight had $1.5 billion in aggregate stockholders’ equity and preferred shares as of December 31, 2012, equivalent to a book value of $4.07 per share (which includes preferred shares on an as-converted basis) compared to $1.5 billion in stockholders’ equity as of December 31, 2011, equivalent to a book value of $15.13 per share. Knight’s tangible book value as of December 31, 2012 was $3.30 per share (which includes preferred shares on an as-converted basis) as compared to $10.67 at December 31, 2011.

Knight’s consolidated financial statements for the year ended December 31, 2012 will be included in Knight’s Annual Report on Form 10-K for the year ended December 31, 2012, which will be filed with the SEC and incorporated by reference into this joint proxy statement/prospectus to the extent filed prior to the special meetings of Knight stockholders and GETCO unitholders. The final audited consolidated financial results for the year ended December 31, 2012 may vary from Knight’s expectations and may be materially different from the preliminary consolidated financial results provided above due to the completion of the year-end audit.

The preliminary consolidated financial data included in this joint proxy statement/prospectus have been prepared by and are the responsibility of Knight’s management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to the accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

GETCO Holding Company, LLC

350 N. Orleans Street

Chicago, Illinois 60654

(312) 931-2200

For purposes of this section and Management’s Discussion and Analysis of Financial Condition and Results of Operations of GETCO starting on page [    ] and unless the context indicates otherwise, all references to “GETCO” refer to GETCO Holding Company, LLC and its subsidiaries. References to “GETCO Holding Company” refer to GETCO Holding Company, LLC alone. All references to “Annual Consolidated Financial

 

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Statements” and “Consolidated Financial Statements (unaudited) as of September 30, 2012 and December 31, 2011 and for the nine months ended September 30, 2012 and September 30, 2011” refer to the financial statements and accompanying notes included in this document under the heading “Index to GETCO Financial Statements” on page [    ].

Business Overview

Founded in 1999 by Stephen Schuler and Dan Tierney, GETCO is a global financial services firm that specializes in helping investors efficiently manage risk via proprietary market making and routing orders on behalf of clients in securities, futures and foreign exchange instruments. GETCO operates through its broker-dealers and other subsidiaries and maintains a diversified footprint across asset classes, trading venues and geographies. GETCO trades on more than 50 exchanges and venues in North and South America, Europe and Asia-Pacific and employs over 400 Associates in Chicago, New York, Palo Alto, London, Singapore, Mumbai and Hong Kong.

The core of GETCO’s business strategy is making markets by providing liquidity and improving the ability of market participants to manage risk quickly and efficiently. Throughout its history, GETCO has been a pioneer in electronic market making and has supported the evolution of the industry through investments in BATS, BATS/Chi-X Europe, which we refer to as Chi-X, Eris Exchange Holdings, LLC, which we refer to as Eris, and other electronic markets. As markets continue to become increasingly automated and transparent, GETCO believes it will be well positioned to participate in the process by reducing trading costs, increasing liquidity and improving access to market participants. In addition, GETCO’s client-facing product offerings complement and leverage its proprietary trading technology by allowing its institutional clients to execute their orders with minimum market impact and transaction costs.

GETCO’s operating strategy centers on leveraging technology through all stages of trade execution, clearing and risk management. As such, GETCO has made significant investments in its technology and infrastructure, as well as the human capital necessary in this area. GETCO’s technology has been developed with the capability to interact with various forms of liquidity and to facilitate transparent, liquid and orderly markets.

GETCO maintains a well-balanced composition of revenue sources across asset classes and geographies. In the first nine months of 2012, approximately 67.9% of its trading revenues were derived from equities, 21.4% from fixed income and 10.7% from commodities and foreign exchange. Similarly approximately 61.7% of revenues were derived from the Americas, 23.4% from European markets, and 14.9% from Asia-Pacific markets. The number of trading venues to which GETCO is connected has increased in recent years and is expected to continue to increase due to the wider global adoption of electronic trading and the continuous formation of new venues.

On December 19, 2012 GETCO and Knight entered into an agreement for a strategic business combination whereby GETCO and Knight will merge and become subsidiaries of a new publicly traded holding company. The business combination of Knight and GETCO creates a leading global market-making and agency execution solutions provider that leverages each of Knight’s and GETCO’s proprietary technologies, operations and human capital.

Geographic Locations

GETCO operates in the U.S. and internationally, primarily in Europe and Asia-Pacific. The following table presents revenues by geographic area for each of the years ended December 31, 2011, 2010, and 2009 (in millions).

 

     Revenue  

For the year ended

   Americas      Europe      Asia-Pacific  (1)      Consolidated  

December 31, 2011

   $ 485.7       $ 256.8       $ 173.0       $ 915.5   

December 31, 2010

   $ 526.4       $ 232.0       $ 108.5       $ 866.9   

December 31, 2009

   $ 647.5       $ 238.0       $ 71.3       $ 956.8   

 

(1) Asia-Pacific includes Singapore, Hong Kong, Japan, and Australia.

 

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Properties

GETCO’s corporate headquarters are located in Chicago, Illinois. GETCO leases approximately 101,000 square feet at 350 N. Orleans under a lease that expires in 2026. GETCO also collectively leases approximately 120,000 square feet for its other office locations in the U.S., Europe and Asia-Pacific.

Operating Segment Overview

GETCO has three operating segments: (i) Market Making, (ii) Execution Services and (iii) Corporate and Other.

The following table sets forth segment revenues from operations for the nine months ended September 30, 2012 and 2011 and the years ended December 31, 2011, 2010 and 2009 (in millions):

 

     Revenue  
     (Unaudited)
Nine months  ended
September 30,
    For the year ended December 31,  
         2012             2011             2011             2010             2009      

Market Making

   $ 398.5      $ 714.1      $ 880.5      $ 861.5      $ 952.0   

Execution Services

   $ 25.7      $ 17.6      $ 25.0      $ 16.8      $ 20.4   

Corporate & Other

   $ 13.8      $ (1.7   $ 25.1      $ 2.2      $ 2.2   

Eliminations

   $ (12.6   $ (11.0   $ (15.2   $ (13.5   $ (17.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

   $ 425.3      $ 719.0      $ 915.5      $ 866.9      $ 956.8   

Market Making Segment

GETCO’s Market Making segment consists of trading in global equities, fixed income, commodities, and foreign exchange markets. As a market maker, GETCO provides liquidity by maintaining continuous two-sided markets and commits capital for trade executions by offering to buy securities from, or sell securities to, institutions and broker-dealers on various exchanges and OTC platforms.

GETCO is a registered market maker on various equity and options exchanges and makes markets in over 6,000 symbols across more than 50 exchanges and trading venues world-wide. GETCO operates as a market maker in cash and futures products quoted and traded on the NYSE, NYSE Arca, CME, BATS, NASDAQ, London Stock Exchange, Tokyo Stock Exchange and several other U.S., European and Asian-Pacific exchanges. GETCO is a DMM on the NYSE where it is responsible for providing fair and orderly markets for approximately 900 NYSE listed securities. GETCO also acts as Supplemental Liquidity Provider, which we refer to as an SLP, on the NYSE in over 200 securities. In addition, GETCO acts as the primary market maker in its SEC registered alternative trading system, which we refer to as GETCO’s ATS or dark pool, and often pays clients for order flow to its ATS.

GETCO conducts its market making activity as a principal through the use of automated quantitative models and derives revenues from the difference between the amount paid when securities are bought and the amount received when securities are sold. GETCO’s quantitative models leverage its sophisticated trading technology and infrastructure to provide liquidity for continuous two-sided markets.

The majority of GETCO’s market making revenues are derived from trading strategies that typically have very short time horizons and little overnight risk exposure. These revenues are typically driven by two factors (1) demand and (2) profitability. Demand is expressed through higher market volumes and profitability generally increases with wider “bid/ask spreads” as seen during times of market volatility. GETCO has begun to develop and expand its mid-frequency market making business to include trading strategies that would be less market volume dependent but may result in holding positions for periods of several days or more.

 

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Execution Services Segment

The Execution Services segment offers clients access to GETCO’s market making capabilities for cash equity and fixed income securities. GETCO provides clients with algorithmic, routing and execution services through its client services business, GETCO Execution Services, which we refer to as GES.

GES operates an ATS, branded as GETMatched, which executes trades in U.S. and European cash equities and U.S. cash treasuries, offering clients access to the dedicated liquidity provided by GETCO’s market making businesses. GETMatched only matches (executes) orders that meet or are priced better than the National Best Bid and Offer, which we refer to as NBBO, in the U.S. or European Best Bid and Offer, which we refer to as EBBO, in Europe.

GES also provides clients with a suite of proprietary trading algorithms, known as GETAlpha, to route orders in U.S. cash equities to more than a dozen exchanges and OTC platforms on behalf of clients. GETAlpha includes numerous execution algorithms, providing institutional investors with the ability to execute trades to their exact specifications while offering leading performance across diverse market conditions and trading demands. This is designed to provide the investment community with the same high-tech trading tools as a dedicated electronic market maker. GETCO’s benchmark and liquidity seeking strategies are designed to provide clients with associated liquidity rebates deriving from trade executions.

In contrast to Market Making, Execution Services does not act as a principal and generally derives revenue from commissions/fees for acting as agent on behalf of clients, including affiliates. The majority of Execution Services revenues are earned from fees that are paid by an affiliate in connection with the affiliate posting liquidity on Execution Services’ ATS and Execution Services routing orders to other execution destinations on behalf of the affiliate. GETCO expects the growth of the GETAlpha product to contribute to increased third-party revenues in this segment over time.

Corporate and Other Segment

The Corporate and Other segment includes GETCO’s strategic investments, currency translation gains and losses and interest expense related to corporate funding. GETCO’s strategic investments include interests held in other companies or exchanges such as Knight, BATS, and Eris. Currency translation gains and losses primarily relate to fluctuations in non-U.S. dollar denominated cash deposits held at clearing firms. Interest expense related to corporate funding primarily consists of interest on GETCO’s bank facilities that are not directly attributable to either the Market Making or Execution Services segments.

Competition

GETCO competes in both the market making and trade execution segments of the global financial services industries. Competitors in these areas include large financial institutions, investment banks, hedge funds, proprietary trading and market making companies and electronic exchanges. They include a range of firms from highly diversified multi-national corporations that compete across trades, asset classes and products as well as highly specialized regional firms focused on a narrow trade, product set or customer segment. The environment is highly competitive and rapidly changing as the industry continues to evolve in response to new regulations, lower market volumes and volatility, higher global demand for trading and technology talent and increasing costs.

GETCO’s short term operating results and performance, and that of its competitors, depend significantly on economic conditions and their impact on market volumes and volatilities. Presently, there are numerous business and economic factors affecting the industry. These factors include low market volume and volatility levels, increased regulatory oversight, a protracted economic recovery in the U.S. and around the globe, unfavorable central bank monetary policy, continued crisis in European debt markets and the unknown future of the Euro as the currency used by the European Union.

 

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Long term trends are favorable for many competitors in the industry. Regulatory driven de-risking of large banks through legislation such as the Volcker Rule is expected to open up fixed income markets to a broader set of competitors. Improved transparency and access driven by implementation of the Dodd-Frank Act will open up markets such as interest rate swaps to new market participants like GETCO. It appears that technology driven firms will be better equipped to create value for customers and stockholders in an environment with increased transparency around execution quality and participant performance.

Supervision and Regulation

Government Regulation and Market Structure

Most aspects of GETCO’s business are subject to extensive regulation under federal, state and international laws, rules and regulations. Regulators in the U.S. and international jurisdictions continue to promulgate numerous rules and regulations that may impact GETCO’s business. In the U.S., these regulatory bodies include, but are not limited to, the SEC, the Commodity Futures Trading Commission, FINRA, NYSE, NASDAQ, the National Futures Association, other SROs and other regulatory bodies such as state securities commissions. In Europe and Asia, these regulatory bodies include, but are not limited to, the FSA, the Singapore Exchange, the Hong Kong SFC and the Australian Securities and Investment Commission, which we refer to as ASIC. In addition, GETCO is subject to various rules in the countries in which GETCO trades.

As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the financial markets and protecting the interests of investors by ensuring that trading on their markets is reliable, transparent, competitive, fair and orderly. Regulated entities are subject to regulations concerning all aspects of their business, including trade practices, best execution for customers, capital adequacy, record retention technology implementation, risk management, supervision, and the conduct of officers, supervisors and their employees. Failure to comply with any of these laws, rules or regulations could result in administrative or court proceedings, censures, fines, the issuance of cease-and-desist orders, injunctions, or the suspension or disqualification of the entity and/or its officers, supervisors or employees. GETCO has been subject to claims alleging the violation of such laws, rules and regulations.

Rule-making by regulators, both foreign and domestic, and market structure changes, have had an impact on GETCO’s regulated subsidiaries by directly affecting their method of operation and, at times, their profitability. Legislation can impose, and has imposed, significant obligations and restraints on GETCO’s subsidiaries. These increased obligations and restraints require the implementation and maintenance of internal practices, procedures and controls, which have increased GETCO’s costs and may subject GETCO to regulatory inquiries, claims or penalties.

The regulatory environment in which GETCO operates is subject to constant change. GETCO’s business, financial condition and operating results may be adversely affected as a result of new or revised legislation or regulations imposed in the U.S. and abroad by regulatory authorities, applicable state agencies and administrative departments and other regulatory bodies. Additional regulations or changes in interpretations or enforcement of existing laws and rules often directly affect the method of operation and profitability of GETCO. GETCO cannot predict what effect, if any, such changes might have to GETCO’s subsidiaries. However, there have been, and could be, significant technological, operational and compliance costs associated with the obligations which derive from compliance with such laws, rules and regulations.

On July 21, 2010, the Dodd-Frank Act was enacted in the U.S. Implementation of the Dodd-Frank Act continues to be accomplished through extensive rulemaking by the SEC and other governmental agencies. At this time, it is difficult to assess the impact the current and expected future rulemaking associated with the Dodd-Frank Act will have on GETCO’s businesses and on the financial services industry.

The SEC and other regulatory bodies have recently enacted and are actively considering several rules that may affect the operation and profitability of GETCO. These rules include: a consolidated audit trail, dark pool

 

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regulation, single stock circuit breakers, increased transaction fees and taxes, enhanced requirements for technology testing and implementation, increased obligations for market makers, higher capital requirements, and market access and order routing limitations.

The financial services industry in many countries is heavily regulated, much like the U.S. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit GETCO’s ability to conduct business or expand internationally. For example, the MiFID, which was implemented in November 2007, is now under further review by the European Parliament. On October 20, 2011, the European Commission published its proposals for revision of MiFID. These proposals consist of a directive and regulations and aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors. The new framework will also increase the supervisory powers of regulators and provide clear operating rules for all trading activities. The proposals cover many areas affecting GETCO, and include increased transparency and oversight of financial firms, with a focus on high frequency trading, broker dark pools, crossing networks and multilateral trading facilities. There were significant technological and compliance costs associated with the obligations which derived from compliance with the original directive and further costs are likely as a result of this new directive and regulations.

Net Capital Requirements

Certain of GETCO’s subsidiaries are subject to the SEC’s uniform net capital rule or capital adequacy requirements by foreign regulators. These rules, which specify minimum net capital requirements for registered broker-dealers, are designed to measure the general financial integrity and liquidity of a broker-dealer and require that at least a minimum part of their assets be kept in relatively liquid form. In general, net capital is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings and certain discretionary liabilities, less certain mandatory deductions that result from excluding assets that are not readily convertible into cash and from valuing conservatively certain other assets. Among these are deductions of non-allowable assets and adjustments, commonly called haircuts, which reflect the possibility of a decline in the market value of an asset before disposition.

Failure to maintain the required net capital may subject a firm to suspension or revocation of registration by the SEC or FSA and suspension or expulsion by FINRA and other regulatory bodies, and ultimately could require the relevant entity’s liquidation. The uniform net capital rule prohibits payments of dividends, redemption of stock, the prepayment of subordinated indebtedness and the making of any unsecured advance or loan to a stockholder, employee or affiliate, if such payment would reduce the firm’s net capital below required levels.

A change in the uniform net capital rule, the imposition of new rules or any unusually large charges against net capital could limit those operations that require the intensive use of capital and also could restrict GETCO’s ability to withdraw capital from its broker-dealer subsidiaries. A significant operating loss or any unusually large charge against net capital could adversely affect GETCO’s ability to expand or even maintain its present levels of business.

Legal Proceedings

From time to time, GETCO and certain of its past and present officers, directors and/or employees have been named as parties to legal actions, arbitrations, administrative claims and regulatory reviews and investigations arising in connection with the conduct of its businesses.

GETCO’s subsidiaries include regulated entities that are subject to extensive oversight under federal, state and applicable international laws as well as SRO rules. Changes in market structure and the need to remain competitive require constant changes to GETCO’s systems and order handling procedures. GETCO makes these changes while continuously endeavoring to comply with many complex laws and rules. Compliance, surveillance and trading issues common in the securities industry are monitored by, reported to, and/or reviewed in the ordinary course of business by GETCO’s regulators in the U.S. and abroad. As a significant agency execution and proprietary liquidity provider on over 50 exchanges and execution destinations globally as well as a major

 

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execution destination for other market participants, GETCO is named from time to time in, or are asked to respond to a number of regulatory matters brought by U.S. regulators, foreign regulators and SROs that arise from business activities. GETCO is currently the subject of various regulatory reviews and examinations. In some instances, these matters may rise to a disciplinary action and/or civil or administrative action. See “Significant Developments—Settlement with NASDAQ” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Information Regarding Outstanding GETCO Units

GETCO has four classes of outstanding units: Class A, Class B, Class E and Class P. A description of each class of outstanding units is below.

 

   

Class A: GETCO’s Class A units are voting units and are held largely by Stephen Schuler and Daniel Tierney, GETCO’s founders. As of January 31, 2013 there were 3,688,219 outstanding Class A units, held by Messrs. Schuler and Tierney and six additional holders, including one current executive officer of GETCO.

 

   

Class B: GETCO’s Class B units are non-voting units generally granted to employees, consultants and advisors as incentive compensation. GETCO’s Class B units are granted pursuant to award agreements and are subject to repurchase by GETCO upon the departure of an employee. Class B units generally vest either ratably over a three-year term or in the case of units issued prior to 2012, in full three years from the issue date. The amount payable upon a repurchase is dependent on whether the Class B units are then vested or unvested. As a result of the mergers, all unvested Class B units will vest. As of January 31, 2013, there were 4,779,050 outstanding Class B units held by 154 holders, almost all of whom are current employees, consultants or advisors of GETCO.

 

   

Class E: GETCO’s Class E units are non-voting profits-interests, which have historically been granted out-of-the money. Class E units generally vest either ratably over a three-year term or in the case of units issued prior to 2012, in full three years from the issue date. Class E units allow for future appreciation in excess of GETCO’s value over a certain strike price per unit and allocation of income once the units are vested. The Class E units are forfeited upon departure of an employee, whether vested or not, and if vested, the cash value of the units above their strike price is paid to the employee. All of the GETCO Class E units are currently out-of-the money and will be cancelled for no consideration in connection with the closing of the mergers.

 

   

Class P: GETCO’s Class P units are voting units and are held by GA-GTCO. The Class P units are entitled to a fixed voting percentage of 21.875%. The Class P units are also entitled to a liquidation preference in connection with a “Capital Event” (as defined in GETCO’s operating agreement). As of December 19, 2012, the Class P liquidation preference was approximately $311 million. As of January 31, 2013 there were 2,785,689 outstanding Class P units.

GA-GTCO, LLC

c/o General Atlantic Service Company, LLC

Three Pickwick Plaza

Greenwich, Connecticut 06830

(917) 206-1944

GA-GTCO, LLC is a Delaware limited liability company, through which investment funds affiliated with General Atlantic LLC hold GETCO Class P units. GA-GTCO is a wholly-owned subsidiary of GA-GTCO Interholdco, LLC, a Delaware limited liability company whose principal place of business is in Connecticut. GA-GTCO Interholdco, LLC is a subsidiary of such investment funds. As of the date of this joint proxy statement/prospectus, GA-GTCO is the holder of all 2,785,689 GETCO Class P units and 71,802 Class B units. GA-GTCO does not undertake any business other than ownership of the GETCO units and actions incidental thereto.

 

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KNIGHT HOLDCO, INC.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Holdco, Inc. is a Delaware corporation and a direct, wholly owned subsidiary of Knight formed in December 2012. KCG was formed in connection with the merger agreement and the mergers for the purpose of holding Knight, GETCO and GA-GTCO Acquisition, LLC as direct wholly-owned subsidiaries following completion of the mergers. The business of KCG will be the combined business of Knight and GETCO. Knight Holdco, Inc. is expected to change its name prior to the closing, however, the new name has not been selected.

This section contains information that may constitute “forward-looking statements.” Caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. KCG undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” beginning on page [    ], “Cautionary Statement Regarding Forward Looking Statements” beginning on page [    ] and elsewhere in this joint proxy statement / prospectus and those described from time to time in future reports filed with the Securities and Exchange Commission.

Business Overview

The business combination of Knight and GETCO creates a leading, global market-making and agency execution solutions provider that leverages each of Knight’s and GETCO’s proprietary technologies, operations and human capital.

Although the ultimate strategy of KCG will be determined by its board of directors and senior management after consummation of the mergers, the corporate vision for KCG is to be one of the world’s premier providers of liquidity across asset classes and geographies, applying technology to complex problems in order to create scalable, efficient solutions and advance the ways in which market participants seek to manage risk. KCG intends to execute on its vision by bringing together the core independent strengths of each predecessor company into the combined entity.

KCG will pair the cutting-edge technology and operations of GETCO and Knight, and will combine it with Knight’s leading customer franchise. KCG’s broad, global customer base should benefit from its larger, combined balance sheet and increased set of product offerings, which should result in significant opportunities for the firm to earn commissions or generate net trading revenue.

The sections below briefly describe some of the core strengths and key differentiators that Knight and GETCO bring to the combined company. By bringing together these core stand-alone strengths and drawing on KCG’s greatly increased depth and scale across regions, asset classes and product types, KCG expects to create additional strengths and differentiators, which are also described below.

Core strengths and key differentiators of Knight Capital Group, Inc.

 

   

Leading customer market-making franchise. Knight is a leading provider of market-making and trade execution services with particular emphasis on retail-facing brokerage firms in the U.S. By leveraging Knight’s technologically advanced and scalable market-making, Knight’s retail-facing brokerage clients are able to focus their resources on delivering a superior and competitively-priced customer experience in the form of immediate access to liquidity, price improvement and best execution. A

 

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number of Knight’s retail-facing brokerage clients also receive payment for directing their order flow to Knight, which allows them to, among other things, reduce costs for their own retail clients.

 

   

Multi-asset class market access and trade execution services. Knight seeks to provide sell-side clients with high quality and competitive trade executions in the equity markets through the use of automated quantitative models, which includes access to off-exchange liquidity through Knight Link and Knight Match. Additionally, Knight’s cash equity traders offer execution services for complex trades and a variety of order types. Knight’s institutional buy-side products include equity sales and trading (including block trading) and providing access to buy- and sell-side equity order flow, which are supported through active market-making, including providing capital to facilitate trades when necessary. Knight also offers direct market access and innovative agency execution algorithms via a broker-neutral trading platform to multiple liquidity destinations through Knight Direct. Institutional fixed income trade executions and research are offered through Knight Fixed Income. Fixed income trade executions for retail-sized orders are provided to broker-dealer clients through Knight BondPoint. Knight’s Hotspot FX subsidiary enables instantaneous and anonymous trading in spot foreign currency exchange pairs and precious metals.

 

   

Hybrid market model offering dual electronic and voice capabilities. Knight’s hybrid market model features an array of electronic and voice services that allow buy- and sell-side clients to interact with the market based on their specific needs and preferences. This model allows Knight to attract a larger base of clients with diverse investment styles and strategies, while at the same time capturing a greater share of client order flow.

 

   

Extensive client network connectivity and broad product offering. Knight has connectivity with a broad range of buy- and sell-side clients and various exchanges and liquidity pools in the U.S. and abroad through a combination of electronic and voice access. Knight provides market access and trade execution services to approximately 650 sell-side clients and approximately 1,500 buy-side clients with a leading trading footprint in U.S. equities covering approximately 19,000 U.S. securities plus European and Asian equities and fixed income securities. Knight also provides execution services in foreign exchange, futures, options and precious metals.

Core strengths and key competitive differentiators of GETCO Holding Company, LLC

 

   

State-of-the-art technology and operations. GETCO’s core business and operating strategy centers on leveraging technology through all stages of trade execution, clearing and risk management. As such, GETCO has developed and continues to develop its technology and infrastructure, as well as the human capital necessary to support and advance its technology and infrastructure. The speed at which GETCO can receive and process market data, formulate trading decisions, execute orders and clear trades has been, and will be, a key competitive differentiator in electronic market-making. GETCO views the continuous development of its technology, with a focus on speed and scalability, as an essential driver to grow market share and maintain its competitive position.

 

   

Leading proprietary market-maker. Since its inception in 1999, GETCO has been at the forefront of the transformation from manual to automated markets in the U.S., Europe and Asia across multiple asset classes, including equities, options, fixed income, commodities, and currencies. GETCO’s proprietary market-making segment contributes to price discovery and lowering execution costs for investors on both exchanges and OTC platforms. GETCO’s expertise in proprietary market-making has also led to an innovative agency execution algorithm for its recently formed client services operation that provides institutional clients and broker dealers with the ability trade in a similar capacity as a market maker thus lowering their trading costs.

 

   

Diversified revenue sources across markets and asset classes. Owing to its global footprint and connectivity, GETCO maintains a well-balanced composition of revenue sources across asset classes. In the first nine months of 2012, approximately 67.9% of GETCO’s trading revenues were derived

 

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from equities, 21.4% from fixed income and 10.7% from commodities and foreign exchange. Similarly approximately 61.7% of GETCO’s revenues were derived from the Americas, 23.4% from European markets, and 14.9% from Asia-Pacific markets. The number of trading venues to which GETCO is connected has increased in recent years and is expected to continue to increase due to the wider global adoption of electronic trading and the continuous formation of new venues.

 

   

Durable and scalable business model. The core of GETCO’s business strategy is proprietary market-making by providing liquidity and improving the ability of market participants to transfer risk quickly and efficiently. Throughout its history, GETCO has been a pioneer in electronic market-making and has supported the evolution of the industry through investments in BATS, Chi-X Global, Eris Exchange and others electronic markets. As markets continue the longstanding trend of becoming more automated and transparent, GETCO is well positioned to profitably participate in this process while reducing trading and clearing costs, increasing liquidity and improving access to market participants. In addition, GETCO’s customer-facing product offerings complement and leverage GETCO’s execution and processing technology by allowing GETCO’s institutional clients to execute their orders with minimum market impact and transaction costs.

Core strengths and key competitive differentiators of Knight Holdco, Inc.

 

   

Well-positioned market-maker and client services firm. By combining Knight’s sophisticated customer market making business with GETCO’s leading proprietary market-making business, KCG’s footprint will extend to most major electronically-traded asset classes. By integrating and combining GETCO’s and Knight’s efficient and robust order execution, risk management and operations capabilities, with Knight’s customer base and client services expertise, KCG will have a modern and comprehensive platform to support current and future activities with fast time-to-market. In its agency execution segment, KCG would combine Knight’s and GETCO’s complementary product offerings to capitalize on compelling cross-selling opportunities.

 

   

Diversified business model. KCG will be a well-balanced market-maker on- and off-exchanges, with significant position in the retail, buy-side, and sell-side customer channels. Geographically, Knight’s wholesale market-making franchise in domestic equities will complement GETCO’s global, multi-asset class footprint and connectivity. Going forward, the combined company would be well-positioned to compete for the portion of the OTC derivatives market that potentially moves to electronic trading as a result of regulatory changes.

 

   

Industry-leading customer portfolio. Knight and GETCO both focus on market access and trade execution services across multiple asset classes to buy- and sell-side clients. There is limited overlap between Knight’s and GETCO’s customer portfolio, so cross-selling opportunities exist.

 

   

Synergy opportunities. Knight and GETCO believe that the mergers will create the opportunity for significant cost and revenue synergies. Technology and process optimization and the elimination of redundancies should reduce operating costs. Redundancy eliminations will come from infrastructure, personnel and professional fees, among other items. KCG also expects to reduce its operating costs through the standardization of certain operating platforms and the combination of self-clearing platforms. Sources of potential revenue synergies are, among others, higher liquidity rebates and the deployment of more effective and efficient trading strategies through, among other things, technology and process optimization.

 

   

Proven leadership team and talented employee base. Upon closing, KCG’s leadership team will consist of some of the industry’s most experienced professionals and trading technologists. The executive team led by Daniel Coleman, GETCO’s Chief Executive Officer, with over 25 years of industry experience, will leverage key leaders from both organizations. KCG will also employ some of the most talented traders, technologists and quantitative analysts in the industry in the United States, Europe and Asia.

 

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Focus on robust operations and risk controls. KCG will utilize a sophisticated risk management framework, including multi-level limits, alerts and reporting. This is expected to consist of real-time monitoring of profitability at multiple levels of granularity and frequently tested fail-over capabilities. Risk management limits include market risk limits based on position and open order exposures, as well as scenario-based enterprise-wide capital and liquidity stress tests. Risk management will be further supported by redundant trade and position reconciliation systems and processes, which are in part made possible by self-clearing capabilities across most asset classes and markets. KCG’s culture, business strategy, and compensation policies are expected to be based on the principle that risk management and operational excellence are core and essential competencies rather than a “back-office” cost center.

 

   

Deep understanding of regulatory market micro structure. Knight and GETCO have independently developed a comprehensive understanding of how market and regulatory structures operate. As well-respected thought leaders on market micro structure with a deep knowledge of the markets in which they operate, both companies have a robust understanding of market structures in multiple geographies that KCG expects will easily transition to the benefit of the combined company. Knight and GETCO have successfully operated on both public exchanges and OTC markets in the U.S. and internationally in thousands of products across multiple asset classes in both proprietary trading and trading on behalf of their clients. Furthermore, each company has made investments in global market structure assets such as exchanges and trading platforms that have improved considerably their respective proprietary trading and agency execution activities. Because of its market structure expertise and footprint, the combined company is well-positioned to capitalize on and adapt to market structure changes.

 

   

Changing market dynamics. Global markets are in the midst of a long-term shift from manual processes to automated processes and the providers of risk transfer services are changing as a result. The industry has transformed from manual markets with high barriers to entry, ambiguity around trade executions and wide spreads and large commissions to a technology-driven market with low barriers to entry and increased clarity around trade execution. As a result, to be competitive, market-makers must possess the scale to offer cost-effective solutions in multiple markets. KCG’s scale and capabilities will enable it to benefit from this evolution towards enhanced reliance on technology and innovation. Leveraging technology, the combined company will seek to create innovative products and platforms that increase efficiency across the entire risk transfer cycle.

Integration Priorities

Knight and GETCO have created an integration planning framework and are in the process of creating an integration plan, which includes a detailed roadmap. The two companies have engaged an integration consultant to support this effort. There is a high-level shared acknowledgement at both companies that key priorities for the integration include mitigating operational risk and seamlessly integrating all necessary risk controls; preserving existing customer relationships; evaluating technology platforms and systems to create enhanced capabilities while realizing efficiencies of scale; and retaining key personnel at both organizations.

The Merger Subsidiaries

KNIGHT ACQUISITION CORP

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

Knight Acquisition Corp is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. Knight Acquisition Corp was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, Knight Acquisition Corp will merge with and into Knight and cease to exist.

 

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GETCO ACQUISITION, LLC

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

GETCO Acquisition, LLC is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. GETCO Acquisition, LLC was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, GETCO Acquisition, LLC will merge with and into GETCO and cease to exist.

GA-GTCO ACQUISITION, LLC

c/o Knight Capital Group, Inc.

545 Washington Boulevard

Jersey City, New Jersey 07310

(201) 222-9400

GA-GTCO Acquisition, LLC is a Delaware corporation, an indirect, wholly owned subsidiary of Knight and a direct, wholly owned subsidiary of KCG. GA-GTCO Acquisition, LLC was incorporated in connection with the merger agreement and the mergers, and is not an operating company. Upon the completion of the mergers, GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, with GA-GTCO Acquisition, LLC continuing as the surviving corporation in the merger and as a direct wholly owned subsidiary of KCG.

 

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THE MERGERS

The following is a discussion of the mergers and the material terms of the merger agreement by and among Knight, GETCO and GA-GTCO. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. This section is not intended to provide you with any factual information about Knight or GETCO. Such information can be found elsewhere in this joint proxy statement/prospectus and in the public filings Knight makes with the SEC, as described in the section entitled “Incorporation of Certain Documents by Reference” beginning on page [    ].

General Description of the Mergers

Pursuant to the terms and subject to the conditions of the merger agreement, Knight and GETCO are entering into a strategic business combination through the mergers described below.

Under the terms of the merger agreement, (i) Knight Acquisition Corp will merge with and into Knight with Knight surviving the merger, (ii) GETCO Acquisition, LLC will merge with and into GETCO, with GETCO surviving the merger and (iii) GA-GTCO will merge with and into GA-GTCO Acquisition, LLC, with GA-GTCO Acquisition, LLC surviving the merger. It is intended that each merger will occur substantially simultaneously with the other mergers, but that the GA-GTCO merger will occur immediately before the Knight merger, which will occur immediately before the GETCO merger. Following the mergers, each of Knight, GETCO and GA-GTCO Acquisition, LLC will continue as wholly owned direct subsidiaries of KCG. KCG will own all of the outstanding shares of Knight common stock, all of the outstanding GETCO units and all of the outstanding limited liability company interests of GA-GTCO Acquisition, LLC. The holders of Knight common stock, Knight Series A-1 Preferred Stock, GETCO units and GA-GTCO units prior to the mergers will together own all of the outstanding shares of common stock and preferred stock of KCG following the mergers.

Promptly after entering into the merger agreement, Knight Holdco, Inc., a Delaware corporation, was formed as a wholly owned direct subsidiary of Knight. In addition, Knight Acquisition Corp, a Delaware corporation; GETCO Acquisition, LLC, a Delaware limited liability company; and GA-GTCO Acquisition, LLC, a Delaware limited liability company, were formed as direct, wholly-owned subsidiaries of Knight Holdco, Inc.

Background of the Mergers

Knight’s board of directors has periodically discussed and reviewed Knight’s business, strategic direction, performance and prospects in the context of developments in the financial services industry, at Knight and in the competitive landscape. Knight’s board of directors has also at times discussed with senior management various potential strategic alternatives, both before and after Knight’s August 1, 2012 trading loss and subsequent sale of $400 million of convertible preferred stock to certain investors (including GETCO and Jefferies), involving possible acquisitions, business combinations, restructurings or divestitures that could complement, enhance or improve the company’s competitive strengths and strategic position. Also, senior management of Knight has, from time to time, had informal discussions with representatives of other financial institutions and potential transaction partners regarding trends and issues in the industry and at Knight and engaged in exploratory discussions of the potential benefits and issues arising from possible strategic transactions.

Similarly, GETCO’s board of directors has periodically discussed and reviewed GETCO’s business, strategic direction, performance and prospects. In this context, GETCO’s board of directors has discussed various potential transactions, including potential strategic combinations and acquisitions, as well as transactions that would provide liquidity to GETCO’s holders, including a public offering. The GETCO board considers these alternatives in connection with its evaluation of GETCO’s strategic goals and initiatives.

 

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After completion of the preferred stock sale, in mid-August 2012, Thomas M. Joyce, Knight’s Chairman of the Board and Chief Executive Officer, was separately approached by representatives of Company A and General Atlantic (with respect to GETCO) who each expressed interest in discussing potential strategic transactions, including all-stock strategic combinations with Knight. Mr. Joyce reported the expressions of interest to Knight’s board. Over the next few weeks, senior management of Knight and Company A and their representatives engaged in preliminary diligence and discussions and senior management of Knight and GETCO engaged in exploratory discussions.

In connection with its preliminary consideration of a potential transaction, on September 12, 2012, GETCO retained Jefferies to serve as GETCO’s financial advisor. At that time, GETCO also began initial preliminary diligence of Knight.

At a special meeting of the Knight board of directors on September 24, 2012, representatives of Sandler O’Neill, Knight’s financial advisor, and senior management of Knight reported to Knight’s board on the current status of discussions between Knight and each of GETCO and Company A. Knight’s senior management reported that Knight and GETCO were engaged in preliminary discussions regarding an all-stock transaction in which pro forma ownership of the combined company following the transaction would be based on relative tangible book value of each company prior to the transaction, with Knight stockholders (other than GETCO) owning more than 50% of the combined company. Knight management also reported that Knight and Company A were engaged in preliminary discussions regarding an all-stock transaction, although no valuation had yet been proposed with respect to such a transaction. Following these presentations and discussions, Knight’s board determined to instruct senior management to continue the preliminary mutual diligence process with each of GETCO and Company A and work to assess potential benefits and risks of each transaction and to progress valuation discussions with each company. Mr. Matthew Nimetz, a director of Knight appointed by General Atlantic, an investor in the parent holding company of GETCO, recused himself from any discussions and board action at this meeting and future meetings relating to a potential transaction with GETCO, Company A or other strategic alternatives. Knight’s board was also informed at this meeting that GETCO had engaged Jefferies, Knight’s largest stockholder, as its financial advisor.

During the next few weeks the diligence process continued with each of GETCO and Company A.

On October 5, 2012, Knight’s board received a proposal from Company A for an all-stock merger of equals style transaction with pro forma ownership of the combined company to be mutually agreed and based on the market capitalizations of Knight and the estimated value of Company A, which was a private company. Diligence and discussions between representatives of Knight and each of GETCO and Company A continued for the next few weeks. The Knight board met on October 10, 2012 and October 26, 2012 and received updates regarding the ongoing discussions with GETCO and Company A.

After further discussion between GETCO and Knight and their respective advisors, it became apparent that an all-stock deal was not going to be feasible. On October 18, 2012, GETCO informed Knight that it had decided to no longer engage in preliminary discussions with Knight regarding a potential transaction and terminated the diligence process.

Preliminary discussions and diligence continued with Company A. In early November 2012, in response to discussions with, and advice from, Sandler O’Neill that the range of relative ownership under consideration by Company A would not be sufficient for Knight’s stockholders, Company A proposed an all-cash acquisition of Knight, although it did not indicate a price at this time.

Between November 9 through November 11, 2012, GETCO and Knight re-engaged on diligence matters. At the conclusion of such meetings on November 11, 2012, Knight informed GETCO that an all-stock acquisition was still not feasible.

 

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The GETCO board met later that day with GETCO management, GETCO’s financial advisor and Sullivan & Cromwell, LLP, GETCO’s legal advisor, who we refer to as Sullivan & Cromwell, to begin its consideration of various options with respect to its Knight investment, including assessing the feasibility of a potential part stock and part cash merger transaction. At that meeting representatives of Jefferies discussed possible terms and structure for a part cash, part stock transaction with Knight. GETCO’s board determined that GETCO management and GETCO’s advisors should continue to investigate the feasibility of a potential cash and stock transaction, as well as other potential options.

In advance of a meeting of the Knight board of directors tentatively scheduled for the week of November 27, 2012, Sandler O’Neill reached out to GETCO and Company A and requested that each submit written indications of interest to the Knight board if they remained interested in pursuing a potential transaction with Knight.

After receipt of Sandler O’Neill’s request, GETCO management, with the assistance of GETCO’s advisors, proceeded with consideration of a partial cash transaction and re-engaged with Knight management and Knight’s advisors on diligence and legal documents. Between November 18 and November 27, GETCO’s board had four meetings to discuss possible transaction terms with GETCO management and GETCO’s advisors. At the November 18, 2012 board meeting, representatives of Jefferies discussed potential financial implications of a possible cash and stock transaction. The GETCO board spent a significant amount of time considering the terms of a potential bid, including the size of the cash portion, structure of the proposal and financing required. Over the course of these meetings, the GETCO board worked with GETCO management and GETCO’s advisors to formalize a written proposal. During this time frame, at the direction of the GETCO board, GETCO management also began negotiating a commitment letter with Jefferies Finance to provide the financing necessary for a potential partial cash bid. At the meeting on November 27, GETCO’s board approved the terms of the bid described in the next paragraph and determined that Mr. Coleman should deliver the bid in writing to Mr. Joyce, as the Chairman of the Knight board of directors, the following morning.

On November 28, 2012, GETCO submitted a written proposal to the Knight board with respect to a strategic transaction. Under the terms of the proposal, Knight and GETCO would each be merged into subsidiaries of a newly formed holding company. Holders of Knight shares (other than shares held by GETCO, which would be cancelled in the merger) would receive 1 share of the new holding company stock for each share of Knight common stock they held prior to the transaction. GETCO unitholders would receive an aggregate of 242 million shares of the new holding company stock and 23 million warrants with a strike price of $4 and a 4-year expiration, 23 million warrants with a $4.50 strike price and 5-year expiration, and 23 million warrants with a $5 strike price and a 6-year expiration. Knight stockholders would also have the option to tender up to 50% of the aggregate number of Knight common stock outstanding prior to the closing of the transaction for $3.50 in cash. In aggregate, the GETCO proposal would have provided Knight stockholders with consideration of $1.88 in cash for each share of Knight common stock (assuming the tender was fully subscribed) plus aggregate pro forma ownership in the new holding company of approximately 39% (based on the number of then outstanding shares). Under the terms of GETCO’s proposal, the board of the new holding company would include 9 total directors, 5 of whom would be designated by GETCO and which would include Daniel Coleman, GETCO’s Chief Executive Officer, who would also serve as Chief Executive Officer of the new holding company, and 4 Knight directors, including Mr. Joyce, who would serve as non-executive Chairman. On November 28, 2012, Company A also submitted a written proposal to Knight’s board with respect to an all-cash acquisition of Knight for $3.00 per share.

Knight’s board met on November 29, 2012 to consider the proposals. At this meeting, the board met with senior management of Knight and the company’s outside advisors, including representatives of Sandler O’Neill and Wachtell, Lipton, Rosen & Katz, counsel to Knight, which we refer to as Wachtell, Lipton. At the meeting, Wachtell Lipton discussed the board’s fiduciary duties and updated the board regarding the most recent discussions and process with Company A and GETCO. Sandler O’Neill provided further information regarding the most recent discussions and process, reviewed the GETCO and Company A proposals as well as a stand-

 

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alone plan presented by senior management as an alternative to the proposals presented by GETCO and Company A. The board instructed senior management to continue its diligence of GETCO and for its outside advisors to continue to negotiate with, and provide diligence to, GETCO and Company A to increase the amount of consideration offered in their respective proposals, to negotiate with GETCO to increase the amount of cash in its offer so as to provide increased certainty as to the value of the merger consideration to Knight stockholders and to work with both GETCO and Company A and their advisors to finalize legal documentation with respect to a potential transaction and to remove any remaining pre-signing contingencies with respect to each proposal so that the Knight board could evaluate the best, final and complete proposals from each of GETCO and Company A. The board also instructed the management team to finalize the stand-alone plan so that it could evaluate the independence route relative to a potential sale transaction.

Over the next two weeks, Knight’s outside advisors and senior management continued diligence and negotiations with GETCO and Company A.

After GETCO’s filing of its proposal on Schedule 13D, the potential sale of Knight received significant media coverage, including rumors of an all-cash bidder. At three GETCO board meetings that took place between December 2 and December 12, 2012, the GETCO board, along with GETCO management and GETCO’s advisors, discussed GETCO’s ability to increase the cash to be received by Knight stockholders, either by increasing the tender offer price or the maximum size of the tender offer, given the potential competing all-cash offer. At its meeting on December 12, 2012, after further discussion, including an update on the status of negotiations and open issues, the GETCO board finalized the terms of the revised bid described in the paragraph below. During this period, the GETCO board also instructed GETCO management, with the assistance of GETCO’s advisors, to continue to work towards completion of any remaining diligence items and towards finalizing both the merger agreement and the financing commitment papers.

On December 13, 2012, Company A submitted a revised proposal to the Knight board for an all-cash acquisition of Knight at an increased price of $3.20 per share. On December 14, 2012, GETCO made a revised proposal to Knight. The revised proposal increased the size of the cash tender offer to up to 57% of Knight shares (at the $3.50 price) and increased the number of shares of the new holding company to be received by GETCO holders to 256 million. The revised GETCO proposal provided Knight stockholders with consideration of $2.00 in cash for each share of Knight common stock outstanding prior to the transaction (assuming the tender was fully subscribed) plus aggregate pro forma ownership in the new holding company of 34% (based on the number of then outstanding shares). In addition, GETCO indicated that its revised proposal contemplated significant participation of Knight management in the combined company, including Mr. Joyce as Executive Chairman and Steve Bisgay, Knight’s Chief Financial Officer, as Chief Financial Officer of the combined company. At the time of delivering these proposals, both GETCO and Company A indicated that they were working to be prepared to execute a merger agreement promptly following Knight’s board meeting scheduled for December 17, 2012.

Taking into account the relationships described under “—Interests of Jefferies in the Mergers” beginning on page [    ], the GETCO board determined to engage a financial advisor other than Jefferies to provide it with a fairness opinion in connection with the potential transaction and engaged BofA Merrill Lynch for that purpose. In conducting its financial analyses and presenting those analyses to GETCO’s board of directors, BofA Merrill Lynch worked independently of Jefferies.

On December 16, 2012, the GETCO board of directors met. The GETCO board reviewed, together with GETCO management and representatives of Sullivan & Cromwell and Jefferies, GETCO’s revised proposal to be made to the Knight board of directors by Mr. Coleman the following day and received an update on the status of the legal documents. The GETCO board also discussed potential ways to increase further the cash portion of the transaction if required to remain competitive, including through a potential equity investment from General Atlantic and/or GETCO’s founders and agreement of Jefferies to limit the cash consideration it would receive in the transaction (thus freeing up cash for other Knight stockholders).

 

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On December 17, 2012, Knight’s board of directors met. Sandler O’Neill, Wachtell Lipton and senior management updated the board on the process of negotiations with GETCO and Company A and presented the results of their due diligence of GETCO. Senior management also presented a more detailed proposal on the stand-alone Knight scenario. At Knight’s request, representatives from both Company A (together with its advisors) and GETCO (together with representatives of General Atlantic and Jefferies) separately met with the Knight board of directors to review their respective proposals and also allow the Knight board to directly ask questions and discuss the proposals and the two competing bidders’ companies and views regarding the combination. The representatives of Company A and GETCO (other than a representative of Jefferies) were then excused. The representative of Jefferies then informed Knight’s board that Jefferies, in its capacity as a Knight shareholder, believed that a transaction involving Knight and a third party was preferable to Knight remaining independent. Jefferies also indicated that either GETCO’s proposal if approved by Knight’s board or a superior proposal with equal likelihood of closing would be acceptable to Jefferies. The representative of Jefferies was then excused. Representatives of Sandler O’Neill presented a summary of its financial analysis of the proposed transactions with GETCO and Company A and representatives of Wachtell Lipton reviewed the board’s duties and responsibilities and described the key terms of the merger agreements and other transaction documents that would be required to enter into a transaction with GETCO and Company A. Mr. Joyce recused himself from the board’s deliberations at this meeting regarding whether to pursue the Knight stand-alone scenario or to pursue a transaction with one of the interested parties. Following discussion and deliberations, there was a strong consensus among the remaining Knight directors that it was in the best interest of Knight’s stockholders, and would maximize the value to its stockholders, to pursue a transaction with either GETCO or Company A and not to pursue the stand-alone Knight scenario. The board instructed Sandler O’Neill to continue negotiating with GETCO and Company A to raise their respective offers, to continue negotiating with GETCO to increase the amount of cash in its offer to provide more certainty as to the value of its proposal, and instructed Wachtell Lipton to continue finalizing the legal documentation so that a transaction could be announced promptly should the board determine to approve either transaction. The board adjourned the meeting until the afternoon of December 18, 2012.

On the morning of December 18, 2012, the GETCO board of directors met with GETCO’s management and representatives of Sullivan & Cromwell and Jefferies to discuss the request from Sandler O’Neill to increase both the amount of cash offered and the certainty of value delivered (i.e., the size of the cash portion) and to receive an update on the status of the legal documents. The GETCO board, after discussion, determined to increase both the cash price of its bid (from $3.50 to $3.75) and the size of the cash portion (from 57% to 64%). The additional cash required for this proposal would come from a combination of an equity investment in GETCO by General Atlantic and/or GETCO’s founders and agreement from Jefferies to limit its cash portion of the consideration. Representatives of Sullivan & Cromwell provided an update on the legal documents and discussed certain proposed governance arrangements for the combined company. The GETCO board then authorized Jefferies to submit GETCO’s revised proposal described in the next paragraph to Knight’s financial advisor and to request an opportunity to present the revised proposal to the Knight board.

Prior to the Knight board meeting on December 18, 2012, in discussions with Sandler O’Neill, Company A raised its price to $3.30 per share in cash and GETCO submitted a revised proposal to Knight’s board. In order to simplify the proposed structure and reduce the time needed to close a transaction, GETCO’s revised proposal eliminated the cash tender offer component of its proposal in favor of providing Knight stockholders with the ability to elect to receive $3.75 in cash or new holding company stock for each share of Knight common stock, provided that no more than 64% of Knight shares could elect cash. GETCO’s revised proposal also reflected that, in order to deliver additional cash to Knight stockholders, Jefferies had agreed with GETCO to limit its cash election to no more than 50% of its Knight shares to the extent necessary so that the aggregate cash consideration would not exceed $720 million. Pursuant to this revised proposal, GETCO unitholders would receive 226 million shares and 25 million warrants with a $4 strike price and 4 year expiration, 25 million warrants with a $4.50 strike price and 5-year expiration and 25 million warrants with a $5 strike price and 6-year expiration. A portion of the additional cash component of the revised proposal was made available as a result of General Atlantic and/or GETCO’s founders agreeing to provide equity financing to GETCO, at the closing of the mergers. This

 

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revised GETCO proposal would provide Knight stockholders with consideration of $2.38 in cash for each share of Knight stock outstanding prior to the transaction (assuming the cash amount was fully subscribed) plus aggregate pro forma ownership in the new holding company of 35% (based on the number of then outstanding shares). GETCO also asked for an additional opportunity to present its revised proposal to Knight’s board.

During the December 18 board meeting, Sandler O’Neill, at the direction of the Knight board, again reached out to each of GETCO and Company A and encouraged each of them to increase their offer. Company A responded that the $3.30 per share offer was its final offer and would not be increased further. GETCO commenced a meeting of its board of directors to respond to the request for an increased offer. The GETCO board determined to present a best and final offer, including an increase in the cash amount available under its proposal such that, after giving effect to Jefferies’ agreement to limit its cash election, all stockholders of Knight (other than GETCO and Jefferies) could receive 66.7% of their merger consideration in cash. In its final proposal, GETCO also increased the number of shares of the new holding company to be received by GETCO unitholders to 233 million (with the same number of warrants as the prior proposal). This revised GETCO proposal would provide Knight stockholders with consideration of $2.50 in cash for each share of Knight common stock outstanding prior to the transaction (assuming the cash amount was fully subscribed) plus aggregate pro forma ownership in the new holding company of 33% (based on the number of then outstanding shares) and contemplated a $55.0 million equity commitment to GETCO from General Atlantic.

Later on December 18, 2012, on behalf of GETCO and at Knight’s request, representatives of General Atlantic and Jefferies met with the Knight board of directors to review directly with the Knight board GETCO’s revised proposal and to answer questions from the Knight board. The representatives of General Atlantic and Jefferies were then excused. Representatives of Sandler O’Neill presented an updated summary of its financial analyses of the proposed transactions with GETCO and Company A and representatives of Wachtell Lipton again described the board’s duties and responsibilities and described the key terms of the merger agreements and other transaction documents with that would be required to enter into a transaction GETCO and Company A. Sandler O’Neill also delivered its opinion to the board of directors on December 18, 2012, which it subsequently confirmed in writing, to the effect that, as of such date, and based upon and subject to the various factors, assumptions and limitations set forth therein, the merger consideration to be paid to the holders of Knight common stock and Knight Series A-1 Preferred Stock in the proposed transaction with GETCO was fair, from a financial point of view, to such holders. Following these discussions, and extensive review and discussion among the members of Knight’s board of directors, including consideration of the factors described under “—Knight’s Reasons for the Merger; Recommendation of the Knight Board of Directors,” the Knight board of directors determined that the mergers and the other transactions contemplated by the merger agreement are advisable and in the best interest of Knight and its stockholders, and the Knight directors voted to approve the merger and to approve and adopt the merger agreement.

On the evening of December 18, 2012, GETCO held a meeting of its board of directors to review and consider the proposed transaction. Representatives of Sullivan & Cromwell discussed the fiduciary duties in connection with a potential strategic transaction and the relevant provisions of GETCO’s operating agreement and described the significant terms of the merger agreement and the ancillary documents related to the merger agreement, including the voting agreements, equity commitment letter, governing documents of the combined company and financing commitment documents. Also at this meeting, BofA Merrill Lynch reviewed with GETCO’s board of directors its financial analysis of the aggregate GETCO/GA-GTCO merger consideration to be received collectively by the holders of GETCO units and GA-GTCO units and delivered to GETCO’s board of directors an oral opinion, which was confirmed by delivery of a written opinion dated December 18, 2012, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the aggregate GETCO/GA-GTCO merger consideration to be received collectively by the holders of GETCO units and GA-GTCO units, was fair, from a financial point of view, to such holders. Jefferies was not present at this meeting. Following these discussions, and extensive review and discussion among GETCO’s directors and its advisors present at the meeting, including consideration of the factors described under “—GETCO’s Reasons for the Mergers and Recommendation of GETCO’s Board of Directors,” beginning on

 

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page [    ], and consideration of the above referenced presentations, GETCO’s board of directors approved the merger agreement and the transactions contemplated thereby. The GETCO board of directors then directed management and GETCO’s advisors to finalize and execute a definitive merger agreement and all related agreements on the terms reviewed at the board meeting.

Following the approval by the Knight board of directors and the GETCO board of directors, Knight and GETCO and their counsel worked during the remainder of the day on December 18, 2012 to finalize the merger agreement and related materials (including the financing commitment papers). Thereafter, the parties executed the merger agreement and related documents on the morning of December 19, 2012 and the transaction was announced in a joint press release shortly thereafter.

Knight’s Reasons for the Merger; Recommendation of the Knight Board of Directors

In reaching its decision to adopt and approve the merger agreement, the mergers and the other transactions contemplated by the merger agreement, and to recommend that its stockholders approve the merger proposal, the Knight board of directors consulted with Knight management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors: