Gain Capital Holdings Inc
Annual Report 2010

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the Fiscal Year Ended December 31, 2010OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the Transition Period from to .Commission File Number 001-35008 GAIN CAPITAL HOLDINGS, INC.(Exact name of registrant as specified in its charter) Delaware 20-4568600(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)Bedminster One135 Route 202/206Bedminster, New Jersey 07921(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (908) 731-0700Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.00001 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None.Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes  NoIndicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes  NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes ¨ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files) ¨ Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the bestof the registrant’s knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to thisForm 10-K. 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 thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer  Smaller reporting company ¨ (Do not check if a smaller reporting company)Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2). ¨ Yes  NoThe aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2010, was approximately $117.6 million.As of March 29, 2011, the registrant had 34,511,741 shares of Common Stock outstanding.DOCUMENTS INCORPORATED BY REFERENCECertain information contained in the registrant’s Definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscalyear is incorporated by reference into Part III of this Form 10-K. Table of ContentsGAIN Capital Holdings, Inc.Table of Contents PART I Item 1. Business 1 Item 1A. Risk Factors 28 Item 1B. Unresolved Staff Comments 50 Item 2. Properties 51 Item 3. Legal Proceedings 51 Item 4. Omitted PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 52 Item 6. Selected Financial Data 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 58 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 80 Item 8. Consolidated Financial Statements and Supplementary Data 83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 83 Item 9A. Controls and Procedures 83 Item 9B. Other Information 83 PART III Item 10. Directors, Executive Officers and Corporate Governance 84 Item 11. Executive Compensation 84 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 84 Item 13. Certain Relationships and Related Transactions and Director Independence 84 Item 14. Principal Accounting Fees and Services 84 PART IV Item 15. Exhibits and Financial Statement Schedules 85 SIGNATURES 91 LIST OF EXHIBITS 86 Table of ContentsFORWARD-LOOKING INFORMATIONIn this Annual Report on Form 10-K, the words “GAIN”, the “Company”, “our”, “we” and “us” refer to GAIN Capital Holdings, Inc. and, exceptas otherwise specified herein, to GAIN’s subsidiaries. GAIN’s fiscal year ended on December 31, 2010.This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of1934 as amended. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets inwhich GAIN operates and management’s current beliefs and assumptions. Any statements contained herein (including without limitation statements to theeffect that management, we or GAIN “believes”, “expects”, “anticipates”, “plans” and similar expressions) that are not statements of historical fact should beconsidered forward-looking statements and should be read in conjunction with the consolidated financial statements and notes to consolidated financialstatements included in this report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Thesestatements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a numberof important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. These factors include,without limitation, those set forth in the section entitled “Item 1A – Risk Factors” below and discussed elsewhere herein. The risks and uncertainties describedbelow are not the only ones GAIN faces. Additional risks and uncertainties, including those not presently known to GAIN or that GAIN currently deemsimmaterial, may also impair the business. GAIN expressly disclaims any obligation to update any forward-looking statements, except as may be required bylaw.PART I ITEM 1.BUSINESSOverviewWe are an online provider of retail and institutional foreign exchange, or forex, trading and related services founded in 1999 by a group of experienced tradingand technology professionals. We offer customers 24-hour direct access to the global over-the-counter, or OTC, foreign exchange markets. We also offer ourretail customers located outside the United States access to other global markets on an OTC basis, including equity indices and commodities via “contracts-for-difference”, or CFDs, which are investment products with returns linked to the performance of an underlying commodity, index or security. Our tradingplatforms provide a wide array of information and analytical tools that allow our customers to identify, analyze and execute their trading strategies efficientlyand cost-effectively.Our customer base is comprised of retail self-directed traders, retail managed accounts and institutional customers who utilize our online platforms and tools.For the year ended December 31, 2010, self-directed retail traders represented 77.1% of our customer trading volume. Managed accounts, which are accountsmanaged by authorized intermediaries trading on behalf of retail clients, represented 7.6% of our customer trading volume for the year ended December 31,2010. Institutional customers represented 15.3% of our customer trading volume for the year ended December 31, 2010. 1Table of ContentsWe currently service customers residing in more than 140 countries worldwide, with offices in the United States, United Kingdom, Japan, Australia, HongKong, South Korea and Singapore. For the year ended December 31, 2010, 43.5% of our customer base was located in the United States, representingapproximately 49.7% of our total annual trading volume, while approximately 56.5% of our customer base was located outside of the United States,representing approximately 50.3% of our total annual trading volume. With the exception of the United States, customers in no single country representedcustomer trading volume in excess of 7.3% for the year ended December 31, 2010. Our total annual customer trading volume, which is based on theU.S. dollar equivalent of notional amounts traded, grew from $447.0 billion in 2006 to $1.6 trillion in 2010, representing a compound annual growth rate of36.8%. The tables below highlight certain key financial data and operating metrics for the past five years: Key Financial Data(in millions)Year Ended December 31, 2010 2009 2008 2007 2006 Net Revenue $189.1 $153.3 $188.1 $119.3 $70.4 Net income/(loss) $37.8 $28.0 $231.4 $(134.7) $(49.5) Adjusted net income (unaudited)* $33.9 $26.3 $49.6 $30.6 $12.2 Key Operating Metrics(Unaudited)Year Ended December 31, 2010 2009 2008 2007 2006 Total Trading Volume ($ in billions) $1,564.1 $1,246.7 $1,498.6 $674.5 $447.4 Traded Retail Accounts 64,313 52,755 52,555 43,139 28,270 Funded Retail Accounts 85,562 60,168 49,740 51,026 37,109 New Retail Accounts 56,361 37,693 33,666 31,006 24,517 Client Assets ($ in millions) $256.7 $199.8 $124.0 $108.9 $75.6 *Adjusted net income is a non-GAAP financial measure which represents our net income excluding the historical change in fair value of the embeddedderivative in preferred stock and the amortization of purchased intangibles. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Change in Fair Value of Convertible Preferred Stock and Embedded Derivative and Adjusted Net Income”, for a reconciliation ofGAAP net income to adjusted net income.We use financial metrics, including trading volume, traded retail accounts, funded retail accounts, new retail accounts, and client assets, to evaluate ourcurrent revenue and future revenue potential. Total trading volume represents the U.S. dollar equivalent on notional amounts traded. We believe that a metricwhich correlates to our trading volume and revenue is the number of traded retail accounts, because it represents retail customers who executed a transactionwith us during a particular period. Funded retail accounts represent retail customers who maintain cash balances with us. We believe the number of fundedretail accounts is an important indicator of our ability to attract new retail customers that can potentially lead to trading volume and revenue in the future. Newretail accounts represent the number of customer accounts that were initially opened and funded during a given period. Client assets represent amounts due toclients, including deposits and unrealized gains or losses arising from open positions.We seek to attract and support our retail customers through direct and indirect channels and institutional customers through direct channels. The primarydirect channel for our retail business is our Internet website, FOREX.com, which is available in English, traditional and simplified Chinese, Japanese,Russian and Arabic. It provides retail traders of all experience levels with full trading capabilities, along with extensive educational and support tools. Ourindirect channels include our relationships with retail financial services firms, such as broker-dealers, futures commission merchants, or FCMs, and retailbanking institutions. These firms offer our trading services to their existing customers under their own brand in exchange for either a commission based oneach referred customer’s trading volume or a net revenue share. We refer to these firms as our “white label partners”. We also have relationships with otherentities which refer their customers to us for a fee. We refer to these firms 2Table of Contentsas “introducing brokers”. Our institutional channel, GAIN GTX, which was launched in March 2010, sources institutional customers, consisting ofcommercial and investment banks, hedge funds and other professional traders, through a direct sales team. The total customer trading volume sourcedthrough direct, indirect, and institutional channels was 48.7%, 36.0%, and 15.3%, respectively for the year ended December 31, 2010. The total customertrading volume sourced through direct and indirect channels was 65.4% and 34.6%, respectively for the year ended December 31, 2009.We generate revenue primarily from trading revenue in our retail forex business and commissions in our institutional forex business. We generally act as thecounterparty to our retail customers’ trades and as an agent for trades conducted by our institutional customers. For the year ending December 31, 2010,approximately 98.0% of our average daily retail trading volume was either naturally hedged—when one customer executing a trade in a currency pair is offsetby a trade made by another customer—or hedged by us with one of our wholesale forex trading partners. Our retail forex trading revenue is generated from ourmanaged flow portfolio, in which trades are either naturally hedged or become part of our net exposure to be managed pursuant to our risk-managementpolicies, and our offset flow portfolio, in which we immediately offset trades with one of our wholesale forex trading partners. In our institutional forex tradingbusiness, we generate revenue through transaction-based commissions. The counterparties to our institutional customers’ trades are third-party financialinstitutions.Market OpportunityThe retail forex market has grown rapidly over the past decade, with daily trading volumes growing at a compound annual growth rate of 37.1% from averagedaily volumes of approximately $10.0 billion in 2001 to approximately $125.0 billion in 2009 according to a 2010 analysis performed by the Aite Group.Historically, participation in the forex trading market was only available to commercial and investment banks and other large institutional investors. Webelieve that the expansion of online forex trading firms, such as our company, has led to reduced trading costs and increased investor awareness of the forexmarket, resulting in greater retail participation. We believe that improved accessibility and convenience has spurred the growth of our industry, similar to theimpact online equity brokers had on growth in the U.S. equities markets in the late 1990s.We believe retail forex trading is poised for continued, rapid growth as a result of the following trends: • increasing recognition of currency trading as an alternative investment and as a tool for portfolio diversification by retail traders, authorizedtraders and investment professionals globally; • improved access to the forex market, reduced transaction costs and more efficient execution; • increased availability of investor education relating to the forex market and trading opportunities; • expansion of marketing efforts by many leading firms in the forex industry; • increasing media coverage of the forex market; and • rising global broadband and wireless penetration.Despite the strong growth of the retail forex market, online retail forex investors still represent a small fraction of total online investors. The Aite Groupestimates that, as of July 2010, there were more than 100 million online retail investors globally, but only 1.25 million online retail investors who trade forex.Since retail forex is an asset class that can be traded 24 hours per day, five days a week, it is convenient for many online investors as they can trade at anytime of the day.Trading PlatformsWe offer a variety of innovative trading platforms and tools to support our retail and institutional customers. Our retail trading platforms provide ourcustomers with multiple ways to trade and manage their accounts, based on 3Table of Contentstheir trading experience, level of sophistication or preferred mode of access, including desktop applications, browser-based trading and mobile devices. Ourinstitutional electronic communications network, or ECN, features a diverse liquidity pool and is designed for hedge funds, high frequency traders andfinancial institutions.FOREXTrader PROFOREXTrader PRO, our downloadable, Windows-based trading platform, is designed to provide our more active and experienced retail customers with split-second trade execution, real-time position and account information, advanced order management features, including advanced order types that allow customersto automate their individual trading strategies, and comprehensive analytical and decision support tools, including charting, real-time news feeds and marketresearch.Website TradingWebsite trading provides our retail customers with streamlined trading, research and account management features in a secure, web-based environment.Website trading compliments our downloadable active trader platform, FOREXTrader PRO, which is designed for more active and experienced traders. Webelieve website trading is an important part of our long-term strategy to attract a more diverse customer base, including novice traders who prefer easy-to-usetrading tools and education, research and customer support features accessed through a customer-friendly website, as well as self-directed retail investors inthe United States who are already accustomed to trading on the websites of their existing online brokerage firms.Mobile TradingWe offer our retail customers a variety of mobile trading solutions, including native applications for iPhone and Android-based devices and a mobile version ofour FOREX.com website. Our mobile trading platform provides customers and registered practice trading account users with secure account access to tradeand manage their accounts while away from their computers, as well as access to quotes, charts, news and research and an extensive learning section featuringarticles and video tutorials. We also offer a wireless access protocol-based mobile trading solution for older web-enabled mobile devices, which allowscustomers and registered practice trading account users to view rates, place trades and manage their positions.MetaTraderTo meet the needs of a growing retail customer segment interested in automated trading solutions, we offer a third-party trading platform, MetaTrader, whichwe license from MetaQuotes Software Corp. MetaTrader users can develop and automate their own custom trading strategies directly on the platform or usetrading systems developed by third parties. MetaTrader is available in 17 languages, and is especially popular outside the United States.GAIN GTXGAIN GTX is our ECN for buy side institutions, including hedge funds, asset managers and proprietary traders. Launched in March 2010, GAIN GTXprovides institutional customers with a fully anonymous trading environment, peer to peer trading and advanced algorithmic trading capabilities. GAIN GTXclients use their existing credit line with a prime broker to trade on the liquidity of other ECN participants. We do not act as counterparty in connection withtrades executed through GAIN GTX. 4Table of ContentsThe following table provides a summary description of our key trading platforms: TradingPlatforms: Functionality:FOREXTrader PRO Our flagship trading platform for active traders, featuring a highly intuitive user interface, advanced customization features and afull suite of professional trading tools.Website trading A comprehensive web-based environment featuring easy-to-use trading tools, a robust learning center and seamless integration ofmarket information, trading functionality and account management tools.FOREX.com Mobile Mobile version of our FOREX.com website designed for smartphones and other web-enabled mobile devices, including theiPhone, BlackBerry and Android-based mobile devices.FOREXTrader foriPhone Native iPhone application offering full trading capabilities, news, charts, research and account information. Available in English,Japanese, and Russian.FOREXTrader forAndroid Native application built for Android-powered smartphones, offering full trading capabilities, news, charts, research and accountinformation.MetaTrader 4 Third-party trading platform that features robust charting and technical analysis tools along with trade automation capabilities.GAIN GTX Our ECN for institutional customers, including hedge funds, asset managers and proprietary traders, providing a fullyanonymous trading environment, peer to peer trading and advanced algorithmic trading capabilities.Our CustomersRetail Self-Directed TradersSelf-directed retail forex traders constitute the majority of our customer base. For the year ended December 31, 2010, self-directed customers representedapproximately 77.1% of our customer trading volume. We believe that our leading industry reputation, advanced trading tools and high level of customerservice are the key selling points for these customers.Retail Managed AccountsManaged account customers have engaged an intermediary to make trading decisions on their behalf. For the year ended December 31, 2010, authorized traderscollectively represented approximately 7.6% of our customer trading volume. These intermediaries, also called authorized traders, include professional moneymanagers, which trade a significant amount of aggregated customer funds, and individuals, such as ex-currency traders, that trade for a small number ofcustomer accounts. We provide authorized traders with our trading and execution services, as well as a full suite of back-office tools and services.Institutional CustomersInstitutional customers include hedge funds, asset managers, financial institutions and proprietary trading firms. For the year ended December 31, 2010,institutional customers represented approximately 15.3% of our customer trading volume. Our GAIN GTX ECN provides institutional customers with a fullyanonymous trading environment, peer to peer trading, and advanced algorithmic trading capabilities.Our Indirect Channel PartnersFor the year ended December 31, 2010, trading volume sourced through our indirect channel partners was 36.0% of our total trading volume and 42.5% of ourtotal retail trading volume. 5Table of ContentsWhite Label PartnersWhite label partners are firms that have not developed their own forex trading capabilities and have entered into an arrangement with us whereby we provide allof the front- and back-office services necessary for them to provide forex trading on our platforms under their own brands. We generally seek to enter intoarrangements with white label partners in order to expand into new markets where we have not obtained the regulatory authorizations necessary to provide forextrading services directly to retail customers or to tap into a partner’s existing client base. For regulatory purposes, the white label partner’s customers thatengage in forex trading are deemed to remain customers of the white label partner, rather than becoming our customers. Our relationships with white labelpartners also allow us to reduce our direct-marketing expenses, since we do not incur any such costs in connection with soliciting the customers directed to usby our white label partners. We compensate our white label partners with either a commission based on the forex trading volume generated by their customersor a net revenue share.Our white label partners typically fall into two categories: • Traditional financial services firms, such as banks or other financial institutions, seeking to provide their customers with an online forex tradingplatform quickly and cost-effectively; or • Established online brokers, which are registered broker-dealers, FCMs or other online brokerage firms, seeking to expand the number of financialproducts they offer to their customers.Examples of our current white label partners include Standard Bank of South Africa, Questrade and Zecco. Since our white label partners adopt thecapabilities of our system as “their own”, we provide a customized trading platform branded with each white label partner’s company name and logo, whichis a crucial selling point in white label partner relationships. We provide our white label partners with online access to real-time customer trading volumeinformation and revenue accrual, as well as support through a dedicated partner services team. Our white label partner arrangements contain generaltermination provisions, including termination by us at any time upon reasonable notice and termination by either party in the event of a material breach by theother party that is not remedied within a specified period following notice of such breach.Introducing BrokersWe work selectively with introducing brokers that direct to us their customers who are interested in forex trading services. We work with a variety of differenttypes of introducing brokers, ranging from small, specialized firms which specifically identify and solicit customers interested in forex trading, to larger,more established financial services firms seeking to enhance their customer base by offering a broader array of financial products. We pay the introducingbroker either a commission based on each referred customer’s trading volume or a net revenue share. To support our introducing brokers, we manage all oftheir back-office functions related to the forex trading customers they refer to us and provide them with online access to real-time customer trading volumeinformation and revenue accrual, as well as support through a dedicated partners services team. Our introducing broker agreements contain terms andconditions similar to our white label partner agreements.Our BusinessOur Retail OTC Trading BusinessWe offer our customers the ability to trade spot forex transactions in the OTC market, including 48 different currency pairs and six metals. In a forex trade, aparticipant buys one currency and simultaneously sells another, a combination known as a “currency pair.” In addition, for customers outside of the UnitedStates, we offer 12 CFD products. CFDs are investment products with returns linked to the performance of an underlying commodity, index or security. OurCFD product offering currently includes 10 equity index and two oil CFDs. In the future, we plan to offer additional CFDs. Because of U.S. regulatoryrequirements, neither we nor our subsidiaries trade or offer CFDs in the United States or to U.S. residents. 6Table of ContentsRetail customers can fund their trading accounts with us via electronic wire transfer, checks or debit/credit cards. While we do not extend credit to ourcustomers, we allow them to trade notional amounts greater than the funds they have on deposit with us through the use of leverage. The maximum leverageavailable to retail traders is set by the regulator in each jurisdiction. For example, the maximum leverage available to retail accounts in the United States is 50-to-1. As a result, assuming use of maximum leverage, we require that U.S. customers fund their accounts with a minimum of approximately $200 in order toexecute the minimum notional trade amount in a currency, which is $10,000. Outside of the United States, the maximum leverage that we are able to offer ourcustomers varies, ranging from 20-to-1 in Hong Kong to 200–to-1 in the United Kingdom and Australia. In Japan, the maximum available leverage decreasedfrom 100-to-1 to 50-to-1 in August of 2010 and will decrease to 25-to-1 in August 2011. Customers have the option of utilizing less than the maximumavailable leverage.We utilize our extensive experience in the global OTC markets, along with proprietary technology and technology licensed from third parties to execute trades,manage market and credit risk and provide information to our clients. Technology allows us to streamline our trading management operations and improve ouroverall efficiency and profitability. For our retail forex trading business, we use a proprietary pricing engine to electronically aggregate real-time prices from ourliquidity sources. We identify the midpoint price between the available “best bid” and “best offer,” which then becomes the basis for the dealing spread quotedto our retail customers. Depending on the currency pair being traded, the dealing spread we offer our retail customers is typically between 2 and 5 basis points(0.0002 — 0.0005), or pips, which is comparable to the dealing spread generally available to institutional customers. We earn the difference between the retailprice quoted to our customers and the wholesale price received from our wholesale forex trading partners. This highly automated process enables us to updateour prices on average three times per second per currency pair, helping to ensure that our prices always reflect currently available pricing in the global forexmarket.We generate revenue primarily from trading revenue in our retail forex business and commissions in our institutional forex business. For the year endingDecember 31, 2010, approximately 98.0% of our average daily retail trading volume was either naturally hedged—when one customer executing a trade in acurrency pair is offset by a trade made by another customer—or hedged by us with one of our wholesale forex trading partners. As discussed below, in ourretail forex business, trading revenue is generated from our managed flow portfolio, which accounted for 76.7% of our customer trading volume for the yearended December 31, 2010, and our offset flow portfolio, which accounted for 8.0% of our customer trading volume for the year ended December 31, 2010. Ourinstitutional forex trading business, which we launched in March 2010, accounted for the remaining 15.3% of our customer trading volume for the year endedDecember 31, 2010.When a retail customer executes a trade with us, we either direct the trade into our managed flow portfolio or immediately offset the trade with one of ourwholesale forex trading partners. Customer trades directed into our managed flow portfolio may either be offset through natural hedging or become part of ournet exposure to be managed pursuant to our risk-management policies and procedures. Over time a portion of our net exposure may be offset and hedged withone of our wholesale forex trading partners. In connection with naturally hedged transactions, we have the opportunity to capture the entire retail bid/offerspread on the two offsetting transactions, while completely hedging our exposure and thereby reducing our overall risk. For immediately offset trades we earnthe difference between the retail bid/offer spread we offer our customers and the wholesale bid/offer spread we receive from our wholesale forex tradingpartners, while minimizing market risk in the transaction. Whether a customer’s trade is directed to our managed flow or offset portfolios, the customer’sexperience is identical with respect to trade execution, including speed of execution and pricing.Though we do not actively initiate proprietary directional market positions in anticipation of future movements in the relative prices of the products we offer inthe market, through our net exposure we are likely to have open positions in various products at any given time. In the event of unfavorable marketmovements, we may take a loss on such positions. 7Table of ContentsIn our institutional forex trading business, we generate revenue through transaction-based commissions and do not act as counterparty to these trades. Thecounterparties to our institutional customers’ trades are third-party financial institutions.For the year ended December 31, 2009, approximately 98.6% of our average daily retail trading volume was either naturally hedged or hedged by us with oneof our wholesale forex trading partners. In 2009, our managed flow portfolio accounted for 88.7% of our customer trading volume and our offset flow portfolioaccounted for the remaining 11.3%. For the year ended December 31, 2008, approximately 98.8% of our average daily retail trading volume was eithernaturally hedged or hedged by us with one of our wholesale forex trading partners. In 2008, our managed flow portfolio accounted for 87.0% of our customertrading volume and our offset flow portfolio accounted for the remaining 13.0%.Trading revenue represented 99.1% of our total net revenue for the year ended December 31, 2010, 100.0% of our total net revenue for the year endedDecember 31, 2009 and 98.9% of our total net revenue for the year ended December 31, 2008.In certain cases, customer trade requests are invalid and, therefore, are not executed. Generally, trades are invalid due to customer error, such as entering aninvalid trade amount or requesting a trade that is not covered by the applicable customer agreement, insufficient collateral in the customer’s account orregulatory issues, such as accounts required to be frozen pursuant to National Futures Association, or NFA, or Commodity Futures Trading Commission, orCFTC, request. When a trade request is rejected, the customer is immediately notified on-screen and provided the reason for the rejection. The customer maythen attempt to address the issue resulting in the invalid transaction and reenter the trade.Market Risk ManagementWe are exposed to market risk in connection with our retail trading activities. Because we act as counterparty to our retail customers’ transactions, we areexposed to risk on each trade that the market price of our position will decline. Accordingly, accurate and efficient management of our exposure is a highpriority, and as such we have developed both automated and manual policies and procedures to manage our exposure. These risk-management policies andprocedures are established and reviewed regularly by the risk committee of our board of directors. Our risk-management policies require quantitative analysesby currency pair, as well as assessment of a range of market inputs, including trade size, dealing rate, customer margin and market liquidity. Our risk-management procedures require our team of senior traders to monitor risk exposure on a continuous basis and update senior management both informally overthe course of the trading day and formally through intraday and end of day reporting. A key component of our approach to managing market risk is that wedo not take proprietary directional market positions and therefore do not initiate market positions for our own account in anticipation of future movements inthe relative prices of products we offer. To facilitate our risk-management activities, we maintain levels of capital in excess of those currently required underapplicable regulations. As of December 31, 2010, we maintained capital levels of $116.7 million, which represented approximately 3.5 times the capital wewere required to hold.Credit Risk ManagementOur trading operations require a commitment of our capital and involve risk of loss because of the potential that a customer’s losses may exceed the amount ofcash in their account. As a result, we require that each trade must be collateralized in accordance with our margin policies described below. Each customer isrequired to have minimum funds in their account for opening positions, which we refer to as the initial margin, and for maintaining positions, which we referto as maintenance margin, depending on the currency pair being traded. Margin requirements are expressed as a percentage of the customer’s total position inthat currency, and the customer’s total margin requirement is based on the aggregate margin requirement across all of the positions that a customer holds at anyone moment in time. Each net position in a particular currency pair is margined 8Table of Contentsseparately. Accordingly, we do not net across different currency pairs, thereby following a fairly conservative margin policy. Our systems automaticallymonitor each customer’s margin requirements in real time, and we confirm that each of our customers has sufficient cash collateral in his or her account beforewe execute their trades. If at any point in time a customer has “negative equity” because his or her trading position does not comply with the applicable marginrequirement, the position may be automatically partially or entirely liquidated in accordance with our margin policies and procedures. This policy protectsboth us and the customer. The incidence of negative equity in customer accounts has been immaterial to our operations in the three years ended December 31,2010, which we believe was attributable to our real-time margining and liquidation policies and procedures. Our margin and liquidation policies are set forth inour customer agreements.We are also exposed to potential credit risk relating to the counterparties with which we hedge our trades and the financial institutions with which we depositcash. We mitigate these risks by transacting with several of the largest financial institutions in the market. In the event that our access to one or more financialinstitutions becomes limited, our ability to hedge may be impaired.Relationships with Wholesale Forex Trading PartnersWe have leveraged our extensive industry experience to secure a substantial liquidity pool for our retail business by establishing liquidity relationships withmajor financial institutions. Through these relationships, we are able to price and execute our retail customers’ trades in any of the forex and CFD products weoffer. We have direct relationships with Barclays Bank PLC and Morgan Stanley, among others. These relationships are reflected in International Swaps andDerivatives Association, or ISDA, agreements signed with each institution. These standardized agreements are widely used in the interbank market forestablishing credit relationships and are typically customized to meet the unique needs of each liquidity relationship. We have had a number of key liquidityrelationships in place for more than five years, and as such we believe we have demonstrated a strong track record of meeting and exceeding the requirementsassociated with each relationship. However, our wholesale forex trading partners have no obligation to continue to provide liquidity to us and may terminateour arrangements with them at any time.In addition to the direct relationships we have established with our wholesale forex trading partners, we also have entered into three global prime brokerageagreements with Deutsche Bank AG, or Deutsche Bank, UBS AG, or UBS, and The Royal Bank of Scotland, or RBS, for our retail business and fifteenadditional prime brokerage relationships to support our institutional business, GAIN GTX. Our prime brokers allow us to source liquidity from a variety ofexecuting dealers, even though we maintain a credit relationship, place collateral, and settle with a single entity — the prime broker. We depend on the servicesof these prime brokers to assist in providing us access to liquidity. In return for paying a modest prime brokerage fee, we are able to aggregate our tradingexposures, thereby reducing our transaction costs and increasing the efficiency of the capital we are required to post as collateral. Our prime brokerageagreements may be terminated at any time by either us or the prime broker upon complying with certain notice requirements. We have also establishedcollateralized trading lines that facilitate trading at the Chicago Mercantile Exchange as an additional source of liquidity. We generally maintain collateral ondeposit with our wholesale forex trading partners and prime brokers, which includes our funds and our customers’ funds. Collateral on deposit ranged from$77.5 million to $100.6 million in the aggregate for the year ended December 31, 2010, with the average monthly balances for such period beingapproximately $84.2 million.Our Institutional ModelGAIN GTX is our ECN trading platform for institutional customers. GAIN GTX clients use their existing credit line with a prime broker to trade on theliquidity of other ECN participants, including banks, hedge funds and other clients. We act as an agent for the trades executed on the GAIN GTX platformand do not incur market or credit risk. The counterparties to these trades are third-party financial institutions. We generate revenue by 9Table of Contentsearning a commission on each transaction. For the year ended December 31, 2010, institutional forex trading volume represented 15.3% of our executed forextrading volume.GAIN GTX is powered by software and services that we license. In July 2010, we entered into an Exclusive Marketing Agreement, or EMA, and relatedagreements, with Forexster Limited, or Forexster, pursuant to which we receive, subject to certain excluded customers and geographic regions, exclusive rightsto use certain Forexster software in the field of forex trading and non-exclusive rights to use such trading services in the field of precious metals trading. TheForexster EMA expands the rights and obligations we had been provided under preexisting agreements with Forexster. Pursuant to the terms of the EMA, wepaid Forexster an up-front, non-refundable fee and agreed to make additional payments, up to specified caps, during the term of the agreement based on apercentage of gross revenues earned by us from use of the Forexster software. See “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations — Forexster Agreement” for further discussion. In the event that certain payment thresholds are not met on or before July 31, 2015, then allpayment provisions of the EMA shall cease and the payment provisions of our pre-existing agreement with Forexster will resume. In the event such paymentthresholds are met, our rights to the Forexster software under the EMA shall continue for 100 years. Thereafter, the EMA shall automatically renew foradditional twelve (12) month periods unless otherwise terminated by the parties. In addition, we have the right, at any point during the term of the contract, tomake a lump sum payment of the difference between the aggregate amount paid as of such date and the applicable cap amount, after which no additionalpayments would be due and we would be entitled to the 100 year license rights described above.Our Broker-Dealer BusinessWe offer our customers the ability to trade exchange-traded products through our wholly-owned subsidiary, GAIN Securities, which represented less than1.0% of our business for the year ended December 31, 2010. A broker dealer registered with the SEC and a member of Financial Industry RegulatoryAuthority, Inc., or FINRA, GAIN Securities offers direct access to listed U.S. equity securities, including stocks, exchange traded funds, or ETFs, options,mutual funds and bonds. GAIN Securities primarily targets individual self-directed retail investors in the United States through its Internet website atwww.gainsecurities.com. To date, we have not marketed GAIN Securities to our forex customers and prospective forex customers, but we are exploring doingso in the future.GAIN Securities is an introducing broker to its clearing provider, Penson Financial Services Inc., and therefore does not accept customer funds directly ormaintain custody of client assets.Sales and MarketingOur sales and marketing strategy is designed to attract new customers and to increase the trading activity of existing customers. Our sales and marketingstrategy focuses on our two customer acquisition channels to expand our customer base: • For our direct channel, we use a “one-to-one” strategy of direct marketing, principally by leveraging our FOREX.com brand to cost-effectivelyattract new customers; and • For our indirect channel, we use a “one-to-many” strategy of forging partnerships with financial services firms, including white label partnershipsand introducing brokers, that have existing customers to whom they wish to offer forex trading capabilities.In executing our direct marketing strategy, we employ a mixture of online and traditional marketing programs, such as advertising on third party websites,search engine marketing, email marketing and attendance at industry trade shows, all of which are aimed at driving prospective customers to the FOREX.comwebsite to open a practice account or a funded trading account. We also advertise on television, which we believe has significantly increased not only ourbrand name recognition in the marketplace, but also awareness of the forex market in general. We also engage in an ongoing public relations and educationinitiative to build awareness of the retail 10Table of Contentsforex industry and our company, which we believe attracts new customers. In addition, we position senior members of our research team as expert industryresources, resulting in regular appearances on major financial news outlets such as CNBC, FOX News and Bloomberg TV, as well as the Wall Street Journaland Reuters.We offer prospective customers access to free registered practice trading accounts for a 30-day trial period, which is our principal lead-generation tool. Duringthis trial period, our customer service team is available to assist and educate the prospective customers. From a prospective customer’s point of view, webelieve the registered practice trading account serves two important functions. First, it serves as an educational tool, providing the prospective customers withthe opportunity to try forex trading in a risk-free environment, without committing any capital. Second, it allows the prospective customer to evaluate ourtrading platform, tools and services.Education is an important part of our marketing strategy. Our educational programs are all developed internally and are designed to accommodate a variety ofexperience levels and learning preferences, from self-study to fully instructional programs. Our educational resources currently include a variety of interactivewebinars (web-based seminars) covering topics ranging from getting started in forex trading, to developing advanced technical analysis skills and acomprehensive web-based training course coupled with access to an experienced forex instructor. We also offer video tutorials, articles and other materials. Inkeeping with our education focus, FOREX.com is co-sponsoring a new 30-minute CNBC program developed to educate self-directed traders about the forexmarket. The program debuted in March 2011.Customer ServiceWe have a dedicated, multilingual customer service staff located in the United States that handles customer inquiries via telephone, email and online chat.Customer support is available seven days a week, with continuous coverage beginning Sunday at 10:00 a.m. through 5:00 p.m. Friday and Saturday9:00 a.m. to 5:00 p.m. (in each case Eastern Standard Time). We have documented customer issue response and escalation procedures, which help us providetimely resolution to customer inquiries.Our Growth StrategiesWe intend to pursue the following strategies to continue to grow our business and to continue to expand our product offerings to our customers:Increase Penetration in Our Existing Retail Forex MarketsWe plan to expand our retail customer base in the U.S. and other key regions by gaining market share and contributing to the growth of the overall retail forexmarket. We believe we can gain market share by continuing to enhance our innovative, market leading trading platforms and trading tools, continuing toimprove our trade execution and continuing to provide a superior overall customer experience. In addition, we continue to sharpen our targeted marketingprograms. We believe we can facilitate the growth of the overall retail forex market by continuing to invest in public relations and education programs thatbuild awareness of the retail forex market and cultivate new retail forex traders.We have a long history of introducing innovative trading tools to our customer base and will continue to leverage our in-house development capabilities toimprove our offering by delivering regular platform enhancements and new tools to our retail customer base. One major area of focus is on our mobile tradingsolutions, in response to the positive customer take up and trade volume growth via our mobile trading platforms. In 2011, we intend to expand our mobileoffering to include applications designed exclusively for the iPad and Windows 7 mobile devices, as well as to make continued enhancements to our existingnative iPhone application, FOREXTrader for iPhone and our existing mobile Android-based application, FOREXTrader for Android. 11Table of ContentsContinue the International Expansion of Our Retail Customer BaseWe have made significant progress over the past several years in expanding internationally, including: • In 2008, we acquired 100% of RCG Gain Limited, a then joint venture with Rosenthal Collins Group (now known as GAIN Capital Forex.comUK Limited) and 100% of Fortune Capital Co., Ltd. (now known as Forex.com Japan Co., Ltd.) and established operations in London andTokyo; • In 2009, we opened offices in Seoul and Hong Kong; and • In 2010, we opened offices in Sydney and Singapore.In addition, in 2010, we applied to modify our license in Hong Kong to permit us to offer retail forex services directly to customers. To date, we have acted asan introducing broker in Hong Kong. We intend to continue expanding our international customer base by leveraging the FOREX.com brand name globally,using, where permitted under applicable regulations, targeted marketing programs to reach retail traders around the world with an interest in accessing globalfinancial markets. We intend to open additional offices in jurisdictions where a local presence is helpful to our growth efforts, with a focus on geographies witha clear regulatory framework. In addition, we intend to expand internationally by selectively pursuing strategic acquisitions.Continue Growth of Our Institutional BusinessWe intend to build our GAIN GTX institutional trading ECN by expanding our direct sales force in the United States, Europe and Asia, adding more liquidityto the platform by expanding the number of relationships with prime brokers and other institutions, and by facilitating new credit solutions that allow us toattract and service customers without a pre-existing credit relationship with a participating bank or prime broker. In addition, we intend to expand our productoffering beyond forex trading.Expand Our Retail Product OfferingWe intend to grow our retail forex business by offering our customers additional products that are complementary to our current product offerings.Approximately two-thirds of our existing retail forex customers have told us that they trade or have traded other financial products, such as equities, futuresand options. As a result, we believe we have significant growth opportunities to cross-sell complementary products to these customers. Expanding our productofferings to include other financial products will enable our retail forex customers to execute diversified trading strategies across various products using oursingle, integrated trading platform. For example, we are exploring offering exchange traded products such as equities, ETFs, and options to our retail forexcustomers through GAIN Securities.In addition, we intend to expand our existing forex offerings by increasing the number of available currency pairs, as well as adding other currency-relatedproducts. We also intend to build upon our existing CFD product offering for our retail customers outside of the United States, including in Europe, Japan,Hong Kong and Australia. We intend to focus on CFDs that have generated interest from retail investors globally, including precious and base metals, energyproducts, agricultural and other commodities, as well as stock indices and government bonds. These products are not permitted to be offered to U.S. residentsand we do not permit U.S. residents to trade CFDs through any of our U.S. and non-U.S. subsidiaries. Finally, our status as a registered FCM provides uswith the ability to offer a variety of exchange-traded products, including futures and options on futures contracts, to our customers.Increase Our Partnerships with Other Financial Services FirmsThrough our white label and introducing broker partners, we generated 36.0% of our trade volume for the year ended December 31, 2010. We intend to pursuepartnerships with firms in new markets, including markets not available to us without undertaking costly and time consuming registration with the localregulator, as well as 12Table of Contentswith firms that have a loyal existing client base which we believe we could not otherwise efficiently solicit. We believe we are well-positioned to capture newpartnership opportunities given our successful track record of supporting partners globally.Pursue Strategic Acquisitions and Alliances to Expand Our Product and Service Offerings and Geographic ReachWe believe we can supplement our organic growth strategies by selectively pursuing attractive acquisition and alliance opportunities. In the past, we havesuccessfully expanded the breadth of our product and service offerings by acquiring companies with complementary products and services. We intend to seekacquisition opportunities that will allow us to leverage our existing technology and operational infrastructure in order to grow our account base cost-effectively,take advantage of economies of scale, allow us to accelerate our penetration into new markets or provide us with technology or products that allow us todifferentiate ourselves from our competition.Capture Additional Market Share as a Result of Increased Regulatory Requirements.We believe that increased regulation in the United States and other jurisdictions has impacted the retail forex industry by reducing the number of firms offeringretail forex services, even as the number of retail forex customers and retail forex trade volume has grown. While complying with new regulations may increaseour costs, we believe that these regulations have given customers more confidence in retail forex as an asset class and in retail forex firms that are able tocomply with them. As the retail forex industry consolidates, scale and ability to comply with regulation will become increasingly important for retail forexbrokers, presenting opportunities for larger firms, such as us, that can meet the more stringent regulatory requirements.Recent AcquisitionsConsistent with our strategy to selectively pursue attractive acquisition and alliance opportunities, in 2010 we acquired $35.0 million in retail forex customerassets in two transactions. Specifically, in October 2010, we acquired the customer account balances and effective customer agreements of Capital MarketServices, LLC for $8.0 million, plus certain earn-out payments based on the amount of revenue generated by the acquired assets over the eighteen monthsfollowing closing of the transaction. In August 2010, we acquired the account balances and effective customer agreements, customer list and marketing listfrom MG Financial LLC for $0.5 million. See Notes 1 and 6 of our Consolidated Financial Statements provided in response to Item 8 of this annual report onForm 10-K.CompetitionThe retail forex trading market is fragmented and highly competitive. Our competitors in the retail forex market can be grouped into several broad categoriesbased on size of net capital, technologies, product offerings, target customers and geographic scope of operations: • Market Leading Forex Trading Firms: include our firm and other firms with similar business models, such as Forex Capital Markets LLC,Global Futures & Forex, LLC and OANDA Corporation. The firms within this category are our primary competition for our existing forex tradingservices. • Small/Specialized Forex Trading Firms: include firms such as FXDirectDealer, LLC and InterbankFX, LLC. These firms, to date, have notbeen our core competitors due to their smaller size and technology and marketing limitations. • Other Online Trading Firms: include firms such as OptionsXpress Holdings, Inc. (which The Charles Schwab Corporation recently announcedit was acquiring), E*TRADE Financial Corp., TDAMERITRADE and Scottrade. These firms are generally either niche players focused on aparticular product, such as equity options, or traditional online equity brokers, that have expanded into other financial products that may already,or will in the future, include forex trading. 13Table of Contents • Multiproduct Trading Firms: include firms such as Saxo Bank, CMC Group, IG Group Holdings plc, City Index Limited and InteractiveBrokers LLC. Among these firms, those based in the United States tend to focus on listed products and provide forex principally as acomplementary offering. Other than Saxo Bank, the international firms tend to focus on CFDs.There has been an increase of interest in the retail forex market from international banks and other financial institutions with significant forex operations.Since 2007, a number of these institutions announced or launched retail forex operations. In most cases, the financial institutions have chosen to enter into ajoint venture with an independent retail forex firm in lieu of building a retail operation. We believe these financial institutions are electing to enter into jointventures because these arrangements can result in accelerated time to market and increased profitability. We believe that retail forex trading will continue to bean increasing area of focus for international financial institutions in the future.We believe the key factors that affect our competitive position in the forex market include: • Functionality, performance and reliability of trading platform; • Speed and quality of trade execution; • Pricing; • Level of customer service; • Brand reputation; • Efficacy of sales and marketing efforts; • Strategic partnerships with financial services firms; • The ability to offer ancillary services, such as research and education; • Range of product offering; and • Capacity of trading platform to handle large volumes of customer transactions.We attribute our competitive success to the customer experience we deliver, including our innovative trading tools and strong trade execution capabilities, aswell as our global marketing capability. We believe that our expertise in trading, technology innovation and marketing will allow us to continue to compete on aglobal basis as we expand our product and service offerings and further extend our global footprint.Intellectual PropertyWe rely on a combination of trademark, copyright, trade secret and fair business practice laws in the United States and other jurisdictions to protect ourproprietary technology, intellectual property rights and our brands (Forex.com, GAIN Capital, and GAIN GTX). We also enter into confidentiality andinvention assignment agreements with our employees and consultants, and confidentiality agreements with other third parties. We rigorously control access toproprietary technology. Currently, we do not have any pending or issued patents.We use the following service marks that have been registered or for which we have applied for registration with the U.S. Patent and Trademark Office: GAINCapital (registered service mark), FOREX.com GAIN Capital Group (registered service mark), Trade Real Time (registered service mark), ForexPro (registeredservice mark), ForexPremier (registered service mark), Forex Insider (registered service mark), ForexTrader (registered service mark), FOREX.com (registeredservice mark), ForexPlus (registered service mark) and It’s Your World. Trade It (pending service mark). 14Table of ContentsTechnology ArchitectureWe leverage a wide variety of proprietary and third party technologies to meet the needs of our customers and our business operations. Leveraging our in-housedevelopment expertise, we have invested approximately $7.7 million since the beginning of commercial operations in the development and support of ourproprietary technology. We believe that our proprietary trading technology has and will continue to provide us with a significant competitive advantage becausewe have the ability to adapt quickly to our customers’ changing needs and rapidly incorporate new products and features.Our proprietary retail trading technology is primarily Microsoft-based — ASP.net for browser-based delivery and C#.net for more technologically advanceddelivery. We offer multiple methods through which our customers can transact with us including desktop, browser-based and mobile trading applications.In addition to our proprietary trading technology, we license MetaTrader, a third-party trading platform, from MetaQuotes Software Corp. The MetaTraderplatform utilizes the same infrastructure as our proprietary trading platform. For the year ended December 31, 2010, 30.5% of our forex trading volume wasderived from trades utilizing the MetaTrader platform.Our GAIN GTX ECN platform is powered by software and services that we license from a third party. For the year ended December 31, 2010, 15.3% of ourforex trading volume was derived from trades utilizing our GAIN GTX ECN platform.ScalabilityOur trading platforms are designed to meet the demands of our growing customer base by incrementally adding readily available hardware components andInternet bandwidth as necessary. In addition, we work with third-party service providers to continuously provide excess capacity with respect to space, power,heating/cooling systems and communications bandwidth from over 300 communications providers. We believe our approach to scaling allows us to efficientlyand effectively address the costs required to support our current business and provide the foundation for rapid growth in the future.We believe our forex trading platforms have adequate capacity to support our customer activity. Our current trading platform configuration is capable ofhandling at least 3,000,000 trade requests per trading day. We handle an average of approximately 120,000 retail trade requests per day and have exceeded295,000 retail trade requests on active days. During peak trading periods, we receive and execute thousands of trade requests within a period of a few minutes.Peak trading periods include the trading days around economic announcements related to gross domestic product, nonfarm payroll and Federal Open MarketCommittee decisions on the federal funds rate. Our trading platform’s capacity allows us to continue to grow while at the same time developing improvementsin both hardware and software aimed at reducing trade latency and increasing capacity.If a customer has difficulty logging on to our trading platform, or has any other issues or questions, they can contact our customer service team. Mostcommon issues are local to the customer, including issues with respect to customers’ computers, Internet access, firewall configuration and forgotten userI.D.s and passwords. Our customer service team is trained to assist in addressing these issues.Reliability and AvailabilityWe depend on the availability of our technology systems and have made significant investments in high-availability, layered hardware and softwaretechnologies. Our hardware infrastructure is hosted at two separate geographic locations, providing a “live-live” redundancy model. Our primary hardware ishoused at a dedicated 15Table of ContentsInternational Business Exchange, or IBX, hosted by Equinix, Inc., or Equinix, a provider of environmentally controlled, secure facilities connected to multiplecommunications providers focused on meeting the demands of the financial services sector. The Equinix IBX center has an uninterruptible power supply,back-up systems, and N+1 (or greater) redundancy with extensive heating, ventilation, air-conditioning systems capable of handling the demands of high-power density deployments. The Equinix IBX center also offers high levels of physical security, power availability and infrastructure flexibility. At Equinix,our forex trading platform resides in the same Internet “neighborhood” as many of our wholesale forex trading providers and white label partners. We believethis close proximity provides a competitive advantage on pricing and execution speed. In addition to our primary Equinix location, we maintain a secondarysite (currently located at our corporate headquarters) to balance customer traffic and provide “live-live” redundancy in case of interruptions at our Equinix IBXlocation.To further supplement our multisite, “live-live” redundancy model, our technology systems (located at our Equinix and corporate headquarters locations) havebeen designed to ensure that there are no single points of failure in the system architecture. All hardware (network devices and servers) are configured for highavailability which is leveraged by server virtualization where we partition our server technologies at all tiers to facilitate our platform management and allow forrapid response. We also contract with multiple communications carriers at each of our locations to ensure service availability for communications with ourcustomers and wholesale forex trading providers. Our “uptime,” or system availability, is continuously monitored (minute by minute) by our external third-party vendors and during the year ended December 31, 2010, we achieved an uptime of 99.7%.SecuritySecuring access to our trading platform and customer information is essential to our business success. We maintain strict internal practices, procedures andcontrols to enable us to secure our customers’ sensitive information, including social security numbers, bank account information and other personal data. Weemploy industry-leading firewall technologies at the perimeter of our hosting facilities to restrict inappropriate access. All customer-facing servers are containedwithin a secure Demilitarized Zone, or DMZ, that partitions customers from our core infrastructure and trading transactional services. We have also partneredwith IBM Internet Security System to provide a managed intrusion detection/prevention system which actively monitors and blocks inappropriate traffic onour production network. In addition, IBM’s global Security Operations Centers proactively monitors our production networks 24 hours a day. Access to ourinformation systems is granted to our customers and internal users on an as-needed basis. Customers access our trading platform and secure portals using auser ID and password challenge/response approach.All customer communications are initiated over secure (128-bit SSL or HTTPS) connections to protect customer data as it traverses the Internet. In addition,all communications with wholesale forex trading providers are made over private or virtual private networks to ensure the secure communication of pricing andtrade data. In our processing of credit card transactions, we do not store customer card numbers. We have been tested and are PCI-compliant (Payment CardIndustry). Our chief information officer acts as our director of information security and is primarily responsible for the security of our technologyinfrastructure and application development. We have also engaged an independent registered public accounting firm to perform an audit of our internal controlsand procedures and issue an audit report in accordance with Statement on Standards for Attestation Engagements (“SSAE”) No. 16, in the second half of2011.In addition, physical access is restricted at our Equinix IBX center and corporate headquarters facilities. Access is granted to technical and support staff usingswipe card-based entitlement. Our network operations center is manned 24 hours a day to ensure that our technology services are continuously running, withany potential issues being addressed in real time. Our corporate headquarters is also monitored by building security from 6:00 a.m. until 10:00 p.m. (EasternStandard time) Mondays through Fridays. The building is also monitored by building management, which is open from 8:00 a.m. until 5:00 p.m. Mondaythrough Friday. 16Table of ContentsBusiness ContinuityWe maintain formal business continuity policies, practices and procedures aimed at allowing us to recover rapidly from business or trading interruptions.Each of our systems and services has been ranked according to the risk associated with an interruption. Business recovery time objectives have beenestablished relative to our risk assessment and business criticality and our recovery plans and controls have been established to avoid and mitigate such risks.Our recovery plans and controls are tested on an annual basis to determine effectiveness and are continuously maintained and updated in order to supportchanges in business requirements or IT environments.To affect these business continuity objectives, our “live-live” redundancy sites are geographically separated (more than 36 miles apart) and are interconnectedvia private, multilayered high speed circuits, allowing real-time, two way data replication for all of our trading technologies. Each of our locations providesredundant UPS battery power and diesel generator backup to ensure power availability with multiple Internet communications circuits provided by variouscarriers to ensure availability. In addition, we maintain two separate office locations in the New York/New Jersey area capable of supporting critical functionsin order to ensure that our personnel are able to maintain our business in the event that one physical site becomes unavailable.RegulationOverviewOur business and industry are highly regulated. Our operating subsidiaries are regulated in a number of jurisdictions, including the United States, the UnitedKingdom (through which we have accessed regulatory passport rights to operate in a number of European Economic Area jurisdictions), Japan, Australia andHong Kong. Government regulators and self-regulatory organizations oversee the conduct of our business in many ways, and several perform regularexaminations to monitor our compliance with applicable statutes, regulations and rules. These statutes, regulations and rules cover all aspects of our business,including: • sales and marketing activities, including our interaction with, and solicitation of, customers; • trading practices, including the manner in which we offer investment products and the types of investment products we may offer; • treatment of customer assets, including custody, control, safekeeping and, in certain countries, segregation of our customer funds and securities; • maintaining specified minimum amounts of capital and limiting withdrawals of funds from our regulated operating subsidiaries; • continuing education requirements for our employees; • anti-money laundering practices; • recordkeeping and reporting; and • supervision regarding the conduct of directors, officers and employees.For the year ended December 31, 2010, approximately 68.3% of our trading volume was attributable to customers resident in a jurisdiction where we arelicensed or regulated or where we deal with customers cross-border in a manner which we believe does not require us to be regulated in that jurisdiction. Theremaining 31.7% of our trading volume was attributable to customers sourced through partners licensed or regulated in a particular jurisdiction or customersin jurisdictions in which we are not currently licensed or authorized by the local government or applicable self-regulatory organization. Over the past12 months (through December 31, 2010), in nearly every jurisdiction in which residents of such jurisdiction accounted for one percent (1.0%) or greater of ourcustomer trading volume, we have consulted with legal counsel as to whether we have the required authorizations, licenses or approvals or whether we mayconduct our business cross-border with residents in that 17Table of Contentsjurisdiction without obtaining local regulatory authorization, approval or consent. In addition, on an on-going basis we proactively evaluate our activities injurisdictions in which we are not currently licensed or registered. As a result of these evaluations, we consider whether a change in our business practices isrequired to ensure that we remain in compliance with applicable rules or regulations and, at any given time, we may be in the process of altering our businesspractices concerning customers in one or more jurisdictions. To the extent that we serve customers in a jurisdiction in which we determine licensing orregistration is required, we may also elect to direct such customers to a licensed white label or other partner, rather than pursuing licensing or registration.In jurisdictions in which we are not licensed or authorized, we may be subject to a variety of restrictions regarding the manner in which we conduct ourbusiness or serve customers, including restrictions on: • our sales and marketing activities; • the use of a website specifically targeted to potential customers in a particular country; • the minimum income level or financial sophistication of potential customers we may contact; • our ability to have a physical presence in a particular country; or • the types of services we may offer customers physically present in each country.Though we conduct our business in a manner which we believe complies with applicable local law, regulators generally reserve the right to assert jurisdictionover activities that they deem to take place within the jurisdiction they regulate, and new laws, rules or regulations may be enacted that change the regulatorylandscape and result in new, or clarify preexisting, registration or licensing requirements. In any such event, we would determine whether to register or obtain alicense in such jurisdiction or change the manner in which we serve customers in the relevant country.The primary responsibility for ensuring that we maintain compliance with all applicable regulatory requirements is vested in our legal and compliancedepartments. In addition, our legal and compliance departments are responsible for our ongoing training and education programs, supervision of our personnelrequired to be licensed by one or more of our regulators, review of sales, marketing and other communications and other related functions. Many members ofour senior management team are NFA-registered principals with supervisory responsibility over forex trading or other aspects of our business. In addition, allof our sales employees are licensed pursuant to applicable regulation.U.S. RegulationIn the United States, the CFTC and the NFA regulate our forex trading activities. Historically, the principal legislation covering our U.S. forex business wasthe Commodity Exchange Act, which provides federal regulation of all commodities and futures trading activities and requires all futures and commodityoptions to be traded on organized exchanges. In recent years, as in the case of other companies in the financial services industry, our forex business has beensubject to increasing regulatory oversight. Specifically, in 2008, the Congress passed the CFTC Reauthorization Act, which amended the CommodityExchange Act to grant the CFTC express authority to regulate the retail forex industry. On October 18, 2010, the CFTC adopted a series of rules which regulatevarious aspects of our business. Specifically, these rules: • created “retail foreign exchange dealers,” or RFEDs, a new regulated category of forex brokers focused on retail investors that are permitted to actas counterparty to retail forex transactions; • impose an initial minimum security deposit amount of 2.0% of the notional value for retail forex transactions in “major currency” pairs and 5.0%of the notional value for all other retail forex transactions and provide that the NFA will designate which currencies are “major currencies” and willreview, at least annually, major currency designations and security deposit requirements and adjust such designations and requirements asnecessary in light of changes in the volatility of currencies and other economic and market factors; 18Table of Contents • provide that introducing brokers must either (i) register with the CFTC and become members of the NFA or apply for an exemption fromregistration and (ii) meet the minimum net capital requirements applicable to futures and commodity options introducing brokers or enter into aguarantee agreement with a CFTC-regulated forex dealer member, and permit only one such guaranty agreement per introducing broker; • require that the risk disclosure statement provided to every retail forex customer include disclosure of the number of profitable and unprofitablenon-discretionary accounts maintained by the forex broker during the four most recent calendar quarters; • prohibit RFEDs, FCMs and introducing brokers from including statements in sales and marketing materials that would appear to convey topotential retail forex customers that there is a guaranty against loss, and require that FCMs, RFEDs and introducing brokers provide retail forexcustomers with enhanced written disclosure statements that, among other things, inform customers of the risk of loss; and • require RFEDs to maintain net capital of at least $20.0 million, plus 5.0% of the RFED’s customer obligations in excess of $10.0 million. Inaddition, in the event an RFED’s net capital position falls below 110.0% of the minimum net capital requirement, the RFED would be subject toadditional reporting requirements.In July 2010, the Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, a sweeping law affecting almostevery aspect of the U.S. financial services industry. Though most of the Dodd-Frank Act is focused on aspects of the financial services industry that are notrelated to our business, a number of significant provisions contained in the law affect, or will affect when implementing regulations are adopted by theappropriate federal agencies, our business. Specifically, the Dodd-Frank Act includes: • rules that, beginning in October 2010, require us to ensure that our customers resident in the United States have accounts open only with ourNFA-member operating entity, GAIN Capital Group, LLC; • amendments to the Commodity Exchange Act that, beginning on July 15, 2011, require essentially all retail transactions in any commodity otherthan foreign currency to be executed on an exchange, rather than in OTC transactions; • a requirement that federal banking regulators adopt new rules regarding the conduct and operation of retail forex businesses by banks; and • a requirement that the SEC adopt rules regarding the conduct and operation of retail forex businesses by broker-dealers.As a result of the Dodd-Frank Act’s requirement that essentially all transactions in commodities be executed on an exchange, after July 15, 2011, we will nolonger be permitted to offer spot metal transactions in the United States. For the year ended December 31, 2010, our spot metals business with U.S. customersgenerated approximately $10.8 million in revenue. In addition, new regulations regarding banks’ participation in the forex business could significantly affectour wholesale forex trading partners’ ability to do business with us, which could affect the structure, size, depth and liquidity of forex markets generally.U.S. Patriot Act and Anti-Money LaunderingLike other companies in the financial services industry, we are subject to a variety of statutory and regulatory requirements concerning our relationships withcustomers and the review and monitoring of their transactions. Specifically, we are subject to the Uniting and Strengthening America by Providing AppropriateTools Required to Intercept and Obstruct Terrorism Act of 2001, or the Patriot Act, which requires that we maintain a comprehensive anti-money laundering,or AML, program, a customer identification program, or CIP, designate an AML compliance officer, provide specified employee training and conduct anannual independent audit of our AML program. Consistent with the Patriot Act, our CIP includes both documentary and non-documentary review 19Table of Contentsand analysis of potential customers. Under our CIP, we review each prospective customer’s identity internally and also contract with third-party firms thatperform extensive background checks on each prospective customer, including through review of the U.S. Treasury Department’s Office of Foreign Assetsand Control, Specially Designated Nationals and Blocked Persons lists. These procedures and tools, coupled with our periodic training, assist us incomplying with the Patriot Act, as well as the CFTC’s and NFA’s applicable AML and CIP requirements.International RegulationWe have provided below a brief description of the key regulatory aspects governing our operations in the jurisdictions in which we have registered with, orobtained a license from, the local regulator.United KingdomGAIN Capital Forex.com UK Limited, or GCUK, is a registered full scope BIPRU 730K investment firm, regulated by the Financial Services Authority.In the European Union, government officials have announced the intention to propose new laws to regulate OTC derivatives. The new laws would, amongother things, require mandatory central clearing of some derivatives, higher collateral requirements and higher capital charges for certain OTC derivatives.These initiatives are still at the consultation stage and details for many aspects of the legislative proposals have not yet been published. If the products that weoffer are subjected to mandatory central clearing, exchange trading, higher collateral requirements or higher capital charges, our business, financial conditionand results of operations could be materially adversely affected.JapanForex.com Japan Co., Ltd., or GC Japan, is a registered Type I financial instruments business firm regulated by the Financial Services Agency of Japan inaccordance with Financial Instruments and Exchange Law (Law No. 25 of 1948, as amended). GC Japan is also regulated by the Japan Ministry ofEconomy, Trade and Industry, or the JETI, and the Japan Ministry of Agriculture, Forestry and Fisheries, or the JAFF, and is a member of the FinancialFutures Association of Japan. As required under applicable law, on January 1, 2011, we obtained a license from the JETI and JAFF.The regulation of forex trading in Japan has recently undergone significant regulatory changes. In particular, pursuant to a new rules effective August 1, 2011,the maximum permitted leverage ratio for forex products will be 25-to-1 and a new maximum leverage ratio of 20-to-1 for spot gold and spot silver productswill take effect on July 1, 2011. These regulatory changes may have a material adverse affect on our forex and metals business with Japanese customers.AustraliaGAIN Capital Forex.com Australia, Pty. Ltd. is regulated by the Australian Securities and Investments Commission in Australia.The Australian Securities and Investments Commission has proposed its intention to issue new guidance on advertising materials, to introduce disclosurebenchmarks for OTC CFD providers and to require OTC CFD providers to adopt written customer suitability policies.Hong KongOur Hong Kong subsidiary, GAIN Capital Forex.com Hong Kong Limited, or GCHK, is a Type 3 leveraged foreign exchange trading firm registered with theSecurities and Futures Commission, or SFC, and operates as an 20Table of Contentsapproved introducing agent. GCHK has applied to the SFC to modify its license to permit it to offer retail forex services directly to customers.Cayman IslandsGAIN Global Markets, Inc., or GGMI, our Cayman Island subsidiary, is a registered securities arranger with the Cayman Islands Monetary Authority.We have also provided below a brief discussion of material regulatory developments affecting our business in other jurisdictions important to our business,including developments that have presented risks or uncertainties for our operations. See “Item 1A. Risk Factors” for additional information regarding thevarious risks we face as a result of the regulated nature of our business.ChinaThe regulatory rules in China are complex and are not as clear as those in many other jurisdictions. Between 2006 and 2008, a significant portion of ourtrading volume, trading revenue, net income and cash flow was generated from residents of China. When we commenced offering our forex trading to Chinesecustomers, we believed that our operations complied with applicable Chinese regulations. However, as a result of a review of our regulatory compliance inChina during 2008, we became aware of what appeared to be a China Banking and Regulatory Commission prohibition on providing retail forex tradingservices through the direct solicitation of Chinese residents, including through the Internet, without a China Banking and Regulatory Commission permit. Wedo not have such a permit and to our knowledge, no such permit exists. In light of the regulatory uncertainty regarding the permit, we terminated all serviceofferings to residents of China and ceased our trading support operations located inside the country, while undertaking a review of the manner in which tomost appropriately serve Chinese customers. As of December 31, 2008, we no longer accepted new customers from China. Based on our review of the relevantregulatory requirements in China, in 2010 we began accepting Chinese customers that neither we nor our partners directly solicit in China.CanadaIn Canada, the securities industry is governed by provincial or territorial legislation, and there is no national regulator. Local legislation differs from provinceto province and territory to territory. In June 2005, we were advised by the British Columbia Securities Commission, or BCSC, that we were required toregister as a dealer to offer our trading services directly to residents of that province. Accordingly, since August 2005, we have conducted our business inBritish Columbia through a while label partner registered as an investment dealer in Canada. On October 30, 2009, the Ontario Securities Commission, orOSC, issued interim guidance which took the position that rolling spot foreign exchange contracts and similar over-the-counter derivative contracts sold usinga trading platform similar to ours fall under the definition of securities, which would, absent exemptive relief, require, among other things, us to comply withthe dealer registration and prospectus delivery requirements of Ontario securities law. In November 2010, we received correspondence from the OSC requestinginformation about our customers and business practices in Ontario and asking us to explain why our activities should not be considered in breach of dealerregistration and prospectus delivery requirements under Ontario securities law. In its letter, the OSC states that it is acting in conjunction with the BCSC andthe Quebec financial industry regulator, the Autorité des Marchés Financiers, or AMF, in its review of our activities. The AMF has also separately requestedthat we cease providing forex services in Quebec. We have responded to the regulators and, since November 22, 2010, have ceased accepting new customersfrom Quebec, Ontario and Alberta and have directed new customers to our white label partner. We are currently reviewing the forex dealer registrationrequirements in various Canadian provinces and territories and may seek to register in the future. 21Table of ContentsSingaporeWe have a small number of retail forex customers that reside in Singapore. We are not currently licensed to offer forex trading services in Singapore, but arecurrently reviewing the applicable licensing requirements and have consulted with the Monetary Authority of Singapore in order to determine the appropriatecourse of action.Global Anti-Money LaunderingOur anti-money laundering and customer identification programs are designed to comply with applicable rules and regulations on a global basis. In addition,we have developed proprietary methods for risk-management and continue to add specialized processes, queries and automated reports designed to identifypotential money laundering, fraud and other suspicious activities.Minimum Net Capital RequirementsGAIN Capital Group, LLC, our regulated, wholly-owned subsidiary, and its regulated affiliates, are subject to jurisdiction-based specific minimum netcapital requirements, which are designed to measure the general financial integrity and liquidity of the regulated entity. In general, net capital rules require thatat least a minimum specified amount of a regulated entity’s assets be kept in relatively liquid form. Net capital is generally defined as net worth (assets minusliabilities), plus qualifying subordinated borrowings and discretionary liabilities, less mandatory deductions that result from excluding assets that are notreadily convertible into cash and from conservatively valuing other assets.As part of our risk-management philosophy, we generally maintain capital levels in excess of those required under applicable minimum net capital regulations.We believe that our excess net capital position in the United States compares favorably to that of many of our competitors which operate primarily in forextrading and puts us in a strong position to address potential future increases in minimum capital requirements domestically and abroad. In addition, webelieve that our capital position enhances our access to foreign exchange liquidity, thereby improving our ability to provide customers with attractive pricingand facilitating our trading and hedging activities. Our capital position also allows us to provide capital to our affiliates as needed to accommodate their growthand meet any increases of minimum capital requirements. The following table summarizes the excess net capital levels maintained by our regulatedsubsidiaries as of December 31, 2010 (amounts in millions). Entity Name MinimumRegulatory CapitalRequirements Capital LevelsMaintained Excess NetCapital GAIN Capital Group, LLC $26.40 $76.30 $49.88 GAIN Capital Securities, Inc. $0.05 $0.52 $0.47 GAIN Capital-Forex.com U.K., Ltd. $2.67 $22.83 $20.16 Forex.com Japan Co., Ltd. $3.97 $11.18 $7.21 GAIN Capital Forex.com Australia, Pty. Ltd. $0.22 $0.30 $0.09 GAIN Capital-Forex.com Hong Kong, Ltd. $0.39 $0.98 $0.59 GAIN Global Markets, Inc. $0.10 $0.44 $0.35 If a firm fails to maintain the required net capital, its regulator may suspend the firm or revoke its license or registration and ultimately could require the firm’sliquidation. Applicable net capital rules may prohibit the payment of dividends, the redemption of stock, the prepayment of subordinated indebtedness and themaking of any unsecured advance or loan to a stockholder, employee or affiliate, if the payment would reduce the firm’s net capital below required levels. 22Table of ContentsThe discussion below provides more detailed information regarding the minimum net capital requirements applicable to GAIN Capital Group, LLC. GAINCapital Group, LLC is subject to the net capital requirements of the Commodity Exchange Act, which are monitored by the CFTC and NFA. Under the netcapital rules, the minimum required net capital is $20.0 million plus 5% of the amount of customer liabilities over $10.0 million. GAIN Capital Group, LLChad the following capital as of the dates specified (amounts in thousands): As of December 31, 2010 2009 2008 Net capital $80,429 $102,577 $114,978 Adjusted net capital $76,293 $90,425 $107,726 Excess adjusted net capital $49,885 $64,424 $97,726 Supervision and ComplianceThe role of our compliance department is to ensure that we maintain compliance with all laws, regulations, rules and other legal requirements applicable to usand our regulated subsidiaries and also provide education, supervision, surveillance, mediation and communication review. Many members of our seniormanagement team are NFA-registered principals with supervisory responsibility over forex trading or other aspects of our business. In addition, all salesemployees have successfully completed licensing requirements as mandated by their local regulatory regimes.Corporate InformationWe were incorporated in Delaware in October 1999 as GAIN Capital, Inc. In order to expand, either directly or through wholly-owned subsidiaries, intobusiness activities not regulated by the Commodity Futures Trading Commission or the National Futures Association, on August 1, 2003, all outstandingcapital stock of GAIN Capital, Inc. was converted into capital stock of GAIN Capital Group, Inc. pursuant to an agreement and plan of merger by and amongGAIN Capital Group, Inc., GAIN Merger Sub Inc. (a wholly-owned subsidiary of GAIN Capital Group, Inc.) and GAIN Capital, Inc. Pursuant to suchagreement and plan of merger, GAIN Merger Sub Inc., merged with and into GAIN Capital, Inc., the surviving entity, and the holders of capital stock,warrants and options of GAIN Capital, Inc. received capital stock, warrants and options of GAIN Capital Group, Inc. on a one-for-one basis, and GAINCapital, Inc. continued to exist as a wholly-owned subsidiary of GAIN Capital Group, Inc. The GAIN Capital, Inc. stockholders before the merger were thesame as the GAIN Capital Group, Inc. stockholders after the merger.As a condition to entering into a credit facility in 2006, the lending banks required that we pledge the ownership interests in certain of our operatingsubsidiaries as collateral. In order to facilitate this pledge, on March 27, 2006, all outstanding capital stock of GAIN Capital Group, Inc. was converted intocapital stock of GAIN Capital Holdings, Inc. pursuant to an agreement and plan of merger by and among GAIN Capital Group, Inc., GH Formation, Inc. (awholly-owned subsidiary of GAIN Capital Group, Inc.) and GAIN Capital Holdings, Inc. Pursuant to such agreement and plan of merger, GH Formation,Inc. merged with and into GAIN Capital Group, Inc., the surviving entity, and the holders of capital stock, warrants and options of GAIN Capital Group,Inc. received capital stock, warrants and options of GAIN Capital Holdings, Inc. on a one-for-one basis, and GAIN Capital Group, Inc. continued to exist asan indirect wholly-owned subsidiary of GAIN Capital Holdings, Inc. The GAIN Capital Group, Inc. stockholders before the merger were the same as theGAIN Capital Holdings, Inc. stockholders after the merger.For tax planning purposes, contemporaneously with the foregoing merger, on March 27, 2006, GAIN Capital Group, Inc. was converted to a limited liabilitycompany, GAIN Capital Group, LLC, and GAIN Capital, Inc. was converted to a limited liability company, GAIN Capital, LLC, thereby allowing profitsand losses to pass through such entities. At the same time, GAIN Holdings, LLC, a newly created holding company and wholly- 23Table of Contentsowned subsidiary of GAIN Capital Holdings, Inc., became the sole member and holder of all of the membership interests of GAIN Capital Group, LLC. OnApril 28, 2006, GAIN Capital, LLC merged with and into GAIN Capital Group, LLC and ceased to exist as a separate entity. The membership interests ofGAIN Holdings, LLC were pledged as collateral in connection with the credit facility referenced above.Our principal executive offices are located at Bedminster One, 135 Route 202/206, Bedminster, New Jersey 07921. Our telephone number is (908) 731-0700.On August 18, 2009, we entered into a lease agreement for approximately 45,000 square feet of office space at 135 Route 202/206, Bedminster, New Jersey,which we are using as our new principal executive offices. The term of the lease runs from January 1, 2010 to December 1, 2025, and we moved to our newfacilities in January 2010. We believe this new facility will accommodate our needs for the foreseeable future. We operate our OTC trading risk managementand most administrative services out of our Bedminster (New Jersey), London and Tokyo offices and our sales and support services out of our Bedminster,New York City, Woodmere (Ohio), London, Tokyo, Hong Kong, and Australia offices. Our corporate website address is www.gaincapital.com. Theinformation on our website is not incorporated by reference into this annual report and should not be considered to be a part of this annual report. 24Table of ContentsAs of December 31, 2010, the following companies were our principal operating subsidiaries and intermediate holding companies: Entity Name Business/Services Applicable RegulatorGAIN Capital Holdings, Inc. Parent holding company SECGAIN Capital Group, LLC A registered FCM and RFED, engaging in forextrading services and precious metals spot tradingservices CFTC and NFAGAIN Capital-Forex.com U.K., Ltd. Forex trading services and CFD trading service U.K. Financial Services AuthorityForex.com Japan Co., Ltd. Forex trading services and precious metals spottrading Japan Financial Services AgencyGAIN Capital Forex.com Australia Pty. Ltd. Forex trading services and CFD trading services Australian Securities and InvestmentsCommissionGAIN Capital-Forex.com Hong Kong, Ltd. Forex trading services and precious metals spottrading services Hong Kong Securities and Futures CommissionGAIN Capital Securities, Inc. Registered U.S. broker-dealer SEC and FINRAGAIN Global Markets, Inc. Forex trading services and CFD trading services Cayman Islands Monetary Authority (CaymanIslands)GAIN GTX, LLC Electronic Communication Network provider N/AGCAM, LLC Managed account forex trading services N/AGAIN Holdings, LLC Holding company for U.S. operating entities N/AS.L. Bruce Financial Corporation Holding company for U.S. broker-dealer N/AGAIN Capital Holdings International, LLC Holding company for international operatingentities N/AGAIN Capital Service Co. Provides administrative services to GAIN CapitalGroup N/AEmployees and CultureAs of December 31, 2010, we had 329 full-time employees and 4 part-time employees. None of our employees are covered by collective bargaining agreements. 25Table of ContentsOfficers and Significant EmployeesOur current officers and significant employees, and their ages as of March 30, 2011, are as follows: Name Age PositionExecutive Officers Glenn H. Stevens 48 Chief Executive Officer and DirectorHenry C. Lyons 47 Chief Financial Officer and TreasurerTimothy O’Sullivan 47 Global Head of TradingSamantha Roady 41 Chief Marketing OfficerDiego A. Rotsztain 41 General Counsel and SecretaryJeffrey A. Scott 47 Chief Commercial OfficerSignificant Employees Alexander Bobinski 47 Chief Compliance OfficerAndrew Haines 45 Chief Information OfficerKenneth O’Brien 39 Senior Vice President, International OperationsDaryl J. Carlough 39 Chief Accounting Officer and Corporate ControllerExecutive OfficersGlenn H. Stevens has served as our president and chief executive officer since June 2007 and a member of our board of directors since June 2007. FromFebruary 2000 to May 2007, Mr. Stevens served as one of our managing directors. From June 1997 to January 2000, Mr. Stevens served as managingdirector, head of North American sales and trading, at National Westminster Bank Plc (which was acquired by the Royal Bank of Scotland Group in 2000).From June 1990 to June 1997, Mr. Stevens served as managing director and chief forex dealer at Merrill Lynch & Co., Inc. Mr. Stevens is registered with theCFTC and NFA as a principal and associated person. Mr. Stevens received a BS in Finance from Bucknell University and an MBA in Finance fromColumbia University.Henry C. Lyons has served as our chief financial officer and treasurer since March 2008. From September 2006 to February 2008, Mr. Lyons served assenior vice president and chief financial officer at ACI Worldwide, a global provider of e-payment processing software and services. Mr. Lyons served fromApril 2004 to August 2006 as chief financial officer for Discovery Systems, a business unit of GE Healthcare Biosciences, Inc. From January 2001 to March2004, Mr. Lyons was employed by Amersham Biosciences, Inc. (which was acquired by GE Healthcare in 2004) as corporate controller of the Biosciencesdivision. Mr. Lyons received a BBA in Accounting from Millsaps College and an MBA from New York Institute of Technology.Timothy O’Sullivan has served as global head of trading since March 2000. Mr. O’Sullivan manages the day-to-day operations of our trading desk. FromMarch 1994 to March 2000, Mr. O’Sullivan served as director of the New York Sterling desk at Merrill Lynch & Co., Inc. Mr. O’Sullivan received a BS inCivil Engineering from the University of Delaware.Samantha Roady has served as our chief marketing officer since August 2006. From September 1999 until August 2006, she was our senior vice president,marketing. From November 1994 to October 1999, Ms. Roady served as director of marketing for FNX Limited, a privately-held provider of trading andrisk-management solutions to the international financial community. Ms. Roady is registered with the CFTC and NFA as a principal. Ms. Roady received aBA in International Affairs from James Madison University.Diego A. Rotsztain was appointed executive vice president, general counsel and secretary in January 2011. From January 2010 to January 2011,Mr. Rotsztain was a corporate and securities partner at Mayer Brown LLP. 26Table of ContentsMr. Rotsztain was an associate in the capital markets group of Davis Polk & Wardwell LLP from November 1998 to December 2009. From September 1997to September 1998, Mr. Rotsztain served as a Law Clerk for the Honorable Judge David G. Trager in the U.S. District Court in the Eastern District of NewYork. Mr. Rotsztain received his law degree from Columbia University School of Law in May 1997 and a BA in Economics from Tufts University in May1992.Jeffrey A. Scott was appointed chief commercial officer in February 2011. From August 2010 through February 2011, Mr. Scott was the president of TolunaUSA. From October 2008 to April 2010, Mr. Scott served as a managing director at LexisNexis. From March 2005 through October 2008, Mr. Scott served invarious capacities at SourceMedia, Inc., including chief technology officer; president, Accuity, Inc., and most recently, president, banking group. FromMarch 1996 to March 2005, Mr. Scott held various positions at Thomson Financial, including chief technology officer and chief product officer. FromAugust 1994 to March 1996, Mr. Scott served at Thomson Technology Consulting From August 1993 to August 1994, Mr. Scott served as softwaredevelopment manager for Science Applications International Corporation. Mr. Scott began his career at Arinc Research serving as software developmentmanager. Mr. Scott received a BS in Computer Science from the University of Dayton and a MBA from the University of Maryland.Significant EmployeesAlexander Bobinski has served as our chief compliance officer since February 2010. From September 2008 until February 2010, Mr. Bobinski served as ourexecutive vice president of operations. From August 2005 until September 2008, Mr. Bobinski served as chief financial officer and chief compliance officer ofour wholly-owned subsidiary, GAIN Capital Group. From January 2002 to March 2005, Mr. Bobinski served as chief financial officer at Refco, LLC, theglobal commodity futures trading and clearing entity of Refco, Inc. On October 15, 2007, a petition under the federal bankruptcy laws was filed againstMr. Bobinski by Marc Krischner, as trustee for the Refco Litigation Trust, relating to the October 2005 bankruptcy of Refco, Inc., and was settled in March2008. From July 1990 to December 2001, Mr. Bobinski served as vice president and controller for the futures and options business at Nomura SecuritiesInternational, a global clearing firm, commodity pool operator and trading advisor. Mr. Bobinski is registered with the CFTC and NFA as a principal.Mr. Bobinski, a Certified Public Accountant, received a BS in Business Administration/Accounting from Ramapo College of New Jersey.Andrew Haines has served as our chief information officer since September 2007. From September 2004 to July 2005, Mr. Haines was President at ArchTechnology Group, LLC, a private technology consulting firm. From July 2005 until September 2007, Mr. Haines served as our vice president, applicationdevelopment. From January 2004 to September 2004, Mr. Haines served as the chief information officer and vice president of technology at Bluefly, Inc., apublicly held online retailer. Mr. Haines received a BS in Finance from the University of Delaware and his MA in Technology Management from the StevensInstitute of Technology.Kenneth O’Brien has served as our senior vice president, international operations since January 2008. From December 2004 to December 2007, Mr. O’Brienserved as our vice president, product management & strategic alliances. From July 2004 to December 2004, Mr. O’Brien served as vice president, NorthAmerican sales of Accurate Software, Inc., a privately held provider of financial electronic commerce services and products that was acquired by CheckFreeSoftware in 2005. From May 2002 to July 2004, Mr. O’Brien served as vice president, North American sales for City Networks, Inc., a privately heldprovider of back-office operational software. From July 1994 to May 2002, Mr. O’Brien served in various capacities, including managing director, director ofsales support and product manager of back office operations, at FNX Limited, a privately-held provider of trading and risk-management solutions to theinternational financial community. Mr. O’Brien received a BS in Business Administration from La Salle University.Daryl J. Carlough has served as our chief accounting officer and corporate controller since December 2009. He has over thirteen years of experience inaccounting and auditing, operations, business systems, risk management, international, human resources and mergers and acquisitions. Mr. Carlough servedas director of finance from 27Table of ContentsAugust 2006 to December 2009 at L-1 Identity Solutions, Inc. From April 2005 to August 2006, Mr. Carlough served as assistant corporate controller atViisage Technology, which merged into L-1 Identity Solutions, Inc. in August 2006. Prior to that, Mr. Carlough served at The Macgregor Group as corporatecontroller, from July 2001 to April 2005, which was acquired by Investment Technology Group. Mr. Carlough started his career at Ernst & Young LLP. He isa Certified Public Accountant, and he received an MBA and MS in Accounting from Northeastern University as well as a BS in Business Administration inFinance from Stonehill College.Internet WebsiteGAIN maintains a corporate website with the address www.gaincapital.com. Its intended use is as a regular means of disclosing material public informationand for complying with disclosure obligations under Regulation FD promulgated by the SEC. Such disclosures will be included on the website under theheading “Investor Relations.” Accordingly, investors should monitor such portions of the website, in addition to following our press releases, SEC filings andpublic conference calls and webcasts.We are not incorporating information contained in the website by reference into this Annual Report on Form 10-K. We will make available, free of chargethrough the website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to thesereports as soon as reasonably practicable after electronically filing such material with, or furnish such material to, the Securities and Exchange Commission.In addition, we make available on our website (i) the charters for the committees of our Board of Directors, including the Audit Committee, CompensationCommittee, Nominating and Corporate Governance Committee and Risk Committee, and (ii) our Code of Business Conduct and Ethics governing ourdirectors, officers and employees. We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics thatare required to be disclosed pursuant to the rules of the Securities and Exchange Commission and the New York Stock Exchange.Materials filed with the SEC can be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.20549. Please call the SEC at1-800-SEC-0330 for further information about the Public Reference Room. The SEC also maintains a website, www.sec.gov containing the reports, proxystatements and other information filed with the SEC. ITEM 1A.RISK FACTORSRisks Related to Our BusinessThe Retail Foreign Exchange, or Forex, Market Has Only Recently Become Accessible to Retail Investors and, Accordingly, We Have a LimitedOperating History Upon Which to Evaluate Our Performance.The retail forex market has only recently become accessible to retail investors. Prior to 1996, retail investors generally did not directly trade in the forex marketand, we believe most current retail forex traders only recently viewed currency trading as an alternative investment class. We commenced doing business inOctober 1999 and our forex trading operations were launched in June 2000, at which time we began offering forex trading services domestically andinternationally. Accordingly, we have only a limited operating history in the international retail forex trading market upon which you can evaluate our prospectsand future performance. Our prospects may be materially adversely affected by the risks, expenses and difficulties frequently encountered in the operation of anew business in a rapidly evolving industry characterized by intense competition and evolving domestic and global regulatory oversight and rules.Our Revenue and Profitability Are Influenced by Trading Volume and Currency Volatility, Which Are Directly Impacted by Domestic andInternational Market and Economic Conditions That Are Beyond Our Control.During the past few years, there has been significant disruption and volatility in the global financial markets. Many countries, including the United States,have recently experienced recessionary conditions. Our revenue is 28Table of Contentsinfluenced by the general level of trading activity in the forex market. Our revenue and operating results may vary significantly from period to period dueprimarily to movements and trends in the world’s currency markets and to fluctuations in trading levels. We have generally experienced greater trading volumein periods of volatile currency markets. In the event we experience lower levels of currency volatility, our revenue and profitability will likely be negativelyaffected. Like other financial services firms, our business and profitability are directly affected by elements that are beyond our control, such as economic andpolitical conditions, broad trends in business and finance, changes in the volume of foreign currency transactions, changes in supply and demand forcurrencies, movements in currency exchange rates, changes in the financial strength of market participants, legislative and regulatory changes, changes in themarkets in which such transactions occur, changes in how such transactions are processed and disruptions due to terrorism, war or extreme weather events.Any one or more of these factors, or other factors, may adversely affect our business and results of operations and cash flows. A weakness in equity markets,such as the current economic slowdown causing a reduction in trading volume in U.S. or foreign securities and derivatives, could result in reduced tradingactivity in the forex market and, therefore, could have a material adverse effect on our business, financial condition and results of operations and cash flows.As a result, period-to-period comparisons of our operating results may not be meaningful and our future operating results may be subject to significantfluctuations or declines.Reduced Spreads in Foreign Currencies, Levels of Trading Activity and Trading Through Alternative Trading Systems Could Reduce OurProfitability.Tighter spreads and increased competition could make our business less profitable. In addition, new and enhanced alternative trading systems have emergedas an option for individual and institutional investors to avoid directing their trades through retail forex brokers, which could result in reduced revenue derivedfor our business.Our Risk-Management Policies and Procedures May Not Be Effective and May Leave Us Exposed to Unidentified or Unexpected Risks.We are dependent on our risk-management policies and the adherence to such policies by our trading staff. Our policies, procedures and practices used toidentify, monitor and control a variety of risks, including risks related to human error, customer defaults, market movements, fraud and money-laundering,are established and reviewed by the risk committee of our board of directors. Some of our methods for managing risk are discretionary by nature and arebased on internally developed controls and observed historical market behavior, and also involve reliance on standard industry practices. These methods maynot adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in themarket. Our risk-management methods also may not adequately prevent losses due to technical errors if our testing and quality control practices are noteffective in preventing software or hardware failures. In addition, we may elect to adjust our risk-management policies to allow for an increase in risktolerance, which could expose us to the risk of greater losses. Our risk-management methods rely on a combination of technical and human controls andsupervision that are subject to error and failure. These methods may not protect us against all risks or may protect us less than anticipated, in which case ourbusiness, financial condition and results of operations and cash flows may be materially adversely affected.We May Incur Material Trading Losses From Our Forex Trading Activities.A substantial portion of our revenue and operating profits is derived from our foreign exchange trading business. Through our trading activities, we attempt toderive a profit from the difference between the prices at which we buy and sell, or sell and buy, foreign currencies. Since these activities involve the purchaseor sale of foreign currencies for our own account, we may incur trading losses for a variety of reasons, including: • price changes in foreign currencies; • lack of liquidity in foreign currencies in which we have positions; and 29Table of Contents • inaccuracies in our proprietary pricing mechanism, or rate engine, which evaluates, monitors and assimilates market data and reevaluates ouroutstanding currency quotes, and is designed to publish prices reflective of prevailing market conditions throughout the trading day.These risks may affect the prices at which we are able to sell or buy foreign currencies, or may limit or restrict our ability to either resell foreign currencies thatwe have purchased or repurchase foreign currencies that we have sold.In addition, competitive forces often require us to match the breadth of quotes our competitors market makers display and to hold varying amounts and typesof foreign currencies at any given time. By having to maintain positions in certain currencies, we are subjected to a high degree of risk. We may not be able tomanage such risk successfully and may experience significant losses from such activities, which could have a material adverse effect on our business,financial condition and results of operations and cash flows.We Are Exposed to Losses Due to Lack of Accurate or Timely Information.We provide forex liquidity by buying from sellers and selling to buyers. We may frequently trade with parties who have different or more timely informationthan we do, and as a result, we may accumulate unfavorable positions preceding price movements in currency pairs. In a forex trade, participants buy onecurrency and simultaneously sell another currency. We refer to the two currencies that make up a forex trade as a currency pair. The first currency noted in thepair is the base currency and the second is the counter currency. Should the frequency or magnitude of these unfavorable positions increase, our business,financial condition and results of operations and cash flows would be materially adversely affected.We Depend on Our Proprietary Technology. Any Disruption or Corruption of Our Proprietary Technology or Our Inability to MaintainTechnological Superiority in Our Industry Could Have a Material Adverse Effect on Our Business, Financial Condition and Results ofOperations and Cash Flows. We May Experience Failures While Developing Our Proprietary Technology.We rely on our proprietary technology to receive and properly process internal and external data. Any disruption for any reason in the proper functioning, orany corruption, of our software or erroneous or corrupted data may cause us to make erroneous trades, accept customers from jurisdictions where we do notpossess the proper licenses, authorizations or permits, or require us to suspend our services and could have a material adverse effect on our business,financial condition and results of operations and cash flows. In order to remain competitive, our proprietary technology is under continuous development andredesign. As we develop and redesign our proprietary technology, there is an ongoing risk that failures may occur and result in service interruptions or othernegative consequences such as slower quote aggregation, slower trade execution, erroneous trades, or mistaken risk-management information.Our success in the past has largely been attributable to our proprietary technology that has taken many years to develop. We believe our proprietary technologyhas provided us with a competitive advantage relative to many forex market participants. If our competitors develop more advanced technologies, we may berequired to devote substantial resources to the development of more advanced technology to remain competitive. The forex market is characterized by rapidlychanging technology, evolving industry standards and changing trading systems, practices and techniques. We may not be able to keep up with these rapidchanges in the future, develop new technology, realize a return on amounts invested in developing new technologies or remain competitive in the future. 30Table of ContentsSystems Failures Could Cause Interruptions in Our Services or Decreases in the Responsiveness of Our Services Which Could Harm OurBusiness.If our systems fail to perform, we could experience disruptions in operations, slower response times or decreased customer satisfaction. Our ability to facilitatetransactions successfully and provide high quality customer service depends on the efficient and uninterrupted operation of our computer andcommunications hardware and software systems. These systems have in the past experienced periodic interruptions and disruptions in operations, which webelieve will continue to occur from time to time. Our systems also are vulnerable to damage or interruption from human error, natural disasters, power loss,telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. We do not have fully redundantcapabilities. While we currently maintain a disaster recovery plan, or DRP, which is intended to minimize service interruptions and secure data integrity, ourDRP may not work effectively during an emergency. Any systems failure that causes an interruption in our services or decreases the responsiveness of ourservices could impair our reputation, damage our brand name and materially adversely affect our business, financial condition and results of operations andcash flows.We May Not Be Able to Protect Our Intellectual Property Rights or May Be Prevented From Using Intellectual Property Necessary for OurBusiness.We rely on a combination of trademark, copyright, trade secret and fair business practice laws in the United States and other jurisdictions to protect ourproprietary technology, intellectual property rights and our brand. We also enter into confidentiality and invention assignment agreements with our employeesand consultants, and confidentiality agreements with other third parties. We also rigorously control access to proprietary technology. We do not have anypatents. It is possible that third parties may copy or otherwise obtain and use our proprietary technology without authorization or otherwise infringe on ourrights. We also license or are permitted to use intellectual property or technologies owned by others. In the event such intellectual property or technologybecomes material to our business, our inability to continue use of such technologies would have a material adverse effect on our business. We may also faceclaims of infringement that could interfere with our ability to use technology that is material to our business operations.In the future, we may have to rely on litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of theproprietary rights of others or defend against claims of infringement or invalidity. For example, we have recently been contacted regarding our allegedinfringement of certain patents owned by Broadband Graphics, LLC. We believe these claims are without merit but this matter may result in litigation. Anylitigation, whether successful or unsuccessful, could result in substantial costs and the diversion of resources and the attention of management, any of whichcould negatively affect our business.A Portion of Our Cost Structure Is Fixed. If Our Revenues Decline and We Are Unable to Reduce Our Costs, Our Profitability Will Be AdverselyAffected.A portion of our cost structure is fixed. We base our cost structure on historical and expected levels of demand for our products and services, as well as ourfixed operating infrastructure, such as computer hardware and software, hosting facilities and security and staffing levels. If demand for our products andservices declines and, as a result, our revenues decline, we may not be able to adjust our cost structure on a timely basis and our profitability may bematerially adversely affected. 31Table of ContentsAttrition of Customer Accounts and Failure to Attract New Accounts Could Have a Material Adverse Effect on Our Business, FinancialCondition and Results of Operations and Cash Flows. Even if We Do Attract New Customers, We May Fail to Attract the Customers in a Cost-Effective Manner, Which Could Materially Adversely Affect Our Profitability and Growth.Our customer base is primarily comprised of individual retail customers who generally trade in the forex market with us for short periods. Although we offerproducts and tailored services designed to educate, support and retain our customers, our efforts to attract new customers or reduce the attrition rate of ourexisting customers may not be successful. If we are unable to maintain or increase our customer retention rates or generate a substantial number of newcustomers in a cost-effective manner, our business, financial condition and results of operations and cash flows would likely be adversely affected. For theyear ended December 31, 2010, we incurred sales and marketing expenses of $38.4 million. Although we have spent significant financial resources on salesand marketing expenses and related expenses and plan to continue to do so, these efforts may not be cost-effective at attracting new customers. In particular, webelieve that rates for desirable advertising and marketing placements, including online, search engine, print and television advertising, are likely to increase inthe foreseeable future, and we may be disadvantaged relative to our larger competitors in our ability to expand or maintain our advertising and marketingcommitments. Additionally, our sales and marketing methods are subject to regulation by the Commodity Futures Trading Commission, or CFTC, andNational Futures Association, or NFA in the United States and other regulators in Non-US jurisdictions. The rules and regulations of these organizationsimpose specific limitations on our sales methods, advertising and marketing. If we do not achieve our advertising objectives, our profitability and growth maybe materially adversely affected.Our Business Could Be Adversely Affected if Global Economic Conditions Continue to Negatively Impact Our Customer Base.Our customer base is primarily comprised of individual retail customers who view foreign currency trading as an alternative investment class. If globaleconomic conditions continue to negatively impact the forex market or adverse developments in global economic conditions continue to limit the disposableincome of our customers, our business could be materially adversely affected as our customers may choose to curtail their trading in the forex market whichcould result in reduced customer trading volume and trading revenue.We Are Subject to Litigation Risk Which Could Adversely Affect Our Reputation, Business, Financial Condition and Results of Operations andCash Flows.Many aspects of our business involve risks that expose us to potential liability under U.S. federal and state laws, as well as the rules and enforcement effortsof our regulators and self-regulatory organizations worldwide. These risks include, among others, disputes over trade terms with customers and other marketparticipants, customer losses resulting from system delay or failure and customer claims that we or our employees executed unauthorized transactions, madematerially false or misleading statements or lost or diverted customer assets in our custody. We may also be subject to regulatory investigation and enforcementactions seeking to impose significant fines or other sanctions, which in turn could trigger civil litigation for our previous operations that may be deemed tohave violated applicable rules and regulations in various jurisdictions.The volume of claims and the amount of damages and fines claimed in litigation and regulatory proceedings against financial services firms has beenincreasing and may continue to increase. The amounts involved in the trades we execute, together with rapid price movements in our currency pairs, can resultin potentially large damage claims in any litigation resulting from such trades. Dissatisfied customers, regulators or self-regulatory organizations may makeclaims against us regarding the quality of trade execution, improperly settled trades, mismanagement or even fraud, and these claims may increase as ourbusiness expands. 32Table of ContentsLitigation may also arise from disputes over the exercise of our rights with respect to customer accounts and collateral. Although our customer agreementsgenerally provide that we may exercise such rights with respect to customer accounts and collateral as we deem reasonably necessary for our protection, ourexercise of these rights may lead to claims by customers that we did so improperly.In addition, litigation may arise relating to other parties’ unauthorized use of our intellectual property or from claims by other parties that we have used theirintellectual property without authorization.Even if we prevail in any litigation or enforcement proceedings against us, we could incur significant legal expenses defending against the claims, even thosewithout merit. Moreover, because even claims without merit can damage our reputation or raise concerns among our customers, we may feel compelled to settleclaims at significant cost. The initiation of any claim, proceeding or investigation against us, or an adverse resolution of any such matter could have a materialadverse effect on our reputation, business, financial condition and results of operations and cash flows.We May Be Subject to Customer Litigation, Financial Losses, Regulatory Sanctions and Harm to Our Reputation as a Result of EmployeeMisconduct or Errors That Are Difficult to Detect and Deter.There have been a number of highly publicized cases involving fraud or other misconduct by employees of financial services firms in recent years. Ouremployees could execute unauthorized transactions for our customers, use customer assets improperly or without authorization, carry out improper activitieson behalf of customers or use confidential customer or company information for personal or other improper purposes, as well as improperly record orotherwise try to hide improper activities from us.In addition, employee errors, including mistakes in executing, recording or reporting transactions for customers, may cause us to enter into transactions thatcustomers disavow and refuse to settle. Employee errors expose us to the risk of material losses until the errors are detected and the transactions are unwoundor reversed. The risk of employee error or miscommunication may be greater for products that are new or have non-standardized terms. Further, such errorsmay be more likely to occur in the aftermath of any acquisitions during the integration of or migration from technological systems. Misconduct by ouremployees or former employees could subject us to financial losses or regulatory sanctions and seriously harm our reputation. It may not be possible to deter ordetect employee misconduct and the precautions we take to prevent and detect this activity may not be effective in all cases. Our employees may also commitgood faith errors that could subject us to financial claims for negligence or otherwise, as well as regulatory actions.Misconduct by employees of our customers can also expose us to claims for financial losses or regulatory proceedings when it is alleged we or our employeesknew or should have known that an employee of our customer was not authorized to undertake certain transactions. Dissatisfied customers can make claimsagainst us, including claims for negligence, fraud, unauthorized trading, failure to supervise, breach of fiduciary duty, employee errors, intentionalmisconduct, unauthorized transactions by associated persons or failures in the processing of transactions.Any Restriction in the Availability of Credit Cards as a Payment Option for Our Customers Could Adversely Affect Our Business, FinancialCondition and Results of Operations and Cash Flows.We currently allow our customers to use credit cards to fund their accounts with us. For the year ended December 31, 2010, 37.5% of the notional value of ourcustomers deposits were funded in this manner. There is a risk that in the future, new regulations or credit card issuing institutions may restrict the use ofcredit and debit cards as a means to fund accounts used to trade in investment products. The elimination or a reduction in the availability of credit cards as ameans to fund customer accounts or any increase in the fees associated with such use, could have a material adverse effect on our business, financialcondition and results of operations and cash flows. 33Table of ContentsOur Customer Accounts May Be Vulnerable to Identity Theft and Credit Card Fraud.Credit card issuers have adopted credit card security guidelines as part of their ongoing efforts to prevent identity theft and credit card fraud. We continue towork with credit card issuers to ensure that our services, including customer account maintenance, comply with these rules. When there is unauthorizedaccess to credit card data that results in financial loss, there is the potential that we could experience reputational damage and parties could seek damages fromus.Failure to Maintain the Anonymity of Our Institutional Customers on Our GAIN GTX Electronic Communications Network, or ECN, CouldHarm Our Reputation and Result in a Material Adverse Effect on Our Business, Financial Condition and Results of Operations and CashFlows.We operate our GAIN GTX ECN as a fully anonymous trading environment that offers our institutional customers direct market access and trade executioncapabilities. If outside individuals determine the identity of our institutional customers, we may be subject to customer claims against us for negligence, fraud,failure to supervise, employee error and intentional misconduct, among others. Any such claims may harm our reputation and result in material adverseeffects on our business, financial condition and results of operations and cash flows.A Financial Services Firm’s Reputation Is Critically Important. If Our Reputation Is Harmed, or the Reputation of the Online Financial ServicesIndustry as a Whole Is Harmed, Our Business, Financial Condition and Results of Operations and Cash Flows may be Materially AdverselyAffected.Our ability to attract and retain customers and employees may be adversely affected if our reputation is damaged. If we fail, or appear to fail, to deal withissues that may give rise to reputation risk, we could harm our business prospects. These issues include, but are not limited to, appropriately dealing withpotential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, privacy, client data protection, record keeping, sales andtrading practices, and the proper identification of the legal, credit, liquidity, and market risks inherent in our business. Failure to appropriately address theseissues could also give rise to additional legal risk to us, which could, in turn, increase the size and number of claims and damages asserted against us orsubject us to regulatory enforcement actions, fines and penalties. Any such sanction would materially adversely affect our reputation, thereby reducing ourability to attract and retain customers and employees.In addition, our ability to attract and retain customers may be adversely affected if the reputation of the online financial services industry as a whole or forexindustry is damaged. In recent years, a number of financial services firms have suffered significant damage to their reputations from highly publicizedincidents that in turn resulted in significant and in some cases irreparable harm to their business. The perception of instability within the online financialservices industry could materially adversely affect our ability to attract and retain customers.The Loss of Our Key Employees Would Materially Adversely Affect Our Business, Including Our Ability to Grow Our Business.Our key employees, including Glenn Stevens, our chief executive officer, and Tim O’Sullivan, our global head of trading, have significant experience in theforex industry and have made significant contributions to our business. Henry Lyons, our chief financial officer, has significant experience with publiclytraded companies and has made significant contributions to our company. In addition, Alexander Bobinski, our chief compliance officer, Samantha Roady,our chief marketing officer, and Andrew Haines, our chief information officer, have made significant contributions to our business. Our continued success isdependent upon the retention of these and other key executive officers and employees, as well as the services provided by our trading staff, technology andprogramming specialists and a number of other key managerial, marketing, planning, financial, technical and operations personnel. The loss of such keypersonnel could have a material adverse effect on our business. In addition, our ability to grow our business is dependent, to a large degree, on our ability toretain such employees. 34Table of ContentsAny Future Acquisitions May Result in Significant Transaction Expenses, Integration and Consolidation Risks and Risks Associated WithEntering New Markets, and We May Be Unable to Profitably Operate Our Consolidated Company.Although our growth strategy has not focused historically on acquisitions, we may in the future selectively pursue acquisitions and new businesses. Anyfuture acquisitions may result in significant transaction expenses and present new risks associated with entering additional markets or offering new productsand integrating the acquired companies. Because acquisitions historically have not been a core part of our growth strategy, we do not have significantexperience in successfully completing acquisitions. We may not have sufficient management, financial and other resources to integrate companies we acquireor to successfully operate new businesses and we may be unable to profitably operate our expanded company. Additionally, any new businesses that we mayacquire, once integrated with our existing operations, may not produce expected or intended results.The Expansion of Our Trading Activities Into Other Financial Products, Including Listed Securities, Contracts for Difference, or CFDs, Over-the-Counter, or OTC, Currency Derivatives and Gold and Silver Spot Trading Entails Significant Risk, and Unforeseen Events in Such BusinessCould Have An Adverse Effect on Our Business, Financial Condition and Results of Operations and Cash Flows.All of the risks that pertain to our trading activities in the forex market also apply to our listed securities, CFDs, OTC currency derivatives and gold andsilver spot trading and any other products we may offer in the future. These risks include market risk, counterparty risk, liquidity risk, technology risk,third-party risk and risk of human error. In addition, we have limited experience outside of the forex market and even though we expect to ease into theseactivities very slowly through internal growth or acquisition, any kind of unexpected event can occur that can result in great financial loss to us, including ourinability to effectively integrate new products into our existing trading platform or our failure to properly manage the market risks associated with making-markets for new products. With respect to CFDs, the volatility characteristics of the CFD market may have an adverse impact on our ability to maintainprofit margins similar to the profit margins we have realized with respect to forex trading. In addition, by further expanding our listed securities offerings, weare expanding from what is primarily a business model focused on OTC trading into a business model that includes brokerage activities that require relianceupon third-party clearing firms to hold our customers’ funds and execute our customers’ trades. The introduction of these and other potential financialproducts also poses a risk that our risk-management policies, procedures and practices, and the technology that supports such activities, will be unable toeffectively manage these new risks to our business. In addition we would be subject to local securities laws for all of these offerings. Our non-U.S. operatingsubsidiaries, including, GAIN Capital-Forex.com U.K., Ltd., which is licensed with the Financial Services Authority in the United Kingdom, and GAINCapital Forex.com Australia Pty. Ltd., which is licensed with the Australian Securities and Investments Commission, offer and sell CFDs outside the UnitedStates to non-U.S. persons. CFDs are not and may not be offered in the United States by us, including by any of our U.S. and non-U.S. subsidiaries, andare not eligible for resale to U.S. persons. They are not currently registered with the U.S. Securities and Exchange Commission or any other U.S. regulator.CFDs may not be enforceable in the United States. To the extent our current CFD product offerings constitute an offer or sale of securities under theU.S. federal securities laws; we will need to comply with those U.S. federal securities laws. To the extent our CFD offerings constitute OTC futures contractsor other financial derivative instruments; they are prohibited under the provisions of the U.S. Commodity Exchange Act. To the extent our CFD offerings aredetermined to constitute swaps or security-based swaps under the Dodd-Frank Act, the Commodity Exchange Act, or the federal securities laws, we would berequired to comply with such U.S. laws with respect to such offerings. Failure to effectively manage these risks or properly comply with local laws orregulations relating to our product offerings, including U.S. federal securities laws, may expose us to fines, penalties or other sanctions that could have amaterial adverse effect upon our business, financial condition and results of operations and cash flows. 35Table of ContentsWe May Be Unable to Effectively Manage Our Rapid Growth and Retain Our Customers.The rapid growth of our business during our short history has placed significant demands on our management and other resources. If our business continuesto grow at a rate consistent with our historical growth, we may need to expand and upgrade the reliability and scalability of our transaction processingsystems, network infrastructure and other aspects of our proprietary technology. We may not be able to expand and upgrade our technology systems andinfrastructure to accommodate increases in our business activity in a timely manner, which could lead to operational breakdowns and delays, loss ofcustomers, a reduction in the growth of our customer base, increased operating expenses, financial losses, increased litigation or customer claims, regulatorysanctions or increased regulatory scrutiny. In addition, due to our rapid growth, we will need to continue to attract, hire and retain highly skilled and motivatedofficers and employees. We may not be able to attract or retain the officers and employees necessary to manage this growth effectively.We May Be Unable to Respond to Customers’ Demands for New Services and Products and Our Business, Financial Condition and Results ofOperations and Cash Flows May Be Materially Adversely Affected.The market for Internet-based trading is characterized by: • changing customer demands; • the need to enhance existing services and products or introduce new services and products; • evolving industry practices; and • rapidly evolving technology solutions.New services and products provided by our competitors may render our existing services and products less competitive. Our future success will depend, inpart, on our ability to respond to customers’ demands for new services and products on a timely and cost-effective basis and to adapt to address theincreasingly sophisticated requirements and varied needs of our customers and prospective customers. We may not be successful in developing, introducing ormarketing new services and products. In addition, our new service and product enhancements may not achieve market acceptance. Any failure on our part toanticipate or respond adequately to customer requirements or changing industry practices, or any significant delays in the development, introduction oravailability of new services, products or service or product enhancements could have a material adverse effect on our business, financial condition and resultsof operations and cash flows.We Face Significant Competition. Many of Our Competitors and Potential Competitors Have Larger Customer Bases, More Established NameRecognition and Greater Financial, Marketing, Technological and Personnel Resources Than We Do Which Could Put Us at a CompetitiveDisadvantage. Additionally, Some of Our Competitors and Many Potential Competitors Are Better Capitalized Than We Are, and Are Able toObtain Capital More Easily Which Could Put Us at a Competitive Disadvantage.We compete in the OTC markets based in part on our ability to execute our customers’ trades at competitive prices, to retain our existing customers and toattract new customers. Our competitors range from numerous sole proprietors with limited resources to a few sophisticated institutions which have largercustomer bases, more established name recognition and substantially greater financial, marketing, technological and personnel resources than we do. Theseadvantages may enable them, among other things, to: • develop products and services that are similar to ours, or that are more attractive to customers than ours, in one or more of our markets; • provide products and services we do not offer; • provide execution and clearing services that are more rapid, reliable or efficient, or less expensive than ours; 36Table of Contents • offer products and services at prices below ours to gain market share and to promote other businesses, such as forex options listed securities,CFDs, spot-precious metals and OTC derivatives; • adapt at a faster rate to market conditions, new technologies and customer demands; • offer better, faster and more reliable technology; • outbid us for desirable acquisition targets; • more efficiently engage in and expand existing relationships with strategic alliances; • market, promote and sell their products and services more effectively; and • develop stronger relationships with customers.These larger and better capitalized competitors, including commercial and investment banking firms, may have access to capital in greater amounts and atlower costs than we do, and thus, may be better able to respond to changes in the forex industry, to compete for skilled professionals, to finance acquisitions,to fund internal growth and to compete for market share generally. Access to capital is critical to our business to satisfy regulatory obligations and liquidityrequirements. Among other things, access to capital determines our creditworthiness, which if perceived negatively in the market could materially impair ourability to provide clearing services and attract customer assets, both of which are important sources of revenue. Access to capital also determines the degree towhich we can expand our operations. Thus, if we are unable to maintain or increase our capital on competitive terms, we could be at a significant competitivedisadvantage, and our ability to maintain or increase our revenue and earnings could be materially impaired. Also, new or existing competitors in our marketscould make it difficult for us to maintain our current market share or increase it in desirable markets. In addition, our competitors could offer their services atlower prices, and we may be required to reduce our fees significantly to remain competitive. A fee reduction without a commensurate reduction in expenseswould decrease our profitability.We may not be able to compete effectively against these firms, particularly those with greater financial resources, and our failure to do so could materially andadversely affect our business, financial condition and results of operations and cash flows. We may in the future face increased competition, resulting innarrowing bid/offer spreads which could materially adversely affect our business, financial condition and results of operations and cash flows.Our International Operations Present Special Challenges and Our Failure to Adequately Address Such Challenges or Compete in TheseMarkets, Either Directly or Through Joint Ventures With Local Firms, Could Have a Material Adverse Effect on Our Business, FinancialCondition and Results of Operations and Cash Flows.In 2010, we generated approximately 50.3% of our trading volume from customers outside the United States. Expanding our business in other emergingmarkets is an important part of our growth strategy. Due to certain cultural, regulatory and other challenges relevant to those markets, however, we may be at acompetitive disadvantage in those regions relative to local firms or to international firms that have a well-established local presence. These challenges include: • less developed or mature local technological infrastructure and higher costs, which could make our products and services less attractive oraccessible in emerging markets; • difficulty in complying with the diverse regulatory requirements of multiple jurisdictions, which may be more burdensome, not clearly defined,and subject to unexpected changes, potentially exposing us to significant compliance costs and regulatory penalties; • less developed and established local financial and banking infrastructure, which could make our products and services less accessible inemerging markets; 37Table of Contents • reduced protection of intellectual property rights; • inability to enforce contracts in some jurisdictions; • difficulties and costs associated with staffing and managing foreign operations, including reliance on newly hired local personnel; • tariffs and other trade barriers; • currency and tax laws that may prevent or restrict the transfer of capital and profits among our various operations around the world; and • time zone, language and cultural differences among personnel in different areas of the world.In addition, in order to be competitive in these local markets, or in some cases because of restrictions on the ability of foreign firms to do business locally, wemay seek to operate through joint ventures with local firms as we have done, for example, in Japan. Doing business through joint ventures may limit ourability to control the conduct of the business and could expose us to reputational and greater operational risks. We may also face intense competition from otherinternational firms over relatively scarce opportunities for market entry. Given the intense competition from other international brokers that are also seeking toenter these fast-growing markets, we may have difficulty finding suitable local firms willing to enter into the kinds of relationships with us that we may needto gain access to these markets. This competition could make it difficult for us to expand our business internationally as planned.GAIN Capital Holdings, Inc. Is a Holding Company and Accordingly Depends on Cash Flow From Its Operating Subsidiaries to Meet OurObligations. If Our Operating Subsidiaries Are Unable to Pay Us Dividends When Needed, We May Be Unable to Satisfy Our Obligations WhenThey Arise.As a holding company with no material assets other than the stock of our operating subsidiaries, nearly all of our funds generated from operations aregenerated by our operating subsidiaries. Historically, we have accessed these funds through receipt of dividends from these subsidiaries. Some of oursubsidiaries are subject to requirements of various regulatory bodies, including the CFTC and NFA in the United States, the Financial Services Authority inthe United Kingdom, the Financial Services Agency, the Japan Ministry of Economy, Trade and Industry and the Japan Ministry of Agriculture, Forestry andFisheries in Japan, the Securities and Futures Commission in Hong Kong and the Cayman Islands Monetary Authority in the Cayman Islands, relating toliquidity and capital standards, which limit funds available for the payment of dividends to the holding company. Accordingly, if our operating subsidiariesare unable, due to regulatory restrictions or otherwise, to pay us dividends and make other payments to us when needed, we may be unable to satisfy ourobligations when they arise.Risks Related to RegulationWe Operate in a Heavily Regulated Environment That Imposes Significant Requirements and Costs on Us. Failure to Comply With the RapidlyEvolving Laws and Regulations Governing Our Forex and Other Businesses May Result in Regulatory Agencies Taking Action Against Us,Which Could Significantly Harm Our Business.Substantially all of our operations involving the execution and clearing of transactions in foreign currencies, CFDs, gold and silver and securities areconducted through subsidiaries that are regulated by governmental bodies or self-regulatory organizations, including in the United States, the UnitedKingdom, Japan, Australia, Hong Kong and the Cayman Islands. Many of the regulations we are governed by are intended to protect the public, ourcustomers and the integrity of the markets, and not necessarily our shareholders. In the United States, our forex trading activities are regulated by the CFTCand the NFA, and our securities activities are regulated by the Securities and Exchange Commission, or SEC, and the Financial Industry RegulatoryAuthority, or FINRA. Outside the United States, our principal regulators include the Financial Services Authority in the United 38Table of ContentsKingdom, the Australian Securities and Investments Commission in Australia, and the Securities and Futures Commission in Hong Kong, while in Japan, weare regulated by the Financial Services Agency of Japan, the Japan Ministry of Economy, Trade and Industry, or the JETI, and the Japan Ministry ofAgriculture, Forestry and Fisheries, or the JAFF.Among other things, we are subject to regulation with regard to: • sales and marketing activities, including our interaction with, and solicitation of, customers; • trading practices, including the manner in which we offer investment products and the types of investment products we may offer; • treatment of customer assets, including custody, control, safekeeping and, in certain countries, segregation of our customer funds and securities; • maintaining specified minimum amounts of capital and limiting withdrawals of funds from our regulated operating subsidiaries; • continuing education requirements for our employees; • anti-money laundering practices; • recordkeeping and reporting; and • supervision regarding the conduct of directors, officers and employees.Compliance with these regulations is complicated, time consuming and expensive. Our ability to comply with all applicable laws and regulations is dependentin large part on our internal legal and compliance functions, as well as our ability to attract and retain qualified personnel, which we may not be able to do.Regulators and self-regulatory organizations broadly oversee the conduct of our business and several perform regular examinations of our operations to monitorour compliance with applicable laws and regulations. If a regulator finds that we have failed to comply with applicable rules and regulations, we may besubject to censure, fines, cease-and-desist orders, suspension of our business, removal of personnel, civil litigation or other sanctions, including, in somecases, increased reporting requirements or other undertakings, revocation of our operating licenses or criminal conviction. In addition, we could incursignificant legal expenses in defending ourselves against and resolving actions or investigations by such regulatory agencies. An adverse resolution of anyfuture actions or investigations by such regulatory agencies against us could result in a negative perception of our company and cause the market price of ourcommon stock to decline or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.As a Result of Recent Regulatory Changes in Certain Jurisdictions, Our Operations and Profitability May Be Disrupted and We May Be Subjectto Regulatory Action Taken Against Us if a Regulatory Authority Determines that Our Operations Are Out of Compliance, or Requires Us toComply With Additional Regulatory Requirements.Recently, the legislative and regulatory environment in which we operate has undergone significant changes and there are likely to be future regulatory changesaffecting our industry. Our ability to expand our presence in various jurisdictions throughout the world will depend on the nature of future changes to theregulatory environment and our ability to continue to comply with evolving requirements. To the extent one or more regulators determines that our currentactivities do not comply with applicable law or regulations in a given jurisdiction, our services may be disrupted, we may elect to shift our services to a whitelabel partner or we may be required to withdraw or modify our service offering.In August 2010, the CFTC released new rules, effective as of October 18, 2010, relating to the retail forex industry regarding, among other things, increasedinitial minimum security deposits, registration of introducing brokers, money managers and fund managers, increased risk disclosures, includingdisclosures relating to 39Table of Contentscustomer profits and losses, record keeping, financial reporting, minimum capital and other operational standards. In addition, the rules established 50-to-1as the maximum leverage permitted to be provided to U.S. customers in major currency pairs, and 20-to-1 in all other currency pairs. Our inability to offerU.S. customers leverage in excess of these limits, compared to 100-to-1 previously for all currency pairs, may diminish the trading volume generated by thesecustomers, which could materially adversely affect our revenue and profitability. We can provide no assurance that maximum leverage limits in the UnitedStates, or elsewhere, will not be decreased further, which could materially adversely affect our business, results of operations and financial condition. Inaddition, the new disclosure requirements may impact our ability to attract and retain our retail customers.The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, enacted in July 2010, is also expected to have a significant effecton our U.S. retail forex business. For example, the Dodd-Frank Act further amended the Commodity Exchange Act to prohibit essentially all OTC retailtransactions in any commodity other than foreign currency after July 15, 2011. As a result, after such date, we will not be permitted to offer our U.S. retailcustomers spot metals trading or any product other than forex. For the year ended December 31, 2010, our spot metals trading business in the United Statesgenerated approximately $10.8 million in revenue. As such, the loss of our ability to offer this product to our U.S. retail customers could have a materialadverse effect on our business, revenue and profitability. In addition, beginning in October 2010, the Dodd-Frank Act requires us to ensure that our customersresident in the United States have accounts with our NFA-registered operating entity and not our international entities. As a result, some of our customers maydecide to transact their trading with a foreign forex broker that is not subject to regulation under the Dodd-Frank Act. The Dodd-Frank Act also includes arequirement that federal banking regulators and the SEC adopt new rules regarding the conduct and operation of forex businesses by banks and broker-dealers, respectively. As a result of these new regulations, the ability of our wholesale forex trading partners, many of which are regulated banks and/or broker-dealers, to do business with us could be significantly curtailed, which could materially adversely affect our ability to provide liquidity to our customers. Inaddition, the new rules could adversely affect the structure, size, depth and liquidity of forex markets generally. Any of these new regulatory developments,alone or in combination, could have a material adverse effect on our business and profitability.In the European Union, government officials have announced the intention to propose new laws to regulate OTC derivatives. The new laws would, amongother things, require mandatory central clearing of some derivatives, higher collateral requirements and higher capital charges for certain OTC derivatives.These initiatives are still at the consultation stage and details for many aspects of the legislative proposals have not yet been published. If the products that weoffer are subjected to mandatory central clearing, exchange trading, higher collateral requirements or higher capital charges, our business, financial conditionand results of operations could be materially adversely affected.In Japan, new regulations, which became effective in August 2010, prohibit our ability to offer Japanese residents leverage for forex products in excess of 50-to-1 and in August 2011 the maximum allowable leverage for forex products in Japan will decrease to 25-to-1. For spot gold that we offer in Japan, beginningJuly 1, 2011, the maximum allowable leverage will be 20-to-1. These changes may result in a decrease in Japanese customer trading volume, which may inturn materially adversely affect our financial condition, results of operations and cash flows.The Australian Securities and Investments Commission has proposed its intention to issue new guidance on advertising materials, to introduce disclosurebenchmarks for OTC CFD providers and to require OTC CFD providers to adopt written customer suitability policies.In addition, the changing regulatory environment may create uncertainty with respect to certain practices or types of transactions that, in the past, may havebeen considered permissible and appropriate among financial services firms. Certain established practices may be called into question or become subject toadditional regulatory requirements. These legal or regulatory uncertainties and additional regulatory requirements could result in a loss 40Table of Contentsof, or increase in the cost of, business and could materially adversely affect our revenue, profitability and results of operations. In addition, because ofchanges in regulation, regulatory interpretations, enforcement practices or for other reasons, we may be found to have violated local regulation and, as a result,we may be subject to enforcement actions and penalties or customer claims.As We Operate in Many Jurisdictions Without Local Registration, Licensing or Authorization, We May Be Subject to Possible Enforcement Actionand Sanction for Our Operations in Such Jurisdictions if Our Operations Are Determined to Have Violated Regulations in Those Jurisdictions.Our Growth May Be Limited by Various Restrictions and We Remain at Risk That We May Be Required to Cease Operations if We Become Subjectto Regulation by Local Government Bodies.For the year ended December 31, 2010, approximately 68.3% of our trading volume was attributable to customers resident in a jurisdiction where we arelicensed, regulated or where we deal with customers cross-border in a manner which we believe does not require us to be regulated in that jurisdiction. Theremaining 31.7% of our trading volume was attributable to customers in jurisdictions in which we are not currently licensed or authorized by the localgovernment or applicable self-regulatory organization or where we depend on our partners being licensed or regulated. We determine the nature and extent ofservices we can offer and the manner in which we conduct our business in the various jurisdictions in which we serve customers based on a variety offactors, including legal advice received from local counsel, our review of applicable laws and regulations and, in some cases, our discussions with localregulators. In cases in which we operate in jurisdictions based on local legal advice, we are exposed to the risk that our legal and regulatory analysis issubsequently determined by a local regulatory agency or other authority to be incorrect and that we have not been in compliance with local laws or regulations,including local licensing or authorization requirements, and to the risk that the regulatory environment in a jurisdiction may change, including in acircumstance where laws or regulations or licensing or authorization requirements that previously were not enforced become subject to enforcementIn jurisdictions in which we are not licensed or authorized, we may be subject to a variety of restrictions regarding the manner in which we conduct ourbusiness or serve customers, including restrictions on: • our sales and marketing activities; • the use of a website specifically targeted to potential customers in a particular country; • the minimum income level or financial sophistication of potential customers we may contact; • our ability to have a physical presence in a particular country; or • the types of services we may offer customers physically present in each country.These restrictions may limit our ability to grow our business in any such jurisdiction or may result in increased overhead costs or degradation in our servicesin that jurisdiction. We currently have only a limited presence in a number of important markets and because of these and other regulatory restrictions, wemay not be able to gain a significant presence there unless and until the regulatory landscape in these markets is modified. Consequently, we cannot assureyou that our international expansion plans will be achieved.We may be subject to possible enforcement action and penalties if we are determined to have previously offered, or currently offer, our services in violation ofapplicable laws and regulations in any of the markets in which we serve customers. For example, the regulatory rules in China are complex and are not as clearas those in many other jurisdictions and our forex trading services may not have been, and may not currently be, compliant with applicable Chineseregulations. Between 2006 and 2008, a significant portion of our trading volume, trading revenue, net income and cash flow were generated from residents ofChina. When we commenced offering our forex trading services to residents of China in October 2003, we believed that our operations were in compliance withapplicable Chinese regulations. However, as a result of a review of our regulatory compliance in China during 2008, we became aware of what appeared to be aChina Banking and Regulatory Commission prohibition on providing retail forex trading services through the direct solicitation of Chinese residents,including through the Internet, without a China Banking and Regulatory Commission permit. We do not have such a permit and to our knowledge, no suchpermit exists. In light of the regulatory uncertainty regarding the permit, we terminated 41Table of Contentsall service offerings to residents of China and ceased our trading support operations located inside the country, while undertaking a review of the manner inwhich to most appropriately serve Chinese customers. As of December 31, 2008, we no longer accepted new customers from China. However, due to anongoing relationship with one of our introducing brokers, eight legacy accounts in China, which were originally sourced through that introducing broker priorto the termination of our service offering, remained open. The trading activity by these legacy accounts resulted in an immaterial amount of trading volume tous and were all closed as of December 31, 2009. Based on our review of the relevant regulatory requirements in China, in 2010 we began accepting Chinesecustomers that neither we nor our partners directly solicit in China. We may be subject to fines, penalties or sanctions as a result of our current and historicalforex trading services to Chinese residents.A small number of our customers also reside in Singapore. We are not currently licensed to offer forex trading services in Singapore, but are currentlyreviewing the applicable licensing requirements and have consulted with the Monetary Authority of Singapore in order to determine the appropriate course ofaction. If we are required by the Monetary Authority of Singapore to cease accepting customers prior to receiving a license, we will direct all existing customersto a white label partner. We could also be subject to fines, penalties or other sanctions as a result of our historical activities with customers residing inSingapore.In any such case, we may be required to cease the conduct of our business with customers in one or more jurisdictions. We may also determine thatcompliance with the laws or licensing, authorization or other regulatory requirements for continuing the business in one or more jurisdictions are too onerous tojustify making the necessary changes. In addition, any such event could impact our relationship with the regulators or self-regulatory organizations in thejurisdictions where we are subject to regulation.The Canadian regulatory environment is complex and evolving, and our forex trading services may not be compliant with the regulations of eachprovince and territory in Canada. If we have contravened Canadian regulatory requirements, we may be subject to enforcement actions, penaltiesand customer claims. Canadian securities regulatory authorities have broad remedial authority, including the authority to order disgorgement ofprofits and suspension of trading activities in appropriate circumstances. We may also be required to register our business in one or moreprovinces or territories, or to offer our trading services through locally registered white label partners. Any such enforcement actions, penalties,claims or new locally registered white label partnerships could have a significant adverse impact on our profitability in relation to the services weoffer in Canada.Approximately 6.0% of our customer trading volume for the year ended December 31, 2010 was generated from customers located in Canada. In Canada, thesecurities industry is governed by provincial or territorial legislation, and there is no national regulator. Local legislation differs from province to province andterritory to territory.The Canadian regulatory environment is complex and evolving, and our forex trading services may not have been, and may not currently be, compliant withthe regulations of each province and territory. In June 2005, we were advised by the British Columbia Securities Commission, or BCSC, that we wererequired to register as a dealer to offer our trading services directly to residents of that province. We have therefore conducted our business in British Columbiathrough Questrade, Inc, a registered investment dealer in Canada, since August 2005. In addition, on October 30, 2009, the Ontario Securities Commission,or OSC, issued interim guidance pursuant to a staff notice which took the position that rolling spot foreign exchange contracts and similar over-the-counterderivative contracts sold using a trading platform similar to ours fall under the definition of securities, which would, absent exemptive relief, require, amongother things, us to comply with the dealer registration and prospectus delivery requirements of Ontario securities law. In November 2010, we receivedcorrespondence from the OSC requesting information about our customers and business practices in Ontario and asking us to explain why our activitiesshould not be considered in breach of dealer registration and prospectus delivery requirements under Ontario securities law. In its letter, the OSC states that itis acting in conjunction 42Table of Contentswith the BCSC and the Quebec financial industry regulator, the Autorité des Marchés Financiers, or AMF, in its review of our activities. The OSC staff alsoprovided a copy of a Statement of Allegations that was issued by the OSC staff in November 2010 to a third party introducing broker and authorized traderpreviously associated with us, which was not registered as a dealer in Ontario and solicited clients over the Internet to invest in the currency market throughour accounts in contravention of dealer registration and prospectus delivery requirements under Ontario securities law. We have also received notices from theAMF asserting violations of derivatives regulations in that province and directing us, in light of the alleged contraventions of regulatory requirements, to ceaseproviding services in Quebec. We responded to the regulators and have ceased accepting new customers from Quebec, Ontario and Alberta. SinceNovember 22, 2010, we have directed all new customers resident in Quebec, Ontario and Alberta to our white label partner, Questrade, Inc. If required by theregulators, we will also transfer all existing customers resident in Quebec, Ontario and Alberta to Questrade, Inc. Since we share a portion of the revenuegenerated from these customers with our white label partner, our profitability relating to our services in these provinces has been adversely affected. Ourprofitability relating to our Canadian business may be further adversely affected if we are required to enter into white label partnerships in the other provincesof Canada. In addition to the impact on our profitability of our white label partnerships, if our forex trading operations are considered to contravene Canadianregulatory requirements in Quebec, Ontario and Alberta or any other province or territory, we may also be subject to enforcement actions and penaltiesincluding disgorgement of profits and suspension of trading activities, as well as customer claims. If we deem it advisable and it is practicable to do so, wemay seek to register as a dealer in various Canadian provinces and territories to offer our trading services directly.We Are Required to Maintain High Levels of Capital, Which Could Constrain Our Growth and Subject Us to Regulatory Sanctions.Our regulators have stringent rules requiring that we maintain specific minimum levels of regulatory capital in our operating subsidiaries that conduct our spotforeign exchange, CFDs, gold and silver spot trading and securities business. In the United States, as a Futures Commission Merchant, or FCM, and a RetailForex Exchange Dealer, or RFED, we are required to maintain adjusted net capital of $20.0 million plus 5.0% of the amount of customer liabilities over$10.0 million. On a worldwide basis, as of December 31, 2010, we were required to maintain approximately $33.8 million minimum capital in the aggregateacross all jurisdictions, representing a $7.8 million increase from our minimum regulatory capital requirement at December 31, 2009. Regulators continue toevaluate and modify regulatory capital requirements from time to time in response to market events and to improve the stability of the international financialsystem. Additional revisions to this framework or new capital adequacy rules applicable to us may be proposed and ultimately adopted, which could furtherincrease our minimum capital requirements in the future.Even if regulators do not change existing regulations or adopt new ones, our minimum capital requirements will generally increase in proportion to the size ofthe business conducted by our regulated subsidiaries. As a result, we will need to increase our regulatory capital in order to expand our operations and increaseour revenue, and our inability to increase our capital on a cost-efficient basis could constrain our growth. In addition, in many cases, we are not permitted towithdraw regulatory capital maintained by our subsidiaries without prior regulatory approval or notice, which could constrain our ability to allocate ourcapital resources most efficiently throughout our global operations. In particular, these restrictions could adversely affect our ability to withdraw funds neededto satisfy our ongoing operating expenses, debt service and other cash needs and could limit any future decision by our board to declare dividends. Regulatorsmonitor our levels of capital closely. We are required to report the amount of regulatory capital we maintain to our regulators on a regular basis, and we mustreport any deficiencies or material declines promptly. While we expect that our current amount of regulatory capital will be sufficient to meet anticipated short-term increases in requirements, any failure to maintain the required levels of regulatory capital, or to report any capital deficiencies or material declines incapital could result in severe sanctions, including fines, censure, restrictions on our ability to conduct business and revocation of our registrations. Theimposition of one or more of these sanctions could ultimately lead to our liquidation, or the liquidation of one or more of our subsidiaries. 43Table of ContentsServicing Customers Via the Internet May Require Us to Comply With the Laws and Regulations of Each Country in Which We Are Deemed toConduct Business. Failure to Comply With Such Laws May Negatively Impact Our Financial Results.Since our services are available over the Internet in foreign countries and we have customers residing in foreign countries, foreign jurisdictions may require usto qualify to do business in their country. We believe that the number of our customers residing outside of the United States will increase over time. We arerequired to comply with the laws and regulations of each country in which we conduct business, including laws and regulations currently in place or whichmay be enacted related to Internet services available to the residents of each country from service providers located elsewhere. Any failure to develop effectivecompliance and reporting systems could result in regulatory penalties in the applicable jurisdiction, which could have a material adverse effect on ourbusiness, financial condition and results of operations and cash flows.Procedures and Requirements of the Patriot Act and other Anti-money Laundering and Know Your Customer Regulations May Expose Us toSignificant Costs or Penalties.As participants in the financial services industry, we are, and our subsidiaries are, subject to numerous laws and regulations, including the Uniting andStrengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the Patriot Act, that require that we knowour customers and monitor transactions for suspicious financial activities. The cost of complying with the Patriot Act and similar laws and regulations issignificant. We face the risk that our policies, procedures, technology and personnel directed toward complying with these laws and regulations are insufficientand that we could be subject to significant criminal and civil penalties due to noncompliance. Such penalties could have a material adverse effect on ourbusiness, financial condition and results of operations and cash flows. In addition, as an online financial services provider with customers worldwide, wemay face particular difficulties in identifying our customers and monitoring their activities.Risks Related to Third PartiesWe Are Dependent on Wholesale Forex Trading Partners to Continually Provide Us With Forex Market Liquidity. In the Event That We NoLonger Have Access to the Prices and Levels of Liquidity That We Currently Have, We May Be Unable to Provide Competitive Forex TradingServices, Which Will Materially Adversely Affect Our Business, Financial Condition and Results of Operations and Cash Flows.Given the level of our customers’ trading volume, we rely on third-party financial institutions to provide us with forex market liquidity. As of December 31,2010, we maintained relationships with three established global prime brokers, including Deutsche Bank AG, or Deutsche Bank, UBS AG, or UBS, and theRoyal Bank of Scotland plc, or RBS, as well as relationships with a number of additional wholesale forex trading partners and had access to other tradingplatforms. We depend on these relationships for our access to a pool of forex liquidity to ensure that we are able to execute our customers’ trades in any of the48 currency pairs, six metals or 12 CFD product offerings we offer and in notional amount they request. These prime brokers and wholesale forex tradingpartners, although under contract with us, have no obligation to provide us with liquidity and may terminate our arrangements at any time. In the event that weno longer have access to the competitive wholesale forex pricing spreads and/or levels of liquidity that we currently have, we may be unable to providecompetitive forex trading services, which would materially adversely affect our business, financial condition and results of operations and cash flows. 44Table of ContentsWe Depend on the Services of Prime Brokers to Assist in Providing Us Access to Liquidity Through Our Wholesale Forex Trading Partners. TheLoss of One or More of Our Prime Brokerage Relationships Could Lead to Increased Transaction Costs and Capital Posting Requirements, AsWell As Having a Negative Impact on Our Ability to Verify Our Open Positions, Collateral Balances and Trade Confirmations.We depend on the services of prime brokers to assist in providing us access to liquidity through our wholesale forex trading partners. We currently haveestablished three prime brokerage relationships with major financial institutions, including Deutsche Bank, UBS, and RBS, which act as central hubsthrough which we are able to deal with our existing wholesale forex trading partners. Although we have relationships with wholesale forex trading partners whocould provide clearing services as a back-up for our prime brokerage services, if we were to experience a disruption in prime brokerage services due to afinancial, technical or other development adversely affecting any of our current prime brokers, our business could be materially adversely affected to the extentthat we are unable to transfer positions and margin balances to another financial institution in a timely fashion. In the event of the insolvency of a primebroker, we might not be able to fully recover the assets we have deposited (and have deposited on behalf of our customers) with the prime broker or ourunrealized profits since we will be among the prime broker’s unsecured creditors.A Systemic Market Event That Impacts the Various Market Participants With Whom We Interact Could Have a Material Adverse Effect on OurBusiness, Financial Condition and Results of Operations and Cash Flows.We interact with various third parties through our relationships with our prime brokers, wholesale forex trading partners, white label partners and introducingbrokers. Some of these market participants could be overleveraged. In the event of sudden, large market price movements, such market participants may notbe able to meet their obligations to brokers who, in turn, may not be able to meet their obligations to their counterparties. As a result, a system collapse in thefinancial system could occur, which would have a material adverse effect on our business, financial condition and results of operations and cash flows.We Are Subject to Risk of Default by Financial Institutions That Hold Our Funds and Our Customers’ Funds.We have significant deposits with banks and other financial institutions. Pursuant to CFTC and NFA regulations for our U.S.-regulated subsidiaries, we arenot required to segregate customer funds from our own funds. As such, we aggregate our customers’ funds and our funds and hold them in collateral anddeposit accounts at various financial institutions. In the event of insolvency of one or more of the financial institutions with which we have deposited thesefunds, both us and our customers may not be able to recover our funds. Because our customers’ funds are aggregated with our own, the extent to which theywill be entitled to insurance by the Federal Deposit Insurance Corporation is uncertain. In any such insolvency we and our customers would rank asunsecured creditors in respect of claims to funds deposited with any such financial institution. As a result, we may be subject to claims by customers due tothe loss of such funds and our business would be harmed by the loss of our funds.We Are Subject to Counterparty Risk Whereby Defaults by Parties With Whom We Do Business Can Have an Adverse Effect on Our Business,Financial Condition and Results of Operations and Cash Flows.Our operations require a commitment of capital and involve risks of losses due to the potential failure of our customers to perform their obligations under theirtransactions with us. Our margin policy allows customers to leverage their account balances by trading notional amounts that may be significantly larger thantheir cash balances. We mark our customers’ accounts to market each time a currency price in their portfolio changes. While this allows us to closely monitoreach customer’s exposure, it does not guarantee our ability to eliminate negative customer account balances prior to an adverse currency price change. Althoughwe have the ability to alter our margin requirements without prior notice to our customers, this may not eliminate the risk that our access to liquidity becomeslimited or market conditions, including currency price volatility and liquidity constraints, change faster than our ability to modify our margin requirements. Ifour customers default on their obligations, we remain financially liable for such obligations, and although these obligations are collateralized, 45Table of Contentssince the value of our customers’ forex positions is subject to fluctuation as market prices change, we are subject to market risk in the liquidation of customercollateral to satisfy such obligations. In light of the current turbulence in the global economy, we face increased risk of default by our customers and othercounterparties. For example, during the second half of 2008, Lehman Brothers Holdings Inc. declared bankruptcy, and many major U.S. financialinstitutions were forced to merge or were put into conservatorship by the U.S. federal government. Any default by our counterparties or partners could besignificant and could have a material adverse effect on our business, financial condition and results of operations and cash flows.Failure of Third-Party Systems or Third-Party Service and Software Providers Upon Which We Rely Could Adversely Affect Our Business.We rely on certain third-party computer systems or third-party service and software providers, including trading platforms, back-office systems, Internetservice providers and communications facilities. For example, for the year ended December 31, 2010, 30.5% of our forex trading volume was derived fromtrades utilizing the MetaTrader platform, a third-party trading platform we license that is popular in the international retail trading community and offers ourcustomers a choice in trading interfaces. Additionally, we also rely on an agreement we entered into with Trading Central whereby Trading Central will provideus with investment research that we distribute to our customers. Any interruption in these third-party services, or deterioration in their performance or quality,could adversely affect our business. If our arrangement with any third party is terminated, we may not be able to find an alternative systems or servicesprovider on a timely basis or on commercially reasonable terms. This could have a material adverse effect on our business, financial condition and results ofoperations and cash flows.Our Computer Infrastructure May Be Vulnerable to Security Breaches. Any Such Problems Could Jeopardize Confidential InformationTransmitted Over the Internet, Cause Interruptions in Our Operations or Give Rise to Liabilities to Third Parties.Our computer infrastructure is potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems and securitybreaches. Any such problems or security breaches could give rise to liabilities to one or more third parties, including our customers, and disrupt ouroperations. A party able to circumvent our security measures could misappropriate proprietary information or customer information, jeopardize theconfidential nature of information we transmit over the Internet or cause interruptions in our operations. Concerns over the security of Internet transactions andthe safeguarding of confidential personal information could also inhibit our customers’ use of our systems to conduct forex transactions over the Internet. Tothe extent that our activities involve the storage and transmission of proprietary information and personal financial information, security breaches could exposeus to a risk of financial loss, litigation and other liabilities. Our current insurance policies may not protect us against all of such losses and liabilities. Any ofthese events, particularly if they result in a loss of confidence in our services, could have a material adverse effect on our business, financial condition andresults of operations and cash flows.We Have Relationships With Introducing Brokers Who Direct New Customers to Us. Failure to Maintain These Relationships Could Have aMaterial Adverse Effect on Our Business, Financial Condition and Results of Operations and Cash Flows.We have relationships with introducing brokers who direct new customers to us and provide marketing and other services for these customers. In certainjurisdictions, we are only able to provide our services through introducing brokers. For the year ended December 31, 2010, approximately 36.0% of our forextrading volume was derived from introducing brokers. Many of our relationships with introducing brokers are nonexclusive or may be terminated by thebrokers on short notice. In addition, under our agreements with introducing brokers, they have no obligation to provide us with new customers or minimumlevels of transaction volume. Our failure to maintain our relationships with these introducing brokers, the failure of the introducing brokers to provide us withcustomers or our failure to create new relationships with introducing brokers would result in a loss of revenue, which could have a material adverse effect onour business, financial condition and results of operations and cash 46Table of Contentsflows. To the extent any of our competitor’s offers more attractive compensation terms to one of our introducing brokers, we could lose the broker’s services orbe required to increase the compensation we pay to retain the broker. In addition, we may agree to set the compensation for one or more introducing brokers at alevel where, based on the transaction volume generated by customers directed to us by such brokers, it would have been more economically attractive to seek toacquire the customers directly rather than through the introducing broker.For the year ended December 31, 2010, approximately 5.6% of our forex trading volume was derived from TradeStation Securities, Inc., or TradeStation, oneof our largest introducing brokers. TradeStation recently formed a wholly-owned subsidiary, TradeStation Forex, Inc., to assume, own and conduct all ofTradeStation’s forex brokerage business. TradeStation Forex Inc.’s application for CFTC registration and NFA membership was recently approved and we areawaiting notice from TradeStation that it has obtained all other required approvals and wishes to have us transfer our TradeStation-introduced customers to it.We may be unable to offset the loss of TradeStation with new introducing brokers, if at all. If we do not enter into the most economically attractiverelationships with introducing brokers, our introducing brokers terminate their relationship with us or our introducing brokers fail to provide us withcustomers, our business, financial condition and results of operations and cash flows would be materially, adversely affected.Our Relationships With Our Introducing Brokers May Also Expose Us to Significant Reputational and Other Risks as We Could Be Harmed byIntroducing Broker Misconduct or Errors That Are Difficult to Detect and Deter.It may be perceived that we are responsible for the improper conduct by our introducing brokers, even though we do not control their activities. Many of ourintroducing brokers operate websites, which they use to advertise our services or direct customers to us. It is difficult for us to closely monitor the contents oftheir websites to ensure that the statements they make in relation to our services are accurate and comply with applicable rules and regulations. Whilehistorically we have been responsible for the activities of our introducing brokers that were not members or associates of NFA and subject to disciplinaryaction for failure to adequately supervise them, under the new NFA and CFTC rules, we are no longer responsible for the activities of any party that solicits orintroduces a customer to us, as our introducing brokers will now be required to be members of the NFA and are therefore directly supervised by the NFA.However, it may be perceived that we are responsible for any misleading statements about us made on websites of our introducing brokers and anydisciplinary action taken against any of our introducing brokers in the United States and abroad could have a material adverse effect on our reputation,damage our brand name and materially adversely affect our business, financial condition and results of operations and cash flows.We Have Relationships With White Label Partners Who Direct Customer Trading Volume to Us. Failure to Maintain These Relationships orDevelop New White Label Partner Relationships Could Have a Material Adverse Effect on Our Business, Financial Condition and Results ofOperations and Cash Flows.We have relationships with white label partners who provide forex trading to their customers by using our trading platform and other services and, therefore,provide us with an additional source of revenue. For the year ended December 31, 2010, approximately 8.7% of our forex trading volume was derived fromwhite label partners. Many of our relationships with white label partners are non-exclusive or may be terminated by them on short notice. In addition, our whitelabel partners have no obligation to provide us with minimum levels of transaction volume. Our failure to maintain our relationships with these white labelpartners, the failure of these white label partners to continue to offer online forex trading services to their customers using our trading platform, the loss ofrequisite licenses by our white label partners or our inability to enter into new relationships with white label partners would result in a loss of revenue, whichcould have a material adverse effect on our business, financial condition and results of operations and cash flows. To the extent any of our competitor’s offersmore attractive compensation terms to one or more of our white label partners, we could lose the white label partnership or be required to increase thecompensation we pay to retain the white label partner. Our relationships with our white label partners also may expose us to significant regulatory, reputationaland other risks as we could be harmed by white label partner misconduct or errors that are difficult to detect and deter. If 47Table of Contentsany of our white label partners provided unsatisfactory service to their customers or were deemed to have failed to comply with applicable laws or regulations,our reputation may be harmed as a result of our affiliation with such white label partner. Any such harm to our reputation would have a material adverse effecton our business, financial condition and results of operations and cash flows.Risks Related to our Common StockAn Active Trading Market for Our Common Stock May Not Develop, Which May Cause Our Common Stock to Trade at a Discount From theInitial Offering Price and Make It Difficult for You to Sell the Shares You Purchase.Prior to the initial public offering of our common stock in December 2010 there was no public trading market for our common stock. We cannot predict theextent to which investor interest in our company will lead to the development or maintenance of an active trading market. If an active trading market does notdevelop, there may be difficulty selling any shares of our common stock.The Market Price of Our Common Stock May Be Volatile.Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as the factors listed below, some of whichare beyond our control, could affect the market price of our common stock: • quarterly variations in our results of operations and cash flows or the results of operations and cash flows of our competitors; • our failure to achieve actual operating results that meet or exceed guidance that we may have provided due to factors beyond our control, such ascurrency volatility and trading volumes; • future announcements concerning us or our competitors, including the announcement of acquisitions; • changes in government regulations or in the status of our regulatory approvals or licensure; • public perceptions of risks associated with our services or operations; • developments in our industry; and • general economic, market and political conditions and other factors that may be unrelated to our operating performance or the operatingperformance of our competitors.If Securities or Industry Analysts Do Not Publish Research or Reports About Our Business, if They Change Their Recommendations RegardingOur Common Stock Adversely, or if We Fail to Achieve Analysts’ Earnings Estimates, the Market Price and Trading Volume of Our CommonStock Could Decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.If one or more of the analysts who cover us or our industry make unfavorable comments about our market opportunity or business, the market price of ourcommon stock would likely decline. If one or more of these analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility inthe financial markets, which could cause the market price of our common stock or trading volume to decline. On our part, if we fail to achieve analysts’earnings estimates, the market price of our common stock would also likely decline.Because We Do Not Intend to Pay Dividends for the Foreseeable Future, Investors Will Benefit From Their Investment in Shares Only if OurCommon Stock Appreciates in Value.We currently intend to retain our future earnings, if any, to finance the operation and growth of our business and do not expect to pay any dividends in theforeseeable future. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. Our common stockmay not appreciate in value or even maintain the price at which investors have purchased their shares. 48Table of ContentsCertain Provisions in Our Amended and Restated Certificate of Incorporation May Prevent Efforts by Our Stockholders to Change Our Directionor Management.Provisions contained in our amended and restated certificate of incorporation could make it more difficult for a third party to acquire us, even if doing somight be beneficial to our stockholders. For example, our amended and restated certificate of incorporation authorizes our board of directors to determine therights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. We could issue a series ofpreferred stock that could impede the completion of a merger, tender offer or other takeover attempt. These provisions may discourage potential acquisitionproposals and may delay, deter or prevent a change of control of us, including through transactions, and, in particular, unsolicited transactions, that some orall of our stockholders might consider to be desirable.We Cannot Predict Our Future Capital Needs. As a Result, We May Need to Raise Significant Amounts of Additional Capital. We May Be Unableto Obtain the Necessary Capital When We Need It, or on Acceptable Terms, if at All.Our business depends on the availability of adequate funding and regulatory capital under applicable regulatory requirements. Historically, we have satisfiedthese needs from internally generated funds and from our preferred equity securities financings. While we currently anticipate that our available cash resourceswill be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months, we may need to raiseadditional funds to: • support more rapid expansion; • develop new or enhanced services and products; • respond to competitive pressures; • acquire complementary businesses, products or technologies; or • respond to unanticipated requirements.Additional financing may not be available when needed on terms favorable to us.Our Management and Other Affiliates Have Significant Control of Our Common Stock and Could Control Our Actions in a Manner ThatConflicts With Our Interests and the Interests of Other Stockholders.As of December 31, 2010, our executive officers, directors and our current 5.0% stockholders and their affiliated entities together beneficially ownedapproximately 71.0% of our outstanding capital stock. VantagePoint Venture Partners IV(Q), L.P., VantagePoint Venture Partners IV, L.P., VantagePointVenture Partners IV Principals Fund, L.P., VP New York Venture Partners, L.P., referred to herein as the VPVP Funds, 3i U.S. Growth Partners L.P., 3iTechnology Partners III L.P., 3i Growth Capital (USA) D L.P., 3i Growth Capital (USA) E L.P. 3i Growth Capital (USA) P L.P., and Edison Venture Fund IVSBIC, L.P., collectively referred to herein as the Venture Funds, together beneficially owned approximately 57.3% of our outstanding capital stock as ofDecember 31, 2010. Two of our directors, Messrs. Sugden and Mills, are affiliated with their respective venture fund. As a result, these stockholders, actingtogether, are able to exercise considerable influence over matters requiring approval by our stockholders, including the election of directors, and may notalways act in the best interests of other stockholders. Such a concentration of ownership may have the effect of delaying or preventing a change in our control,including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices.Pursuant to our amended and restated certificate of incorporation and amended and restated bylaws, until the earlier of (i) such time that the VPVP Funds ownless than 50% of all shares of our common stock that the VPVP Funds owned upon the completion of our initial public offering, (ii) immediately prior to our2014 annual meeting of stockholders and (iii) such time that the VPVP Funds notify our board of directors that they no longer 49Table of Contentsrequire that an individual designated by them serve on our board of directors, the VPVP Funds have the right to nominate one individual in the slate of directornominees for election at our 2011 annual meeting of stockholders and have such designee serve on our board of directors.Our Internal Controls Over Financial Reporting May Not Be Effective and Our Independent Registered Public Accounting Firm May Not BeAble to Certify as to Their Effectiveness, Which Could Have a Significant and Adverse Effect on Our Business and Reputation.We are evaluating our internal controls over financial reporting in order to allow management to report on our internal controls over financial reporting, asrequired by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and rules and regulations of the SEC thereunder, which we refer to as Section 404.We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, which includes annualmanagement assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firmthat addresses the effectiveness of internal controls.As we continue our evaluation, we may identify material weaknesses that we may not be able to remediate in time to meet the deadline imposed by theSarbanes-Oxley Act of 2002, as amended, for compliance with the requirements of Section 404. We will be required to comply with the requirements ofSection 404 for the year ending December 31, 2011. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards aremodified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internalcontrols over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and anyremediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or withadequate compliance, our independent registered public accounting firm may not be able to opine as to the effectiveness of our internal control over financialreporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in thefinancial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving ourinternal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.Shareholders May Be Diluted by the Future Issuance of Additional Common Stock in Connection With Our Incentive Plans, Acquisitions orOtherwise.As of December 31, 2010, we had approximately 28.8 million shares of common stock authorized but unissued. Our certificate of incorporation authorizes usto issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the termsand conditions established by our board of directors in its sole discretion, whether in connection with acquisitions, in future common stock offerings orotherwise. We have reserved an aggregate of 8.5 million shares for issuance under our equity incentive compensation plans (1.4 million to be issued pursuantto future awards and grants under the 2010 Omnibus Incentive Compensation plan, or the 2010 plan, 6.6 million shares that are subject to outstanding grantsunder the 2006 Plan as of the effective date of the 2010 Plan, and 0.5 million shares to be issued pursuant to the 2011 Employee Stock Purchase Plan). Anycommon stock that we issue, including under our 2010 Omnibus Incentive Compensation Plan, 2011 Employee Stock Purchase Plan or other equity incentiveplans that we may adopt in the future, will dilute the percentage ownership held by investors who own our common stock. ITEM 1B.UNRESOLVED STAFF COMMENTSThere are no unresolved staff comments. 50Table of ContentsITEM 2.PROPERTIESWe do not own any properties. We currently have locations in the following sites: Our headquarters in Bedminster, New Jersey; sales and support offices inNew York City; Woodmere, Ohio; London; Hong Kong; Japan; Australia; South Korea; Singapore; and a representative office and a technology developmentoffice in Shanghai and the Cayman Islands. These sites comprise approximately 84,000 square feet in aggregate. Our significant leasing arrangements areoutlined below:GAIN Facilities Location Function Square Feet LeaseExpiration Headcount asofDecember 31,2010 Bedminster, New Jersey Management, Marketing,Operations, Compliance, Legal,Human Resources, Call Center 45,000 December2025 205 New York City, New York Sales and Customer Service 23,294 May 2011 69 Tokyo, Japan Management, Sales, Compliance,Operations 4,090 May 2011 19 Woodmere, Ohio Management, Operations, CustomerService, Compliance 1,200 October 2011 5 London, England Management, Sales, Compliance,Operations 4,200 January 2021 23 Hong Kong Management, Sales, Compliance 1,804 February2012 5 Singapore Management, Sales, Compliance,Operations 1,969 January 2013 1 Australia Management, Sales, Compliance,Operations 1,888 March 2013 6 While we believe that these facilities are adequate to meet our current needs, it may become necessary to secure additional space in the future to accommodateany future growth. We believe that such additional space will be available as needed in the future on commercially reasonable terms. ITEM 3.LEGAL PROCEEDINGSWe are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of such claimsand legal actions, if decided adversely, is not expected to have a material adverse effect on our quarterly or annual operating results, cash flows or consolidatedfinancial position.On February 15, 2011, we were informed by Broadband Graphics, LLC, or Broadband, that Broadband believes we have infringed certain patents it owns.Broadband filed a complaint reflecting the foregoing with the U.S. District Court for the District of Oregon. From a review of public records, it appears thatBroadband has taken similar action against several other companies in the forex brokerage industry, with such other matters generally resulting in a settlementof litigation. Though we intend to vigorously defend ourselves and believe that Broadband’s claims are without merit, we can provide no assurances regardingthe outcome of this matter. 51Table of ContentsPART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIESMARKET FOR GAIN COMMON STOCKOur common stock began trading on the New York Stock Exchange under the symbol “GCAP” on December 15, 2010. Prior to that date, there was noestablished trading market for our common stock. As of March 29, 2011, we estimate that we had approximately 168 stockholders of record andapproximately 1,084 beneficial holders of our common stock.The following table details the high and low sales prices for the common stock as reported by the New York Stock Exchange for the periods indicated. 2010 Quarter High Low Fourth Quarter $9.35 $8.08 DIVIDEND POLICYWe have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in theoperation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will bemade at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general businessconditions and other factors that our board of directors may deem relevant.RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIESRECENT SALES OF UNREGISTERED SECURITIESNone.USE OF PROCEEDS FROM REGISTERED SECURITIESOn December 20, 2010, we closed our initial public offering of 9,000,000 shares of our common stock at an initial public offering price of $9.00 per share. Ofthe 9,000,000 shares of common stock sold, we issued and sold 407,692 shares of common stock and our selling stockholders sold 8,592,308 shares ofcommon stock, resulting in net proceeds to us of $4.0 million, after deducting underwriting discounts (which included a $0.6 million reimbursement to us bythe underwriters for our out-of-pocket expenses incurred during the offering).Morgan Stanley & Co. Incorporated and Deutsche Bank Securities acted as lead underwriters and JMP Securities LLC, Raymond James & Associates, Inc.and Sandler O’Neil & Partners, L.P. acted as managing underwriters. Our proceeds from the offering were used to pay a portion of our initial public offeringexpenses, which included (i) approximately $2.1 million in legal, accounting and printing fees incurred in 2010; (ii) approximately $0.3 million inunderwriters’ discounts, fees and commissions; and (iii) approximately $3.6 million of our historical offering-related expenses and deferred costs incurred infiscal years 2007, 2008 and 2009. The Registration Statement on Form S-1 (Reg. No. 333-161632) we filed to register our common stock was declaredeffective by the Securities and Exchange Commission on December 14, 2010.On January 19, 2011, the underwriters’ exercised their overallotment option to purchase shares of our common stock from our selling stockholders in anamount equal to an aggregate of 80,000 shares. We did not receive any proceeds from the exercise of the overallotment option. 52Table of ContentsREPURCHASES OF COMMON STOCKNone.STOCK PERFORMANCE GRAPHThe following performance chart assumes an investment of $100 on December 15, 2010 and compares the change through December 31, 2010 in the marketprice for our common stock with the Russell 2000 Index, the NASDAQ Composite Index, and a peer group identified by the Company (the “Selected PeerGroup Index”). The Selected Comparative Group Index was selected to include publicly-traded companies engaging in one or more of the Company’s lines ofbusiness.The Selected Comparative Group Index is weighted according to the respective issuer’s stock market capitalization and is comprised of the followingcompanies: Advent Software, Inc., BGC Partners, Inc., DST Systems, E*Trade Financial Corporation, FactSet Research Systems, Inc., FXCM, Inc., GFIGGroup, Inc., Knight Capital Group, Inc., LaBranche & Co, Inc., Market Axcess Holdings, Inc., MSCI, Inc., optionsXpress Holdings, Inc., andTradeStation Group, Inc.The comparisons in the graphs below are based on historical data and are not intended to forecast the possible future performance of GAIN’s common stock.STOCK PERFORMANCE GRAPHIndex is market cap weighted. 53Table of ContentsEQUITY COMPENSATION PLAN INFORMATIONThe following table provides information with respect to our compensation plans under which equity compensation is authorized as of December 31, 2010. Plan category Number ofsecurities to beissued upon exerciseof outstandingoptions, warrantsand rights(a) Weighted-averageexercisepriceofoutstandingoptions,warrantsand rights(b) Number ofsecurities remainingavailable for futureissuance underequity compensationplans (excludingsecurities reflectedin column (a))(c) Equity compensation plans approved by security holders 4,681,196 $2.32 1,900,000 Total 4,681,196 $2.32 1,900,000 ITEM 6.SELECTED FINANCIAL DATAThe financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our audited consolidated financial statements as of December 31, 2010 and 2009 and for the three years ended December 31, 2010 included inthis annual report on Form 10-K. The selected Consolidated Statement of Operation data for the years ended December 31, 2007 and 2006 and the selectedConsolidated Statement of Financial Condition data as of December 31, 2008, 2007 and 2006 are derived from our audited consolidated financial statementsnot included in this Annual Report on Form 10-K. Our historical results of operations are not necessarily indicative of future results. 54Table of Contents (in thousands, except share and per share data) Year Ended December 31, 2010 2009 2008 2007 2006 Consolidated Statements of Operations Data: REVENUE Trading revenue $187,356 $153,375 $186,004 $118,176 $69,471 Other revenue 3,417 2,108 2,366 437 242 Total non-interest revenue 190,773 155,483 188,370 118,613 69,713 Interest revenue 364 292 3,635 5,024 3,145 Interest expense (2,039) (2,456) (3,905) (4,299) (2,431) Total net interest revenue/(expense) (1,675) (2,164) (270) 725 714 Net revenue 189,098 153,319 188,100 119,338 70,427 EXPENSES Employee compensation and benefits 45,439 41,503 37,024 25,093 17,258 Selling and marketing 38,395 36,875 29,312 21,836 12,517 Trading expenses and commissions 25,658 14,955 16,310 10,436 10,321 Bank fees 4,239 4,466 3,754 2,316 935 Depreciation and amortization 4,647 2,689 2,496 1,911 897 Communications and data processing 2,951 2,676 2,467 1,659 873 Occupancy and equipment 4,038 3,548 2,419 1,616 1,045 Bad debt provision 597 760 1,418 1,164 574 Professional fees 3,910 3,729 3,104 1,380 1,295 Software expense 1,845 1,132 888 123 78 Professional dues and memberships 275 698 773 187 48 Write-off of deferred initial public offering costs — — 1,897 — — Change in fair value of convertible, redeemable preferred stock embedded derivative (4,691) (1,687) (181,782) 165,280 61,732 Impairment of intangible assets — — — — 165 Other 4,343 1,746 1,424 (627) 3,085 Total 131,646 113,090 (78,496) 232,374 110,823 INCOME/(LOSS) BEFORE INCOME TAX EXPENSE AND EQUITY IN EARNINGS OF EQUITYMETHOD INVESTMENT 57,452 40,229 266,596 (113,036) (40,396) Income tax expense 20,009 12,556 34,977 21,615 9,063 Equity in earnings of equity method investment — — (214) — (43) NET INCOME/(LOSS) 37,443 27,673 231,405 (134,651) (49,502) Net income/(loss) applicable to noncontrolling interest (402) (321) (21) — — Net income/(loss) applicable to GAIN Capital Holdings, Inc. $37,845 $27,994 $231,426 $(134,651) $(49,502) Effect of redemption of preferred shares — — (63,913) — (39,006) Effect of preferred share accretion — — — — 2,205 Net income/(loss) applicable to GAIN Capital Holdings, Inc. Common Shareholders $37,845 $27,994 $167,513 $(134,651) $(86,303) Earnings/(loss) per common share: Basic $8.62 $9.47 $57.54 $(31.35) $(13.66) Diluted $1.00 $0.75 $4.94 $(31.35) $(13.66) Weighted average common shares outstanding used in computing earnings/(loss) per common share: Basic 4,392,798 2,956,377 2,911,107 4,295,082 6,315,573 Diluted 37,742,902 37,282,069 33,924,649 4,295,082 6,315,573 55(1)(1)(1)(1)(1)(1)(2)(2)Table of Contents (in thousands) As of December 31, 2010 2009 2008 2007 2006 Consolidated Statements of Financial Condition Data: Cash and cash equivalents $284,210 $222,524 $176,431 $98,894 $31,476 Receivables from brokers $98,135 $76,391 $50,817 $74,630 $71,750 Total assets $443,071 $351,940 $264,816 $180,628 $113,491 Payables to brokers, dealers, futures commission merchants, and otherregulated entities $6,102 $2,769 $1,679 $2,163 $5,248 Payables to customers $250,572 $196,985 $122,293 $106,741 $70,321 Convertible, redeemable preferred stock embedded derivative $— $81,098 $82,785 $264,566 $99,286 Notes payable $18,375 $28,875 $39,375 $49,875 $27,500 Total shareholders’ equity/(deficit) $149,849 $(139,890) $(172,154) $(316,640) $(154,242) (1)For each of the periods indicated, in accordance with ASC 815, Derivatives and Hedging, we accounted for an embedded derivative liabilityattributable to the redemption feature of our then outstanding preferred stock. This redemption feature and the associated embedded derivative liability isno longer required to be recognized due to the conversion of all of our outstanding preferred stock in connection with the completion of our initial publicoffering of common stock in December 2010.(2)In connection with the completion of our initial public offering, we performed a 2.29-for-1 stock split of our common stock effective immediately priorto the completion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders on a pro-rata basisresulting in an effective stock split of 2.26-for-1. As a result, the earnings per common share and weighted average common shares outstanding used incomputing earnings per share have been retroactively adjusted to reflect the effective stock split.Selected Operational Data($ in thousands unless otherwise stated) As of December 31, 2010 2009 2008 2007 2006 Number of traded retail accounts: 64,313 52,755 52,555 43,139 28,270 Number of funded retail accounts: 85,562 60,168 49,740 51,026 37,109 Number of new retail accounts: 56,361 37,693 33,666 31,006 24,517 Adjusted net capital in excess of regulatory requirements $112,551 $71,087 $98,571 $44,856 $15,296 Year Ended December 31, 2010 2009 2008 2007 2006 Total trading volume (dollars in billions) $1,564.1 $1,246.7 $1,498.6 $674.5 $447.4 Net deposits received from retail customers (dollars in millions): $267.8 $257.1 $277.3 $184.2 $102.8 Retail revenue per million traded $141.5 $123.0 $124.1 $175.2 $155.3 Client assets $256.7 $199.8 $124.0 $108.9 $75.6 (3)Adjusted net capital in excess of regulatory requirements represents the excess funds over the regulatory minimum requirements applicable to us. 56(3)Table of ContentsSelected Geographic Data 2010 2009 2008 2007 2006 Customer trading volume by region (dollars in billions): U.S. $777.0 $679.2 $878.9 $355.4 $238.3 China 4.9 0.4 172.4 103.4 50.8 Canada 93.9 142.5 122.9 58.6 29.2 Europe, Middle East and Africa 262.4 179.5 153.1 64.3 42.9 Asia (ex-China) 318.8 159.1 96.4 54.0 42.7 Rest of World 107.0 86.0 74.9 38.8 43.5 Total $1,564.1 $1,246.7 $1,498.6 $674.5 $447.4 (4)In 2008, a result of our review of our regulatory compliance in China, we decided to terminate our service offerings to residents of China. Based on amore recent review of the relevant regulatory requirements in China, in 2010, we began accepting customers that neither we nor our partners directlysolicit in China. 57(4)Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes theretoprovided pursuant to “Item 8. Financial Statements and Supplementary Data” contained within this Annual Report on Form 10-K.OVERVIEWWe are an online provider of retail and institutional foreign exchange, or forex, trading and related services founded in 1999 by a group of experienced tradingand technology professionals. We offer our customers 24-hour direct access to the global over-the-counter, or OTC, foreign exchange markets. We also offersome of our retail customers access to other global markets on an OTC basis, including the spot gold and silver markets, as well as equity indices andcommodities via instruments called contracts-for-difference, or CFDs which are investment products with returns linked to the performance of an underlyingcommodity, index or security. Our trading platforms provide a wide array of information and analytical tools that allow our customers to identify, analyze andexecute their trading strategies efficiently and cost-effectively. We believe our proprietary technology, multilingual customer service professionals and effectiveeducational programs provide a high degree of customer satisfaction and loyalty. Furthermore, our scalable and flexible technology infrastructure allows us toenhance our product service offerings to meet the rapidly changing needs of the marketplace. We also believe our net capital position and customer assets helpmake us one of the largest global retail foreign exchange services providers.We use financial metrics, including funded retail accounts and traded retail accounts, to measure our aggregate customer account activity. Funded retailaccounts represent retail customers who maintain cash balances with us. As of December 31, 2010 we had 85,562 funded retail accounts compared to60,168 as of December 31, 2009. We believe the number of funded retail accounts is an important indicator of our ability to attract new retail customers thatcan potentially lead to trading volume and revenue in the future, however, it does not represent actual trades executed. We believe that the metric that mostclosely correlates to volume and revenue is the number of traded retail accounts, because this represents retail customers who executed a transaction with usduring a particular period. During the year ended December 31, 2010, we had 64,313 traded retail accounts compared to 52,755 traded retail accounts for theyear ended December 31, 2009, representing an increase of 21.9%.For the year ended December 31, 2010, we generated $189.1 million of total net revenue and net income of $37.8 million, including a gain of $4.7 millionrelating to the change in fair value of our preferred stock embedded derivative. For the year ended December 31, 2009 we generated $153.3 million of total netrevenue and net income of $28.0 million, including a gain of $1.7 million relating to the change in fair value of our preferred stock embedded derivative. Forthe year ended December 31, 2008, we generated $188.1 million of total net revenue and net income of $231.4 million and a gain of $181.8 million relating tothe change in the fair value of our preferred stock embedded derivative. The preferred stock embedded derivative liability is attributable to the redemptionfeature of our previously outstanding preferred stock which allowed the holders of our preferred stock at any time on or after March 31, 2011, to require us toredeem all of the shares of preferred stock then outstanding. The preferred stock embedded derivative was a non-cash liability and, therefore, caused netincome to fluctuate but did not reflect our operating performance. This redemption provision and the associated embedded derivative liability are no longerrequired to be recognized due to the conversion of all of our outstanding preferred stock in connection with our initial public offering. Excluding the impact of a$4.7 million gain relating to the change in fair market value of our embedded derivative during the period from January 1, 2010 through the effective date ofthe initial public offering and the impact of amortization related to purchased intangibles, our adjusted net income for the year ended December 31, 2010 was$33.9 million. Adjusted net income is a non-GAAP financial measure for which we provide a reconciliation of net income to adjusted net income under “—Operating Expenses – Change in Fair Value of Convertible Preferred Stock Embedded Derivative” below. 58Table of ContentsWe believe the following operating measurements are the main drivers of our revenue: • customer trading volume; • retail trading revenue per million traded; • net deposits received from retail customers; • traded retail accounts, and • client assets.Customer trading volume is the U.S. dollar equivalent of aggregate notional value of trades executed by our customers. Retail trading revenue per million tradedis the revenue we realize from our forex, CFDs and metals trading activities (including the revenue we realize from the difference between the “bid” price andthe “offer” price for our customer’s executed trades, or the spread revenue) per one million of U.S. dollar-equivalent trading volume, and is calculated as retailtrading revenue divided by the result obtained from dividing trading volume by one million. Net deposits received from retail customers represents customers’deposits less withdrawals for a given period, and correlates to our customers’ ability to place additional trades, which potentially increases our tradingvolumes. Traded retail accounts impact our revenue because this represents the number of customers who executed trades during a specific period, which alsoaffects our customer trading volume. Client assets represent amounts due to clients, including customer deposits and unrealized gains or losses arising fromopen positions.Our customer base resides in over 140 countries outside of the United States and is comprised of three categories. The first are direct customers sourcedthrough our retail forex trading website, FOREX.com (our flagship brand), which is a currency trading Internet site available in English, traditional andsimplified Chinese, Japanese, Russian and Arabic, and provides currency traders of all experience levels with a full-service trading platform, along withextensive educational and support tools. The second are indirect customers sourced through either retail financial services firms that provide customers to us,which we refer to as introducing brokers, or financial institutions which offer our currency trading services to their existing client base under their own brand,which we refer to as white label partners. The third are institutional customers sourced through hedge funds, institutional asset managers and proprietarytrading firms. For the year ended December 31, 2010, 48.7% of customer trading volume was generated from our direct customers, 36.0% was generated fromintroducing brokers and white label partners and 15.3% was generated from our institutional customers. For the year ended December 31, 2009, 65.4% ofcustomer trading volume was generated from our direct customers and 34.6% was generated from introducing brokers and white label partners. We launchedour institutional trading services in March 2010.For the year ended December 31, 2010, customer trading volume was $1.6 trillion, retail trading revenue per million traded was $141.5, net deposits receivedfrom retail customers was $267.8 million and the number of traded retail accounts was 64,313. For the year ended December 31, 2009, the total dollar valuetraded by our customers, or customer trading volume, was $1.2 trillion, retail trading revenue per million traded was $123.0, net deposits received from retailcustomers was $257.1 million and the number of traded retail accounts was 52,755. For the year ended December 31, 2008, customer trading volume was$1.5 trillion, retail trading revenue per million traded was $124.1, net deposits received from retail customers was $277.3 million and the number of tradedretail accounts was 52,555.Forexster AgreementIn July 2010, we entered into an Exclusive Marketing Agreement, or EMA, and related agreements, with Forexster Limited, or Forexster, pursuant to which wereceive, subject to certain excluded customers and geographic regions, exclusive rights to use certain Forexster software in the field of forex trading and non-exclusive rights to use such trading services in the field of precious metals trading. The Forexster EMA expands the rights and obligations we had beenprovided under preexisting agreements with Forexster. Pursuant 59Table of Contentsto the terms of the EMA, we paid Forexster an up-front, non-refundable $7.5 million and agreed to pay Forexster a monthly revenue share, during the term ofthe agreement, equal to a percentage of all gross revenues earned by us from use of the Forexster software, provided certain minimum net income thresholds aremet. Our aggregate revenue share payment obligations under the EMA are capped at $60.0 million, or the Cap, if paid in-full on or before July 31, 2013 or$65.0 million, or the Additional Cap, if paid in-full on or before July 31, 2015. We are under no duty to pay the Cap or Additional Cap if not earned, but wemay choose to prepay all or part of the Cap or Additional Cap without penalty. In the event the Additional Cap is not paid in-full on or before July 31, 2015,then all payment provisions of the EMA shall cease and the payment provisions of our pre-existing agreement with Forexster will resume. Under the preexistingagreement, we were required to pay Forexster fees based on trading volume and $0.1 million per month. In the event we pay the Cap in-full on or beforeJuly 31, 2013 or the Additional Cap in-full on or before July 31, 2015, as applicable, then we shall owe no further fees, costs or expenses to Forexster for useof the Forexster software and our rights to the Forexster software under the EMA shall continue for 100 years. Thereafter, the EMA shall automatically renewfor additional twelve (12) month periods unless otherwise terminated by the parties.RevenueWe generate revenue from trading revenue, other revenue, which primarily consists of commissions earned in our GAIN GTX institutional forex tradingbusiness, and interest income.Trading revenue is our largest source of revenue and is generated in our retail forex business as follows: • In our managed flow portfolio, which accounted for 76.7% of our customer trading volume for the year ended December 31, 2010, (i) for tradesthat are naturally hedged against an offsetting trade from another customer, we receive the entire retail bid/offer spread we offer our customers onthe two offsetting transactions and (ii) in respect of the remaining customer trades, which we refer to as our net exposure, we receive the net gains,if any, generated through these transactions; and • In our offset flow portfolio, which accounted for 8.0% of our customer trading volume for the year ended December 31, 2010, we receive thedifference between the retail bid/offer spread we offer our customers and the wholesale bid/offer spread we receive from the wholesale forex tradingpartners.For the year ending December 31, 2010, approximately 98.0% of our average daily retail trading volume was either naturally hedged or hedged by us with oneof our wholesale forex trading partners.We manage our net exposure by applying position and exposure limits established under our risk-management policies and by continuous, active monitoringby our traders. Based on our risk management policies and procedures, over time a portion of our net exposure may be offset and hedged with our wholesaleforex trading. Though we do not actively initiate proprietary directional market positions in anticipation of future movements in the relative prices of theproducts we offer in the market, through our net exposure we are likely to have open positions in various products at any given time. In the event ofunfavorable market movements, we may take a loss on such positions. Offset trades are hedged with our wholesale forex trading partners.The remaining 15.3% of our customer trading volume for the year ended December 31, 2010 was generated by our GAIN GTX institutional forex tradingbusiness. Commissions generated by institutional trading are recorded under other revenue.For the year ended December 31, 2009, approximately 98.6% of our average daily retail trading volume was either naturally hedged or hedged by us with oneof our wholesale forex trading partners. In 2009, our managed flow portfolio accounted for 88.7% of our customer trading volume and our offset flow portfolioaccounted for the remaining 11.3%. For the year ended December 31, 2008, approximately 98.8% of our average daily retail trading volume was eithernaturally hedged or hedged by us with one of our wholesale forex trading partners. In 60Table of Contents2008, our managed flow portfolio accounted for 87.0% of our customer trading volume and our offset flow portfolio accounted for the remaining 13.0%.Trading revenue represented 99.1% of our total net revenue for the year ended December 31, 2010, 100.0% of our total net revenue for the year endedDecember 31, 2009 and 98.9% of our total net revenue for the year ended December 31, 2008.We earn interest income from our funds and our customers’ funds on deposit with various financial institutions.We believe that our customer trading volumes are driven by ten main factors. Six of these factors are broad external factors outside of our control whichgenerally impact forex market trading, as well as our customer trading volumes, and include: • changes in the financial strength of market participants; • economic and political conditions; • trends in business and finance; • changes in the supply, demand and volume of foreign currency transactions; • legislative changes; and • regulatory changes.Many of the above factors impact the volatility of foreign currency rates, which is in turn positively correlated with forex trading volume. Our customertrading volume is also affected by four other factors which we believe differentiate us from our competitors: • the effectiveness of our sales activities; • the attractiveness of our Forex.com website; • the effectiveness of our customer service team; and • the effectiveness of our marketing activities.In order to increase customer trading volume, we focus our marketing and our customer service and education activities on attracting new customers, growingnet deposits received from retail customers and increasing overall customer trading activity.Trading revenue is recorded on a trade-date basis. Changes in net unrealized gains or losses are recorded under trading revenue on the Consolidated Statementsof Operations and Comprehensive Income for a specified period of time. For the year ended December 31, 2010 and the year ended December 31, 2009, nosingle customer accounted for more than 3.0% of our trading volume for the period.Other revenue is comprised of account management, transaction and performance fees related to customers who have assigned trading authority to GainCapital Asset Management, or GCAM, inactivity and training fees charged to customer accounts, revenue from GAIN GTX, as well as other miscellaneousitems. For the year ended December 31, 2010, other revenue was $3.4 million, which included GAIN GTX revenue of $2.0 million, and for the year endedDecember 31, 2009 and 2008, other revenue was $2.1 million and 2.4 million, respectively.Net interest revenue consists primarily of the revenue generated by our cash and customer cash held by us at banks, money market funds and on deposit atour wholesale forex trading partners, less interest paid to customers on their net liquidating account value and interest expense on notes payable. A customer’snet liquidating account value equals cash on deposit plus the marking to market of open positions as of the measurement date. 61Table of ContentsOur cash and customer cash is generally invested in money market funds which primarily invest in short-term U.S. government securities. Such deposits andinvestments earned interest at an average effective rate of approximately 0.1% for each of the years ended December 31, 2010 and 2009, and 1.5% for the yearended December 31, 2008. Interest paid to customers varies among customer accounts primarily due to the net liquidating value of a customer account, as wellas interest promotions that we may make available from time to time. Interest income and interest expense are recorded when earned and incurred, respectively.Net interest expense was $1.7 million, $2.2 million and $0.3 million for the years ended December 31, 2010, 2009, 2008, respectively.Operating ExpensesEmployee Compensation and BenefitsEmployee compensation and benefits includes salaries, bonuses, stock-based compensation, group insurance, contributions to benefit programs and otherrelated employee costs. Compensation and benefits as a percentage of net revenue has decreased from 27.1% for the year ended December 31, 2009 to 24.0%for the year ended December 31, 2010, primarily due to an increase in net revenue for the year ended December 31, 2010 as compared to the same period in2009. Compensation and benefits as a percentage of net revenue increased from 19.7% for the year ended December 31, 2008 to 27.1% for the year endedDecember 31, 2009, primarily due to a decrease in net revenue for the year ended December 31, 2009 as compared to the same period in 2008. Bonus costs,which are performance based and vary year to year, represented 21.4% of our employee compensation and benefits for the year ended December 31, 2010compared to 18.1% for the year ended December 31, 2009 and 26.4% for the year ended December 31, 2008.Selling and MarketingSelling and marketing expense is primarily concentrated in online display and search engine advertising, and to a lesser extent print and television advertising.Our marketing strategy employs a combination of direct marketing and focused branding programs, with the goal of raising awareness of our retail forextrading Internet website, FOREX.com, and attracting customers in a cost-efficient manner. As part of our strategy to increase customer trading volume andattract new accounts, we have increased selling and marketing expense from $29.3 million for the year ended December 31, 2008 to $36.9 million for the yearended December 31, 2009 to $38.4 million for the year ended December 31, 2010 as we continue to invest in our global brand to increase trading volumes andnet deposits received from retail customers.Trading Expense and CommissionsTrading expense and commissions consists primarily of compensation paid to our white label partners and introducing brokers. We generally provide whitelabel partners with the platform, systems and back-office services necessary for them to offer forex trading services to their customers. We also establishrelationships with introducing brokers that identify and direct potential forex trading customers to us. White label partners and introducing brokers generallyhandle marketing and the other expenses associated with attracting the customers they direct to us. Accordingly, we do not incur any incremental sales andmarketing expense in connection with trading revenue generated by customers provided through our white label partners and introducing brokers. We do,however, pay a portion of the forex trading revenue generated by the customers of our white label partners and introducing brokers to our white label partnersand introducing broker partners and record this payment under trading expense. These costs are largely variable and fluctuate according to the trading volumeproduced by the customers directed to us. During the year ended December 31, 2010, we generated approximately 36.0% of our trading volume throughcustomers introduced to us by white label partners and introducing brokers and paid approximately $25.6 million in total trading expenses and commissionscompared to 34.6% of our total trading volume and a payment of $15.0 million in total trading expenses and commissions in the year ended December 31,2009. The trading volume generated through customers introduced to us by white label partners 62Table of Contentsand introducing brokers increased significantly in 2010 from the prior year, resulting in the $10.6 million increase in total trading expenses and commissionsfor the year ended December 31, 2010. In the year ended December 31, 2008, we generated approximately 32.7% of our trading volume through customersintroduced to us by white label partners and introducing brokers and paid approximately $16.3 million in total trading expenses and commissions.Other ExpensesOther expense categories separately disclosed in our results of operations include bank fees, depreciation and amortization, communications and dataprocessing, occupancy and equipment, bad debt provision, professional fees and other miscellaneous expenses.Change in Fair Value of Convertible Preferred Stock and Embedded Derivative and Adjusted Net IncomeOur Convertible, Redeemable Preferred Stock Series A, Series B, Series C, Series D, and Series E, which was converted into common stock in connectionwith our initial public offering, contained a redemption feature which allowed the holders of our then outstanding preferred stock at any time on or afterMarch 31, 2011, upon the written request of holders of at least a majority of the outstanding shares of preferred stock voting together as a single class, torequire us to redeem all of the shares of preferred stock then outstanding. We determined that this redemption feature effectively provided such holders with anembedded option derivative meeting the definition of an “embedded derivative” pursuant to ASC 815, Derivatives and Hedging. Consequently, the embeddedderivative was bifurcated and accounted for separately. Historically, in accordance with ASC 815, we adjusted the carrying value of the embedded derivativeto the fair value of our company at each reporting date, based upon the Black-Scholes options pricing model, and reported the preferred stock embeddedderivative liability on the Consolidated Statements of Financial Condition with change in fair value recorded in our Consolidated Statements of Operations andComprehensive Income. This impacted our net income but did not affect our cash flow generation or operating performance. This accounting treatment causedour earnings to fluctuate, but in our view did not reflect the historical operating or potential future performance of our company. As noted above, in connectionwith the successful completion of our initial public offering in December 2010, all outstanding Convertible, Redeemable Preferred Stock was converted intoCommon Stock and the associated preferred stock embedded derivative liability was settled. As such, the change in fair value of the Convertible, RedeemablePreferred Stock recognized during 2010 was related to the change in value from January 1, 2010 through the effective date of the IPO on December 14, 2010.See “— Critical Accounting Policies and Estimates — Fair Value of Derivative Liabilities”.Adjusted net income is a non-GAAP financial measure and represents our net income/(loss) excluding (i) the change in fair value of the embedded derivative inour preferred stock and (ii) the after-tax impact of purchased intangibles amortization. As noted above, the embedded derivative in our preferred stock wasextinguished at the time of our IPO. Accordingly, beginning in 2011, we will no longer include an adjustment for changes in fair value of the embeddedderivative and adjusted net income will represent our net income excluding only the after-tax impact of purchased intangibles amortization. This non-GAAPfinancial measure has certain limitations, including that it does not have a standardized meaning and, therefore, our definition may be different from similarnon-GAAP financial measures used by other companies and/or analysts. Therefore, it may be more difficult to compare our financial performance to that ofother companies. 63Table of ContentsThe following table provides a reconciliation of GAAP net income to adjusted net income, adjusted earnings per common share and to our adjusted effective taxrate (amounts in thousands unless otherwise stated). Year Ended December 31, 2010 2009 2008 Net (loss)/income applicable to GAIN Capital Holdings, Inc. $37,845 $27,994 $231,426 Change in fair value of convertible, redeemable preferred stock embedded derivative (4,691) (1,687) (181,782) Add back of purchased intangible amortization, net of tax 749 — — Adjusted net income $33,903 $26,307 $49,644 Adjusted earnings per common share(1) Basic $7.72 $8.90 $17.05 Diluted $0.90 $0.71 $1.46 Net revenue $189,098 $153,319 $188,100 Total expenses 131,646 113,090 (78,496)Income before income tax expense and equity in earnings of equity method investment 57,452 40,229 266,596 Change in fair value of convertible, redeemable preferred stock embedded derivative (4,691) (1,687) (181,782) Adjusted income before income tax expense and equity in earnings of equity method investment $52,761 $38,542 $84,814 Income tax expense $20,009 $12,556 $34,977 Adjusted effective tax rate 37.9% 32.6% 41.2% (1)In connection with the successful completion of our initial public offering we performed a 2.29-for-1 stock split of our common stock effectiveimmediately prior to the completion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders ona pro-rata basis resulting in an effective stock split of 2.26-for-1. As a result, the earnings per common share and weighted average common sharesoutstanding used in computing earnings per share have been retroactively adjusted to reflect the effective stock split.We believe our reporting of adjusted net income and adjusted earnings per common share assists investors in evaluating our operating performance. We alsobelieve adjusted net income and adjusted earnings per common share give investors a presentation of our operating performance in prior periods that moreaccurately reflects how we will be reporting our operating performance in future periods. However, adjusted net income and adjusted earnings per commonshare are not measures of financial performance calculated in accordance with GAAP and such measures should be considered in addition to, but not as asubstitute for, other measures of our financial performance reported in accordance with GAAP, such as net income and earnings per common share.Write-off of Initial Public Offering CostsIn December 2008, we wrote off $1.9 million of legal, audit, tax and other professional fees that were previously capitalized in anticipation of an initial publicoffering in 2008. As of December 31, 2009, we capitalized $1.7 million. During 2010, we capitalized an additional $2.1 million of legal, audit, tax and otherprofessional fees in anticipation of our initial public offering. Upon successful completion of our initial public offering in December 2010, all capitalizedamounts were subsequently offset by the net proceeds from the offering of $3.4 million and a reimbursement of $0.6 million from the underwriters of theinitial public offering for our out of pocket costs. 64Table of ContentsPublic Company ExpenseAs a public company we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the other rules and regulations ofthe SEC, as well as the requirements of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2011. These rules and regulations have increased ourlegal, accounting, auditing and other financial compliance costs. As such, we expect to incur significant expenditures in the near term to expand our systemsand hire and train personnel to assist us in complying with these requirements.General Market and Economic ConditionsIn the past three years, the global market and general economic conditions have experienced volatility marked by a significant recession and declining equitymarkets. In the United States, market and economic conditions remain challenged. U.S. equity markets have more recently somewhat recovered, butchallenging conditions in the credit markets remain and there is continued general uncertainty. In addition, over the past three years, U.S. economic activitywas negatively impacted by declines in consumer spending, business investment and the downturn in the commercial and residential real estate markets. InEurope and Asia, market and economic conditions were also challenged by adverse economic developments. We believe that these conditions, together withdeterioration in the overall economy and increased unemployment rates, impacted overall retail consumer spending, including the discretionary funds andtrading patterns of our customer base. We also believe that forex trading prices and volumes have been impacted by the volatility created across the globalmarkets. In the year ended December 31, 2010, we experienced periods of low and high volatility in reaction to various market conditions. For example, therecent fiscal crisis in Greece and other European Union nations resulted in elevated forex volatility levels across multiple markets, fluctuating prices and anincrease in our customer trading activity during the year ended December 31, 2010. We are unable to predict the degree and duration of the impact of thecurrent global market and general economic conditions on currency prices and on our business. 65Table of ContentsResults of OperationsYear End ResultsThe following table sets forth our Results of Operations for the three years ended December 31, 2010 (dollars in thousands): Increase/(Decrease) Year EndedDecember 31,2010 % ofNetRevenue Year EndedDecember 31,2009 % ofNetRevenue Year EndedDecember 31,2008 % of NetRevenue 2010Over2009 2009Over2008 (dollars in thousands) REVENUE: Trading revenue $187,356 99.1% $153,375 100.0% $186,004 98.9% 22.2% (17.5)% Other revenue 3,417 1.8% 2,108 1.4% 2,366 1.3% 62.1% (10.9)% Total non-interest revenue 190,773 100.9% 155,483 101.4% 188,370 100.1% 22.7% (17.5)% Interest revenue 364 0.2% 292 0.2% 3,635 1.9% 24.7% (92.0)% Interest expense (2,039) (1.1)% (2,456) (1.6)% (3,905) (2.1)% (17)% (37.1)% Total net interest revenue / (expense) (1,675) (0.9)% (2,164) (1.4)% (270) (0.1)% (22.5)% 701.5% Net revenue 189,098 100% 153,319 100.0% 188,100 100.0% 23.3% 18.5% EXPENSES: Employee compensation and benefits 45,439 24.0% 41,503 27.1% 37,024 19.7% 9.5% 12.12% Selling and marketing 38,395 20.3% 36,875 24.1% 29,312 15.6% 4.1% 25.8% Trading expenses and commissions 25,658 13.6% 14,955 9.8% 16,310 8.7% 71.6% (8.3)% Bank fees 4,239 2.2% 4,466 2.9% 3,754 2.0% (5.1)% 19.0% Depreciation and amortization 4,647 2.5% 2,689 1.8% 2,496 1.3% 72.8% 7.7% Communications and data processing 2,951 1.6% 2,676 1.7% 2,467 1.3% 10.3% 8.5% Occupancy and equipment 4,038 2.1% 3,548 2.3% 2,419 1.3% 13.8% 46.7% Bad debt provision 597 0.3% 760 0.5% 1,418 0.8% (21.4)% (46.4)% Professional fees 3,910 2.1% 3,729 2.4% 3,104 1.7% 4.9% 20.1% Software expense 1,845 1.0% 1,132 0.7% 888 0.5% 63.0% 27.5% Professional dues and memberships 275 0.1% 698 0.5% 773 0.4% (60.6%) (9.7)% Write-off of deferred initial public offeringcosts — 0.0% — 0.0% 1,897 1.0% 0.0 (100.0)% Change in fair value of convertible preferredstock embedded derivative (4,691) (2.5)% (1,687) (1.1)% (181,782) (96.6)% 178.1% (99.1)% Other 4,343 2.3% 1,746 1.1% 1,424 0.8% 148.8% 22.6% Total $131,646 69.6% $113,090 73.8% $(78,496) (41.7)% 16.4% (244.1)% INCOME BEFORE INCOME TAX EXPENSEAND EQUITY IN EARNINGS OF EQUITYMETHOD INVESTMENT $57,452 30.4% $40,229 26.2% $266,596 141.7% 42.8% (84.9)% Income tax expense 20,009 10.6% 12,556 8.2% 34,977 18.6% 59.4% (64.1)% Equity in earnings of equity method investment — 0.0% — 0.0% (214) (0.1)% 0.0% (100.0)% NET INCOME 37,443 19.8% 27,673 18.0% 231,405 123.0% 35.3% (88.0)% Net loss applicable to noncontrolling interest (402) (0.2)% (321) (0.2)% (21) 0.0% 25.2% 1,428.6% Net income applicable to GAIN Capital Holdings,Inc. $37,845 20.0% $27,994 18.3% $231,426 123.0% 35.2% (87.9)% 66Table of ContentsYear Ended December 31, 2010 Compared to Year Ended December 31, 2009RevenueOur total net revenue increased $35.8 million, or 23.3%, to $189.1 million for the year ended December 31, 2010, compared to $153.3 million for the yearended December 31, 2009. Trading revenue increased $34.0 million to $187.4 million for the year ended December 31, 2010, compared to $153.4 million forthe year ended December 31, 2009. The increase in trading revenue was primarily due to an increase in customer trading volume for the year endedDecember 31, 2010 of $317.4 billion, or 25.5%, to $1.6 trillion, compared to $1,246.7 billion for the year ended December 31, 2009.Retail trading revenue per million traded increased by $18.5, or 15.0%, to $141.5 compared to $123.0 for the year ended December 31, 2009 and net depositsreceived from retail customers increased for the year ended December 31, 2010 by $10.7 million, or 4.2%, to $267.8 million compared to $257.1 million forthe year ended December 31, 2009.Our other revenue increased $1.3 million to $3.4 million for the year ended December 31, 2010 from $2.1 million for the year ended December 31, 2009,primarily due to the increase in revenue generated from GAIN GTX, our institutional trading platform, which we launched in March 2010.Our net interest expense decreased $0.5 million to $1.7 million for the year ended December 31, 2010 compared to $2.2 million for the year endedDecember 31, 2009 primarily due to a lower average outstanding term loan balance and decrease in the interest rate on our term loan during the second half ofthe year.Operating ExpensesOur total expenses increased $18.5 million to a net expense of $131.6 million for the year ended December 31, 2010, including a gain of $4.7 million relatingto the change in fair value of our preferred stock embedded derivative, compared to $113.1 million for the year ended December 31, 2009. Other changes inour expenses were primarily due to a $10.7 million increase in trading expenses and commissions, a $3.9 million increase in employee compensation andbenefits, a $2.6 million increase in other expenses, a $1.9 million increase in depreciation and amortization, a $1.5 million increase in selling and marketing,a $0.7 million increase in software expense and a $0.5 million increase in occupancy and equipment offset by a $3.0 million increase in the fair value of thepreferred stock embedded derivative and a decrease in professional dues and memberships of $0.4 million.Employee Compensation and BenefitsEmployee compensation and benefits expenses increased $3.9 million, or 9.4%, to $45.4 million for the year ended December 31, 2010, from $41.5 millionfor the year ended December 31, 2009. Salaries and benefits (excluding bonus and stock compensation) increased $1.8 million primarily due to an increase inheadcount in our international locations to support our international expansion during 2010. Bonus expense increased $2.2 million primarily due to theincrease in operating results of our business for the year ended December 31, 2010 as compared to December 31, 2009.Selling and Marketing ExpenseSelling and marketing expenses increased $1.5 million, or 4.1%, to $38.4 million for the year ended December 31, 2010 from $36.9 million for the year endedDecember 31, 2009. Increased sales and marketing expenses were primarily due to increased advertising and promotional fees and credits. 67Table of ContentsTrading Expense and CommissionsTrading expenses and commissions increased $10.7 million to $25.7 million for the year ended December 31, 2010 compared to $15.0 million for the yearended December 31, 2009, primarily due to an increase in introducing broker commissions. The increase in introducing broker commissions is due to anincrease in customer trading volume directed to us from our white label partners and introducing brokers of $131.1 billion to $562.5 billion for the yearended December 31, 2010, compared to $431.4 billion for the year ended December 31, 2009. This expense is largely variable and is directly associated withcustomer trading volume directed to us from our white label partners and introducing brokers.Other ExpensesOther expense increased $2.6 million to $4.3 million for the year ended December 31, 2010 compared to $1.7 million for the year ended December 31, 2009,primarily due to an increase in fines and penalties, and litigation expense of $1.1 million and $0.5 million respectively, offset by a decrease in a loss ondisposal of property and equipment of $0.3 million. The increase in fines and penalties and litigation expense was due to the legal costs incurred and the finepaid in connection with settlement of an NFA complaint in 2010.Depreciation and amortization expense increased $1.9 million to $4.6 million for the year ended December 31, 2010 from $2.7 million for the year endedDecember 31, 2009. This increase was primarily due to amortization of $1.2 million for intangible assets purchased during the year.Occupancy and equipment increased $0.5 million to $4.0 million for the year ended December 31, 2010 from $3.5 million for the year ended December 31,2009. The increase was primarily due to an increase in rent and facilities expense of $0.6 million which resulted from our move to our new corporateheadquarters and our international expansion during 2010.Professional fee expense increased $0.2 million to $3.9 million for the year ended December 31, 2010 compared to $3.7 million for the year endedDecember 31, 2009 primarily due to a $0.1 million increase in consulting fees, $0.3 million in temporary labor and $0.2 million in legal expense, offset by adecrease in audit expenses of $0.3 million. These increased expenses were required to support the overall growth of our business.Communications and data processing expenses increased $0.3 million. This increase was required to support the overall growth of our business.The change in fair value of the preferred stock embedded derivative resulted in a gain of $4.7 million for the year ended December 31, 2010 compared to a gainof $1.7 million for the year ended December 31, 2009. The increase was due to the decrease in the preferred stock embedded derivative from December 31,2009. In connection with our initial public offering, all of our previously outstanding preferred stock converted to common stock and we settled our preferredstock embedded derivative liability.Income TaxesIncome taxes increased $7.4 million to $20.0 million for the year ended December 31, 2010 from $12.6 million for the year ended December 31, 2009. Oureffective tax rate was 34.8% for year ended December 31, 2010 and 31.2% for the year ended December 31, 2009. Our adjusted effective tax rate was 37.9% forthe year ended December 31, 2010 compared to 32.6% for the year ended December 31, 2009. Adjusted effective tax rate, a non-GAAP financial measure, hascertain limitations as it does not have a standardized meaning and, thus, our definition may be different from similar non-GAAP financial measures used byother companies and/or analysts and may differ from period to period. Thus, it may be more difficult to compare our financial performance to that of othercompanies. The difference between our effective tax rate and adjusted effective tax rate is due to the fact that our income tax expense is not affected by thechange in fair value of our preferred stock embedded derivative. 68Table of ContentsYear Ended December 31, 2009 Compared to Year Ended December 31, 2008RevenueOur total net revenue decreased $34.8 million, or 18.5%, to $153.3 million for the year ended December 31, 2009, compared to $188.1 million for the yearended December 31, 2008. Trading revenue decreased $32.6 million to $153.4 million for the year ended December 31, 2009, compared to $186.0 million forthe year ended December 31, 2008. The decrease in trading revenue was primarily due to a decrease in customer trading volume for the year endedDecember 31, 2009 of $251.9 billion, or 16.8%, to $1,246.7 billion, compared to $1,498.6 billion for the year ended December 31, 2008. We believe our netrevenue and trading revenue declines were primarily the result of our termination of our service offerings and trading services in China as of December 31,2008 and global economic conditions. For the year ended December 31, 2009 net revenue associated with customers residing in China was immaterialcompared to $24.4 million for the year ended December 31, 2008.Retail trading revenue per million traded decreased by $1.1, or 0.9%, to $123.0 and net deposits received from customers decreased for the year endedDecember 31, 2009 by $20.2 million, or 7.3%, to $257.1 million compared to $277.3 million for the year ended December 31, 2008. We do not believe thatour retail trading revenue per million traded results were materially impacted by our termination of our business with customers residing in China.Our other revenue decreased $0.3 million to $2.1 million for the year ended December 31, 2009 from $2.4 million for the year ended December 31, 2008.Our net interest expense increased $1.9 million to $2.2 million for the year ended December 31, 2009 compared to $0.3 million for the year endedDecember 31, 2008 due to a decrease in the average effective interest rate earned on our deposits and investments which was 0.1% for the year endedDecember 31, 2009 compared to 1.5% for the year ended December 31, 2008.Operating ExpensesOur total expenses increased $191.6 million to a net expense of $113.1 million for the year ended December 31, 2009, including a gain of $1.7 millionrelating to the change in fair value of our preferred stock embedded derivative, compared to a net gain of $78.5 million, including a net gain of $181.8 millionrelating to the change in fair value of our preferred stock embedded derivative, for the year ended December 31, 2008. Other changes in our expenses wereprimarily due to a $4.5 million increase in employee compensation and benefits, a $7.6 million increase in selling and marketing, a $1.1 million increase inoccupancy and equipment offset by a $1.9 million decrease in write-off of deferred public offering costs, and a $1.3 million decrease in trading expenses. Theremaining increase of $0.6 million was due to changes in each of our remaining expense categories with no individual category increasing or decreasing morethan $0.7 million. For the year ended December 31, 2009, there were no material direct expenses associated with our operations in China compared to$5.9 million for the year ended December 31, 2008.Employee Compensation and BenefitsEmployee compensation and benefits expenses increased $4.5 million, or 12.2%, to $41.5 million for the year ended December 31, 2009, from $37.0 millionfor the year ended December 31, 2008. Salaries and benefits (excluding bonus and stock compensation) increased $5.6 million primarily due to increases inhead count from 319 at December 31, 2008 to 378 at December 31, 2009. The increase in the head count was required to support the overall growth in ourbusiness and continued international expansion. Stock compensation expense increased $1.1 million due to grants distributed in 2009. Bonus expensedecreased $2.3 million primarily due to the decrease in operating results of our business for the year ended December 31, 2009 as compared to December 31, 69Table of Contents2008. For the year ended December 31, 2009, there were no material direct employee compensation and benefits expenses associated with our operations inChina compared to $1.4 million for the year ended December 31, 2008.Selling and Marketing ExpenseSelling and marketing expenses increased $7.6 million, or 26.0%, to $36.9 million for the year ended December 31, 2009 from $29.3 million for the yearended December 31, 2008. Increased sales and marketing expenses were primarily due to increased online, search engine, consulting, print and televisionadvertising. For the year ended December 31, 2009, there were no direct selling and marketing expenses associated with our operations in China compared to$3.1 million for the year ended December 31, 2008.Trading Expense and CommissionsTrading expenses and commissions decreased $1.3 million, or 7.8%, to $15.0 million for the year ended December 31, 2009 compared to $16.3 million forthe year ended December 31, 2008, primarily due to an decrease in customer trading volume directed to us from our white label partners and introducingbrokers of $58.0 billion to $431.4 billion for the year ended December 31, 2009, compared to $489.4 billion for the year ended December 31, 2008. Thisexpense is largely variable and is directly associated with customer trading volume directed to us from our white label partners and introducing brokers. Forthe year ended December 31, 2009, there were no direct trading expenses and commissions from our operations in China compared to $0.7 million for the yearended December 31, 2008.Other ExpensesOther expense increased $0.3 million to $1.7 million for the year ended December 31, 2009 compared to $1.4 million for the year ended December 31, 2008,primarily due to an increase on the loss on disposal of property and equipment of $0.3 million, an increase in litigation expenses of $0.2 million, and anincrease in office supplies expense of $0.1 million. These increases were offset by a decrease in travel expenses of $0.3 million. These increased expenses wererequired to support the overall growth of our business.Professional fee expense increased $0.6 million to $3.7 million for the year ended December 31, 2009 compared to $3.1 million for the year endedDecember 31, 2008 due to a $0.3 million increase in professional fees, $0.3 million in tax services, $0.9 million increase in consulting expense and$0.2 million increase in audit fees, offset by a decrease in legal expenses of $1.1 million. These increased expenses were required to support the overall growthof our business.Bank fees increased $0.7 million to $4.5 million for the year ended December 31, 2009 from $3.8 million for the year ended December 31, 2008. Increasedbank fees were primarily due to an increase in credit card processing fees as a result of an increase of $30.1 million in the total net deposits received fromcustomers funded through the use of customer credit cards.Communications and data processing expenses increased $0.2 million, occupancy and equipment expenses increased $1.1 million, and depreciation andamortization expense increased $0.2 million. These increased expenses were required to support the overall growth of our business.The change in fair value of the preferred stock embedded derivative amounted to a gain of $1.7 million for the year ended December 31, 2009 compared to again of $181.8 million for the year ended December 31, 2008. We have determined that the convertible feature in our preferred stock meets the definition of an“embedded derivative” in accordance with ASC 815. Based on the Black-Scholes options pricing model, the embedded derivative is recorded at fair value andreported in the preferred stock embedded derivative liability on the Consolidated Statements of Financial Condition with change in fair value recorded to ourConsolidated Statements of Operations and Comprehensive Income. 70Table of ContentsIncome TaxesIncome taxes decreased $22.4 million to $12.6 million for the year ended December 31, 2009 from $35.0 million for the year ended December 31, 2008. Oureffective tax rate was 31.2% for year ended December 31, 2009 and 13.1% for the year ended December 31, 2008. Our adjusted effective tax rate was 32.6%for the year ended December 31, 2009 compared to 41.2% for the year ended December 31, 2008. This non-GAAP financial measure has certain limitations inthat it does not have a standardized meaning and, thus, our definition may be different from similar non-GAAP financial measures used by other companiesand/or analysts and may differ from period to period. Thus, it may be more difficult to compare our financial performance to that of other companies. For theyear ended December 31, 2009, there was no income tax expense related to our operations in China compared to $7.5 million for the year ended December 31,2008. The difference between our effective tax rate and adjusted effective tax rate is due to the fact that our income tax expense is not affected by the change infair value of our preferred stock embedded derivative.Liquidity and Capital ResourcesWe have historically financed our liquidity and capital needs primarily through the use of funds generated from operations, the issuance of preferred stockand access to secured lines of credit for general corporate purposes. We plan to finance our future operating liquidity and regulatory capital needs from ouroperations. Although we have no current plans to do so, we may issue equity or debt securities or enter into secured lines of credit from time to time. We expectthat our capital expenditures for the next 12 months will be consistent with our historical annual spend.We primarily hold and invest our cash at various financial institutions and in various investments, including cash held at banks, deposits at our wholesaleforex trading partners and money market funds which invest in short-term U.S. government securities. In general, we believe all of our investments anddeposits are of high credit quality and we have more than adequate liquidity to conduct our businesses.As a holding company, nearly all of our funds generated from operations are generated by our operating subsidiaries. Historically, we have accessed thesefunds through receipt of dividends from these subsidiaries. Some of our operating subsidiaries are subject to requirements of various regulatory bodies,including the CFTC and NFA in the United States, the Financial Services Authority in the United Kingdom, the Financial Services Agency in Japan, theSecurities and Futures Commission in Hong Kong, the Australian Securities and Investments Commission, and the Cayman Islands Monetary Authority inthe Cayman Islands, relating to liquidity and capital standards, which limit funds available for the payment of dividends to the holding company. As a result,we may be unable to access funds which are generated by our operating subsidiaries when we need them. In accordance with CFTC regulation 1.12 and NFAFinancial Requirements Section 1, a 20.0% decrease in GAIN Capital Group, LLC’s net capital and a 30.0% decrease in excess net capital due to a plannedequity withdrawal requires regulatory notification and/or approval. 71Table of ContentsThe following table illustrates the minimum regulatory capital our subsidiaries were required to maintain as of December 31, 2010 and the actual amounts ofcapital that were maintained (amounts in millions): Entity Name Minimum RegulatoryCapital Requirements Capital LevelsMaintained Excess NetCapital GAIN Capital Group, LLC $26.40 $76.30 $49.88 GAIN Capital Securities, Inc. $0.05 $0.52 $0.47 GAIN Capital-Forex.com U.K., Ltd. $2.67 $22.83 $20.16 Forex.com Japan Co., Ltd. $3.97 $11.18 $7.21 GAIN Capital Forex.com Australia, Pty. Ltd. $0.22 $0.30 $0.09 GAIN Capital-Forex.com Hong Kong, Ltd. $0.39 $0.98 $0.59 GAIN Global Markets, Inc. $0.10 $0.44 $0.35 Our futures commission merchant and forex dealer subsidiary, GAIN Capital Group, LLC, is subject to the Commodity Futures Trading Commission NetCapital Rule (Rule 1.17) and NFA Financial Requirements Sections 11 and 12. Under applicable provisions of these rules, GAIN Capital Group, LLC isrequired to maintain adjusted net capital of $20.0 million plus 5.0% of the total payables to customers over $10.0 million, as these terms are defined underapplicable rules. Net capital represents our current assets less total liabilities as defined by CFTC Rule 1.17. Our current assets consist primarily of cash andcash equivalents reported on our balance sheet as cash, receivables from brokers and trading securities which primarily invest in short-term U.S. governmentsecurities. Our total liabilities include payables to customers, accrued expenses, accounts payable, sales and marketing expense payable, introducing brokerfees payable and other liabilities. From net capital we take certain percentage deductions against assets held based on factors required by the CommodityExchange Act to calculate adjusted net capital. Our net capital and adjusted net capital changes from day to day. As of December 31, 2010, GAIN CapitalGroup, LLC had net capital of approximately $80.4 million, adjusted net capital of $76.3 million and net capital requirements of $26.4 million. As ofDecember 31, 2010, our excess net capital was $78.7 million. We believe that we currently have sufficient capital to satisfy these on-going minimum netcapital requirements.We are required to maintain cash on deposit with our wholesale forex trading partners in order to conduct our hedging activities. As of December 31, 2010, weposted $102.0 million in cash with wholesale forex trading partners, of which $26.6 million was required as collateral pursuant to our agreements for holdingspot foreign exchange positions with such institutions, and the remaining $75.4 million represented available cash in excess of required collateral. As ofDecember 31, 2010, total client assets were $256.7 million. Total client assets represent amounts due to clients, including deposits and unrealized gains orlosses arising from open positions.We expect to incur increased costs as a result of having publicly traded common stock. Prior to our initial public offering in December 2010, we were notsubject to the reporting requirements of the Exchange Act, or the other rules and regulations of the SEC or any securities exchange relating to public companies.We are working to enhance our financial and management control systems, including our corporate control, internal audit, disclosure controls and proceduresand financial reporting and accounting systems, to manage our growth as a public company. We also anticipate that we will incur costs associated withcorporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, as well as rules implemented by the SEC andthe New York Stock Exchange, or NYSE. We anticipate annual legal and financial compliance expenditures of approximately $3.0 million in connection withour having publicly traded common stock. We believe that we currently have sufficient capital to satisfy these additional expenses for at least the next 12months. 72Table of ContentsCredit FacilityWe have a $52.5 million term loan and a $20.0 million revolving line of credit through a loan and security agreement with Silicon Valley Bank and JPMorganChase Bank. On June 16, 2010, we entered into a sixth loan modification agreement related to the term loan. The loan modification reduced the prime ratemargin on the term loan from 0.75% to 0.5% and reduced the prime rate margin on the revolving credit line from 0.75% to 0% and amended the revolving linematurity date from June 17, 2010 to June 16, 2011. On March 29, 2011, we entered into a seventh loan modification agreement related to the term loan. Theloan modification extended the time allowed for us to provide monthly consolidated and consolidating balance sheet and income statement information, as wellas a certificate confirming compliance with the financial covenants under the term loan during the month, to 45 days after month end, rather than 30 daysafter month end. In addition, the loan modification changed the debt service coverage financial covenant to provide that we are required to comply with suchcovenant at the end of each fiscal quarter based on our EBITDA for the twelve-month period as of the last day of each quarter. Previously, we were required tocomply with this covenant based on our EBITDA for the relevant fiscal quarter. The loan modification also changed the required debt service coverage ratio toa minimum of 3.0 to 1.0 from 2.0 to 1.0.There was no amount due on the revolving credit line at December 31, 2010. The term loan is payable in 20 quarterly installments of principal and thepayments commenced on October 1, 2007. Interest is paid monthly and is based upon the prime rate of interest plus 0.5%. Under the terms of the term loan,when the total funded debt drops below earnings before income tax expense, interest expense, and depreciation and amortization expense, or EBITDA, theinterest rate will decline by 0.5%. The interest rate as of December 31, 2010 was 3.75%. The term loan is secured by certain of our assets, a pledge of ourmembership interests in our wholly-owned subsidiary GAIN Holdings, LLC and a guarantee by GAIN Holdings, LLC. The term loan maturity date isJuly 1, 2012. Interest for the revolving line of credit accrues at a floating per annum rate equal to the prime rate of interest plus 0.5%. The amount ofavailability under the revolving line of credit is determined by subtracting from $20.0 million the amount outstanding under the revolving line of credit. Therevolving line of credit maturity date is June 16, 2011. We intend to renew the revolving line of credit upon maturity. As of December 31, 2010, we had$18.4 million outstanding under the term loan and no amounts were outstanding under the revolving line of credit. In accordance with the provisions of ourterm loan and revolving line of credit as outlined in the loan and security agreement and subsequent modifications, we are required to adhere to variousfinancial, regulatory, operational and reporting covenants. As of December 31, 2010 and during the entire term of such loan, we were in compliance with suchcovenants.Cash FlowThe following table sets forth a summary of our cash flow for the three years ended December 31, 2010, amounts in thousands: Year Ended December 31, 2010 2009 2008 Cash provided by operating activities $89,304 $62,127 $69,320 Cash used for investing activities (12,421) (5,003) (3,792) Cash provided by / (used for) financing activities (8,880) (11,788) 12,062 Effect of exchange rate changes on cash and cash equivalents (6,317) 757 (53) Net increase in cash and cash equivalents $61,686 $46,093 $77,537 The primary drivers of our cash flow provided by operating activities are net deposits received from customers, amounts posted as collateral with wholesaleforex trading partners and amounts paid to fund the operations of our business.Net deposits received from retail customers represent customer deposits less withdrawals for a given period. These amounts correlate to our customers’ abilityto place additional trades, which potentially increases our 73Table of Contentstrading volume, and include the impact of realized gains and losses on customer accounts. Net deposits received from retail customers increase when wereceive initial deposits from new retail customers or additional deposits from existing retail customers. Net deposits received from retail customers decreasewhen a retail customer withdraws funds partially or in full. To some extent our net deposit activity is influenced by our customers’ trading positions as ourcustomers may be required to post additional funds to maintain open positions or may choose to withdraw excess funds on open positions. We consider netdeposits received from retail customers to be a key measurement of the success of the strategies that we implement to grow our business.Amounts posted as collateral with brokers are classified on our balance sheet as receivables from brokers and represent collateral required to be deposited withour wholesale forex trading partners in order for us to hold spot foreign exchange positions, as well as the and cash posted with wholesale forex tradingpartners in excess of required collateral. We post cash with wholesale forex trading partners in excess of required collateral to allow for adverse currency pricemoves relative to our positions, which would raise our level of required collateral. We receive interest on amounts we have posted as collateral with wholesaleforex trading partners. The amount of collateral required by our wholesale forex trading partners in the future will be commensurate with the amount of spotforeign exchange positions that they hold on our behalf. The amount of cash posted with wholesale forex trading partners in excess of required collateral isdiscretionary and may increase or decrease in future periods as we determine the most efficient uses of our cash.Our largest operating expenses are employee compensation and benefits, selling and marketing, trading expenses and commissions and income taxes.Employee compensation and benefits include salaries, bonuses and other employee related costs. Selling and marketing expenses include online and searchengine advertising and print and television advertising. Trading expenses and commissions consist primarily of compensation paid to our white label partnersand introducing brokers. Income taxes are variable based on our taxable income. Other cash expense categories include interest expense on notes payable, bankfees, communications and data processing, occupancy and equipment, professional fees and other miscellaneous expenses. We believe our operating expenseswill increase in future periods in order to support the overall growth of our business and to support the requirements associated with being a publicly tradedcompany.Unrealized gains and losses on cash positions revalued at prevailing foreign currency exchange rates are included in trading revenue but have no direct impacton cash flow from operations. Gains and losses become realized and impact cash flow from operations when customer transactions are liquidated. To someextent, however, our net deposit activity is influenced by unrealized gains and losses because our customers’ trading positions are impacted by unrealizedgains and losses and our customers may be required to post additional funds to maintain open positions or may choose to withdraw excess funds on openpositions.In December 2008, we terminated our service offerings and trading services to residents of China. Management estimates that cash flow from operations relatedto our service offerings and trading services to residents of China was $6.0 million for the year ended December 31, 2008.The embedded derivative is recorded at fair value and changes in the fair value are reflected in other expenses, but the change in fair value of preferred stockembedded derivative has no direct impact on cash flow from operations. The redemption feature enabled the holders of the preferred stock to elect a net cashsettlement on the date of redemption. The convertible, redeemable preferred stock embedded derivative was settled in shares of common stock upon thesuccessful completion of our initial public offering in December 2010, resulting in a gain of $4.7 million recognized for the year ended December 31, 2010.The conversion into common stock and the gain of $4.7 million had no impact on cash flow from operations.Year Ended December 31, 2010 Compared to Year Ended December 31, 2009Cash provided by operating activities was $89.3 million for the year ended December 31, 2010, compared to $62.1 million for the year ended December 31,2009. The primary reasons for the increase in cash provided by 74Table of Contentsoperating activities were an increase in net income $9.8 million, a $17.5 million increase in payables to customers, a $13.1 million increase in income taxespayable, an $8.5 million increase in short term investments, a $5.0 million increase in trading securities and increases of $2.3 million, $2.2 million, and$2.0 million in accrued compensation and benefits, payables to brokers, dealers, FCMs and other regulated entities and depreciation and amortization,respectively. These increases were offset by an increase in unrealized loss on foreign exchange transactions with liquidity providers of $28.4 million, anincrease in prepaid assets of $7.5 million and an increase in the change in fair value of embedded derivative of $3.0 million.Cash used in investing activities was $12.4 million for the year ended December 31, 2010, compared to $5.0 million for the year ended December 31, 2009.The increase in cash used in investing activities was primarily due to the acquisition of customer and marketing lists from MG Financial, LLC and CapitalMarket Services, LLC.Cash used for financing activities was $8.9 million for the year ended December 31, 2010, compared to cash used for financing activities of $11.8 million forthe year ended December 31, 2009. The decrease in cash used was primarily due to the increase in deferred initial public offering costs of $3.0 million,proceeds from the initial public offering, net of underwriting discounts and other direct costs of $0.2 million, and an increase in the proceeds from the exerciseof stock options of $0.1 million, offset by the purchase of the remaining noncontrolling interest in Forex.com Japan Ltd for $0.4 million.Capital ExpendituresCapital expenditures were $3.9 million for the year ended December 31, 2010 compared to $4.1 million for the year ended December 31, 2009. Capitalexpenditures for the years ended December 31, 2010 and 2009 were primarily related to the development of our trading platforms, websites and new corporateheadquarters, which included furniture and technology infrastructure to support our facility.Year Ended December 31, 2009 Compared to Year Ended December 31, 2008Cash provided by operating activities was $62.1 million for the year ended December 31, 2009, compared to $69.3 million for the year ended December 31,2008. Net income decreased $203.7 million for the year ended December 31, 2009 compared to the year ended December 31, 2008 primarily due to a$180.1 million decrease of the change in fair value of preferred stock embedded derivative. The primary reasons for the decrease in cash provided by operatingactivities was a $48.7 million decrease in receivables from brokers, a $16.8 million decrease in net taxes receivable and payable, offset by a $67.8 millionincrease in amounts payable to customers, a $20.6 million net increase in investments, a $9.5 million increase in unrealized forex losses and a $1.1 millionincrease in stock compensation expense.Cash used in investing activities was $5.0 million for the year ended December 31, 2009, compared to $3.8 million for the year ended December 31, 2008.The increase in cash used in investing activities is primarily due to the acquisition of an additional 19% ownership interest in Fortune Capital Co., Ltd. (nowknown as Forex.com Japan Co., Ltd.) for $0.9 million and an increase in capital expenditures of $1.4 million.Cash used for financing activities was $11.8 million for the year ended December 31, 2009, compared to cash provided by financing activities of$12.1 million for the year ended December 31, 2008. The increase in cash used was primarily due to the net proceeds of $116.8 million in 2008 from ourSeries E preferred stock offering, offset by $94.2 million related to repurchase of common and preferred shares in 2008, with no comparable transactions in2009.Capital ExpendituresCapital expenditures were $4.1 million for the year ended December 31, 2009 compared to $2.7 million for the year ended December 31, 2008. Capitalexpenditures for the years ended December 31, 2009 and 2008 were primarily related to the development of our trading platforms, websites, and new corporateheadquarters (in 2009), which included furniture and technology infrastructure to support our facility. 75Table of ContentsOff-Balance-Sheet ArrangementsAt December 31, 2010, 2009 and 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referredto as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes.Contractual ObligationsThe following table sets forth our contractual obligations as of December 31, 2010 (amounts in thousands): Total Less than1 Year 1-3Years 3-5Years More than5 Years Long-term Debt $18,375 $10,500 $7,875 $— $— Capital Leases 330 330 — — — Vendor Obligations 7,846 5,412 2,432 2 — Operating Leases 18,690 1,884 2,531 2,338 11,937 Total $45,241 $18,126 $12,838 $2,440 $11,937 Critical Accounting PoliciesOur consolidated financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparationof these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Weevaluate these estimates and assumptions on an ongoing basis. We base our estimates on the information currently available to us and on various otherassumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions orconditions.An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain atthe time the estimate is made; if different estimates reasonably could have been used; or if changes in the estimate that are reasonably likely to occurperiodically could materially impact the financial statements. While our significant accounting policies are described in more detail in the notes to ourconsolidated financial statements included in this annual report, we believe the following accounting policies to be critical to the estimates and assumptionsused in the preparation of our consolidated financial statements.Revenue RecognitionForeign exchange contracts generally involve the exchange of two currencies at market rates on a specified date; spot contracts usually require the exchange ofcurrencies to occur within two business days of the contract date. Customer transactions and related revenue and expenses are recorded on a trade-date basis.Gains or losses are realized when customer transactions are liquidated. Unrealized gains or losses on cash positions revalued at prevailing foreign currencyexchange rates (the difference between contract price and market price) at the date of the statement of financial condition are included in Receivables frombrokers, Payables to customers and Payables to brokers, dealers, FCMs and other regulated entities on the Consolidated Statements of Financial Condition.Changes in net unrealized gains or losses are recorded in Trading revenue on the Consolidated Statements of Operations and Comprehensive Income.We earn fees on customer-managed foreign exchange accounts. Fees are comprised of account management, transaction fees and performance fees, all payablemonthly. We reported managed account fees of $117,735 in 76Table of ContentsOther revenue for the year ended December 31, 2010, with $20,430 from GAIN Capital Group, LLC and $97,305 from GCAM, LLC. We reported managedaccount fees of $55,070 in Other revenue for the year ended December 31, 2009, with $11,693 from GAIN Capital Group, LLC and $43,376 from GCAM,LLC. We reported managed account fees of $26,097 in Other revenue for the year ended December 31, 2008, with $8,942 from GAIN Capital Group, LLCand $17,155 from GCAM, LLC.Allowance for Doubtful AccountsWe must make estimates of the uncollectibility of accounts receivable. The allowance for doubtful accounts, which is netted against other assets on ourConsolidated Statements of Financial Condition, totaled approximately $0.1 million at December 31, 2010 and $0.3 million at December 31, 2009. We recordan increase in the allowance for doubtful accounts when the prospect of collecting a specific account balance becomes doubtful. Management specificallyanalyzes accounts receivable and historical bad debt experience when evaluating the adequacy of the allowance for doubtful accounts. Should any of thesefactors change, the estimates made by management will also change, which could affect the level of our future provision for doubtful accounts.Specifically, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional provision for doubtfulaccounts may be required, and such provision may be material.Income TaxesGAIN Capital Holdings, Inc. prepares and files the income taxes due as the consolidated legal entity. We account for income taxes in accordance with FinancialAccounting Standards Board Accounting Standards Codification, or ASC, 740-10, Income Taxes. Income tax expenses are provided using the asset andliability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the consolidated financialstatements and the income tax basis, using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inour Consolidated Statements of Operations and Comprehensive Income in the period of enactment. We routinely evaluate all deferred tax assets to determine thelikelihood of their realization.We use estimates in determining income tax positions under ASC 740-10-25, Income Taxes. Although we believe that our tax estimates are reasonable, theultimate tax determination involves significant judgment and is subject to audit by tax authorities in the ordinary course of business.To the extent we are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materiallyaffected. An unfavorable tax settlement could require use of our cash and result in an increase in our effective income tax rate in the period of resolution.Impairment of Long-Lived AssetsIn accordance with ASC 360-10, Property, Plant and Equipment, we periodically evaluate the carrying value of long-lived assets when events andcircumstances warrant such review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from suchan asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized in the amount by which the carrying value exceeds thefair market value of the long-lived asset.Goodwill and Intangible AssetsASC 350-30, General Intangibles, requires purchased intangible assets other than goodwill to be amortized over their useful lives unless the useful lives aredetermined to be indefinite. If the assets are determined to have a finite life in the future, we will amortize the carrying value over the remaining useful life atthat time. In accordance with ASC 350-30, our URLs (foreignexchange.com and forex.com) are indefinite life intangible 77Table of Contentsassets and are, therefore, not amortized. We compare the recorded value of the indefinite life intangible assets to their fair value on an annual basis andwhenever circumstances arise that indicates that an impairment may have occurred.Accrued CompensationWe make significant estimates in determining our quarterly and annual accrued non-share based compensation. A significant portion of our employee incentivecompensation programs are discretionary. Each quarter and year-end we determine the amount of discretionary cash bonus pools. We also reviewcompensation throughout the year to determine how overall performance compares to management’s expectations. We take these and other factors, includinghistorical performance and our performance relative to budget, into account in reviewing accrued discretionary cash compensation estimates quarterly andadjusting accrual rates as appropriate. Changes to these factors could cause a material increase or decrease in the amount of compensation expense that wereport in a particular period.Fair Value of Derivative LiabilitiesASC 815-10, Derivatives and Hedging Activities, as amended, establishes accounting and reporting standards for derivative instruments. We determined thatthe redemption feature contained in our preferred stock, which allowed the holders of our preferred stock at any time on or after March 31, 2011, upon thewritten request of at least a majority of the outstanding shares of preferred stock voting together as a single class, to require us to redeem all of the shares ofpreferred stock then outstanding, was an embedded derivative required to be bifurcated and accounted for separately. The embedded derivative is recorded atfair value and changes in the fair value are reflected in earnings.The embedded derivative was recorded at fair value and reported in convertible preferred stock embedded derivative on the Consolidated Statements ofFinancial Condition with changes in fair value recorded in our Consolidated Statements of Operations and Comprehensive Income. As a result of thesuccessful completion of our initial public offering, all shares of the redeemable, convertible preferred stock were converted to common stock, and as ofDecember 31, 2010 we were no longer required to record a liability relating to the embedded derivative.Share Based PaymentsASC 718-10, Compensation — Stock Compensation, requires measurement of share based payment arrangements at fair value and recognition ofcompensation cost over the service period, net of estimated forfeitures. The fair value of restricted stock units is determined based on the number of unitsgranted and the grant date fair value of GAIN Capital Holding, Inc.’s common stock.We measure the fair value of stock options on the date of grant using the Black-Scholes option pricing model which requires the use of several estimates,including: • The volatility of our stock price; • The expected life of the option; • Risk free interest rates; and • Expected dividend yield.The use of different assumptions in the Black-Scholes pricing model would result in different amounts of stock-based compensation expense. Furthermore, ifdifferent assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future. 78Table of ContentsThe expected volatility was calculated based upon the volatility of public companies, in similar industries or financial service companies. The average riskfree rate is based upon the five year bond rate converted to a continuously compounded interest rate.Recent Accounting PronouncementsIn December 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU 2010-29, Disclosure ofSupplementary Pro Forma Information for Business Combinations. This new standard impacts the pro forma reporting requirements for publiccompanies that enter into business combinations that are material on an individual or aggregate basis. This new standard is effective for us beginning in thefirst quarter of 2011, however early adoption is permitted. We do not expect the adoption of ASU 2010-29 to have a material impact on our consolidatedfinancial statements.In December 2010, the FASB issued ASU No. 2010-28, Intangibles — Goodwill and Other (ASC 350): When to Perform Step 2 of the GoodwillImpairment Test for Reporting Units with Zero or Negative Carrying Amounts — a consensus of the FASB Emerging Issues Task Force, whichmodifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This amendment requires an entity to perform Step2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists and to consider whether there are any adverse qualitative factorsindicating that an impairment may exist. ASU No. 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15,2010. The adoption of ASU No. 2010-28 did not have a material impact on our consolidated financial statements.In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intendedto enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fairvalue are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented byclass of financing receivable. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring theportfolio’s risk and performance. The adoption of ASU 2010-20 did not have a material impact on our consolidated financial statements.In February 2010, the FASB issued ASU 2010-09, Subsequent Events (“ASU 2010-09”). ASU 2010-09 amends ASC 855, Subsequent Events, byrequiring less disclosure regarding subsequent events. ASU 2010-09 changes the criteria for determining whether an entity would evaluate subsequent eventsthrough the date that financial statements are issued or when they are available to be issued We are still required to evaluate subsequent events through the datethat the financial statements are issued. ASU 2010-09 was effective for our interim period ended June 30, 2010. The adoption of ASU 2010-09 did not have amaterial impact on our consolidated financial statements.In January 2010, the FASB issued ASU, 2010-6, Improving Disclosures About Fair Value Measurements (“ASU 2010-06”). ASU 2010-6 provides newdisclosures and clarifications of existing disclosures and is effective for interim and annual reporting periods beginning after December 15, 2009, except fordisclosures about purchases, sales, issuances, and settlements in the roll-forward activity in Level 3 fair value measurements. Those disclosures are effectivefor fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Therefore, ASU 2010—06 was effective for our fiscalyear beginning January 1, 2010. The adoption of ASU 2010—06 did not have a material impact on our consolidated financial statements.In June 2009, the FASB issued Accounting Standards Codification, or ASC, 810, Consolidation, which changes how a reporting entity determines when anentity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reportingentity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the 79Table of Contentsreporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. Our adoption of ASC810 on January 1, 2010 did not have a material impact on our consolidated financial statements. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKInterest Rate RiskInterest rate risk arises from the possibility that changes in interest rates will impact our financial statements. Our net interest revenue is directly affected bythe spread between the short-term interest rates we pay our customers on their balances and the short-term interest rates we earn from re-investing their cash.These spreads can widen or narrow when interest rates change. In addition, a portion of our interest income relates to customer balances on which we do notpay interest and, therefore, is directly affected by the absolute level of short-term interest rates. As a result, a portion of our interest income will decline ifinterest rates fall, regardless of the interest rate spreads that effect the remaining portion of our interest income. Short-term interest rates are highly sensitive tofactors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. Our cash andcustomer cash held is held in cash and cash equivalents including: cash at banks, deposits at wholesale forex trading partners and in money market fundswhich invest in short-term U.S. government securities. The interest rates earned on these deposits and investments affects our interest revenue. In addition, theinterest we pay on our notes payable is based on the prime rate plus interest of 0.5%. We estimate that as of December 31, 2010, an immediate 100 basis pointincrease in short-term interest rates would result in approximately $3.7 million more in annual pretax income.Foreign Currency ExposuresCurrency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of our assets denominated in foreign currencies aswell as our earnings due to the translation of our balance sheet and income statement from local currencies to United States dollars. We currently have limitedexposure to currency risk and as of December 31, 2010, 82.1% of our assets, 85.1% of our liabilities, 99.2% of our revenue, and 84.5% of our expenses weredenominated in U.S. dollars. We currently do not take proprietary directional positions to mitigate our exposure to foreign currency exchange rates. However,as a result of our hedging activities, we are likely to have open positions in various currencies at any given time. For the year ended December 31, 2010,approximately 98.0% of our average daily trading volume, on any given day, was either naturally hedged, where one of our customers executing a trade in acurrency is offset by a trade taken by another customer, or hedged by us with a third-party financial institution. As we implement our growth strategies, ourexposure to foreign currency exchange rates may increase and we may consider entering into hedging transactions to mitigate our exposure to foreign currencyexchange rates. These hedging transactions may not be successful.Credit RiskOur trading operations require a commitment of our capital and involve risk of loss because of the potential that a customer’s losses may exceed the amount ofcash in their account. As a result, we require that each trade must be collateralized in accordance with our margin policies described below. Each customer isrequired to have minimum funds in their account for opening positions, which we refer to as the initial margin, and for maintaining positions, which we referto as maintenance margin, depending on the currency pair being traded. Margin requirements are expressed as a percentage of the customer’s total position inthat currency, and the customer’s total margin requirement is based on the aggregate margin requirement across all of the positions that a customer holds at anyone moment in time. Each net position in a particular currency pair is margined separately. Accordingly, we do not net across different currency pairs, therebyfollowing a fairly conservative margin policy. Our systems automatically monitor each customer’s margin requirements in real time, and we confirm that eachof our customers has sufficient cash collateral in his or her account before we execute their trades. If at any point in time a customer has “negative equity”because his or her trading position does not 80Table of Contentscomply with the applicable margin requirement, the position may be automatically partially or entirely liquidated in accordance with our margin policies andprocedures. This policy protects both us and the customer. The incidence of negative equity in customer accounts has been immaterial to our operations in thethree years ended December 31, 2010, which we believe was attributable to our real-time margining and liquidation policies and procedures. Our margin andliquidation policies are set forth in our customer agreements.We are also exposed to potential credit risk relating to the counterparties with which we hedge our trades and the financial institutions with which we depositcash. We mitigate these risks by transacting with several of the largest financial institutions in the market. In the event that our access to one or more financialinstitutions becomes limited, our ability to hedge may be impaired.Market Risk-ManagementWe are exposed to market risk in connection with our retail trading activities. Because we act as counterparty to our retail customers’ transactions, we areexposed to risk on each trade that the market price of our position will decline. Accordingly, accurate and efficient management of our net exposure is a highpriority, and as such we have developed both automated and manual policies and procedures to manage our exposure. These risk-management policies andprocedures are established and reviewed regularly by the risk committee of our board of directors. Our risk-management policies require quantitative analysesby currency pair, as well as assessment of a range of market inputs, including trade size, dealing rate, customer margin and market liquidity. Our risk-management procedures require our team of senior traders to monitor risk exposure on a continuous basis and update senior management both informally overthe course of the trading day and formally through intraday and end of day reporting. A key component of our approach to managing market risk is that wedo not take proprietary directional market positions and therefore do not initiate market positions for our own account in anticipation of future movements inthe relative prices of products we offer. To facilitate our risk-management activities, we maintain levels of capital in excess of those currently required underapplicable regulations. As of December 31, 2010, we maintained capital levels of $116.7 million, which represented approximately 3.5 times the capital wewere required to hold.Cash Liquidity RiskIn normal conditions, our market making business of providing online forex trading and related services is self financing as we generate sufficient cash flowsto pay our expenses as they become due. As a result, we generally do not face the risk that we will be unable to raise cash quickly enough to meet our paymentobligations as they arise. Our cash flows, however, are influenced by customer trading volume, currency volatility and liquidity in foreign currencies pairs inwhich we have positions. These factors are directly impacted by domestic and international market and economic conditions that are beyond our control. In aneffort to manage this risk, we have secured a substantial liquidity pool by establishing trading relationships with nine financial institutions. Theserelationships provide us with sufficient access to liquidity to allow us to consistently execute significant trades in varying market conditions at the notionalamounts our customers’ desire by providing us with as much as 50:1 leverage on the notional amounts of our available collateral we have on deposit withsuch financial institutions. We generally maintain collateral on deposit, which includes our funds and our customers’ funds. Collateral on deposit rangedfrom $77.5 million to $100.6 million in the aggregate, for the year ended December 31, 2010.Additionally, we do not actively initiate proprietary positions in anticipation of future movements in the relative prices of currencies, referred to as proprietarydirectional market positions. However, as a result of our hedging activities, we are likely to have open positions in various currencies at any given time.Similarly, we do not take proprietary directional positions with respect to the future movements in the relative prices of CFDs and gold and silver spotmarkets. As a market maker, we stand ready to make simultaneous bids/offers for transactions in any of our 48 currency pairs, six metals or 12 CFD. Forthe year ended December 31, 2010 approximately 98.0% of our average daily trading volume was either naturally hedged, where one of our customers executinga trade in a 81Table of Contentscurrency is offset by a trade taken by another customer, or hedged by us with a third-party financial institution. We treat trade requests from our customers intwo distinct ways, we immediately hedge the trade through the execution of an equal and offsetting trade with our wholesale forex trading partners or we directthe trade into our managed flow portfolio. We believe the combination of our managed flow portfolio and immediately offset trades provides a certain level ofprotection from cash liquidity risk.However, our forex trading operations require a commitment of capital and involve risks of losses due to the potential failure of our customers to perform theirobligations under these transactions which heighten our exposure to cash liquidity risk. To reduce this risk, we have created a margin policy which allowscustomers to leverage their account balances by trading notional amounts that may be significantly larger than their cash balances. We mark our customers’accounts to market each time a currency price in their portfolio changes. While our margin policy allows us to closely monitor each customer’s exposure andthereby reduces our exposure to cash liquidity risk, it does not guarantee our ability to eliminate negative customer account balances prior to an adversecurrency price change.Operational RiskOur operations are subject to broad and various risks resulting from technological interruptions, failures, or capacity constraints in addition to risksinvolving human error or misconduct. Regarding technological risks, we are heavily dependent on the capacity and reliability of the computer andcommunications systems supporting our operations. We have established a program to monitor our computer systems, platforms and related technologies andto address issues that arise promptly. We have also established disaster recovery facilities in strategic locations to ensure that we can continue to operate withlimited interruptions in the event that our primary systems are damaged. As with our technological systems, we have established policies and proceduresdesigned to monitor and prevent both human errors, such as clerical mistakes and incorrectly placed trades, as well as human misconduct, such asunauthorized trading, fraud, and negligence. In addition we seek to mitigate the impact of any operational issues by maintaining insurance coverage forvarious contingencies.Regulatory Capital RiskVarious domestic and foreign government bodies and self-regulatory organizations responsible for overseeing our business activities require that we maintainspecified minimum levels of regulatory capital in our operating subsidiaries. If not properly monitored or adjusted, our regulatory capital levels could fallbelow the required minimum amounts set by our regulators, which could expose us to various sanctions ranging from fines and censure to imposing partial orcomplete restrictions on our ability to conduct business. To mitigate this risk, we continuously evaluate the levels of regulatory capital at each of our operatingsubsidiaries and adjust the amounts of regulatory capital in each operating subsidiary as necessary to ensure compliance with all regulatory capitalrequirements. These may increase or decrease as required by regulatory authorities from time to time. We also maintain excess regulatory capital to provideliquidity during periods of unusual or unforeseen market volatility, and we intend to continue to follow this policy. In addition, we monitor regulatorydevelopment regarding capital requirements and are prepared for increases in the required minimum levels of regulatory capital that may occur from time totime in the future.Regulatory RiskWe operate in a highly regulated industry and are subject to the risk of sanctions from U.S., federal and state, and international authorities if we fail to complyadequately with regulatory requirements. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. Ourauthority to conduct business could be suspended or revoked. In addition, efforts to comply with applicable regulations may increase our costs and, or limitour ability to pursue certain business opportunities. Federal and state regulations significantly limit the types of activities in which we may engage. U.S. andinternational legislative and regulatory authorities occasionally consider changing these regulations. 82Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur consolidated financial statements are included in pages F-1 to F-43 of this annual report on Form 10-K. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. ITEM 9A.CONTROLS AND PROCEDURESEvaluation of disclosure controls and proceduresWe have established and maintained disclosure controls and procedures (as defined in Rules 13a – 15(c) and 15d – 15(e) under the Exchange Act) that aredesigned to ensure that material information relating to GAIN and GAIN subsidiaries required to be disclosed in our reports under the Securities Exchange Actof 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms,and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief FinancialOfficer, or CFO, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving thedesired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controlsand procedures.In connection with the preparation of this Annual Report on Form 10-K, an evaluation under the supervision and with the participation of our management,including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a – 15(e) and15d – 15(e) under the Exchange Act) was performed as of December 31, 2010. Based on this evaluation, our CEO and CFO concluded that our disclosurecontrols and procedures were effective as of December 31, 2010.This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of theCompany’s independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.Changes in internal controlsNo changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscalquarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B.OTHER INFORMATIONOn March 25, 2011, we amended our code of business conduct and ethics, or the Code, to remove a section of the Code concerning the establishment of forextrading accounts with the Company by directors, officers and other employees. The Company’s employee manual also contains provisions addressing thismatter and the Company’s management believes that this subject is more appropriately addressed in the Company’s employee manual and other policies andprocedures, including guidelines established for our directors, rather than in the Code. 83Table of ContentsPART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTInformation required to be included in this item is incorporated by reference from our definitive proxy statement to be filed pursuant to Regulation 14A, whichwe intend to file within 120 days of the end of our fiscal year. ITEM 11.EXECUTIVE COMPENSATIONInformation required to be included in this item is incorporated by reference from our definitive proxy statement to be filed pursuant to Regulation 14A, whichwe intend to file within 120 days of the end of our fiscal year.The Code applies to all of our employees, directors and officers, including our principal executive officer, principal financial officer and principal accountingofficer, or persons performing similar functions. We make the Code available free of charge through our website which is located at www.gaincapital.com. Weintend to disclose any amendments to, or waivers from, the Code that are required to be publicly disclosed pursuant to rules of the SEC and the New YorkStock Exchange in filings with the SEC and by posting such information on our website. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSInformation required to be included in this item is incorporated by reference from our proxy statement to be filed pursuant to Regulation 14A, which we intendto file within 120 days of the end of our fiscal year. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation required to be included in this item is incorporated by reference from our proxy statement to be filed pursuant to Regulation 14A, which we intendto file within 120 days of the end of our fiscal year. ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESInformation to be included in this item is incorporated by reference from our proxy statement to be filed pursuant to Regulation 14A, which we intend to filewithin 120 days of the end of our fiscal year. 84Table of ContentsPART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULESFinancial Statements and Schedules:1. Financial StatementsThe following financial statements and reports of independent registered public accounting firm are included herein: Reports of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Financial Condition as of December 31, 2010 and 2009 F-3 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2010,2009 and 2008 F-4 Consolidated Statements of Shareholders’ Equity / (Deficit) for the Years Ended December 31, 2010, 2009and 2008 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 F-6 Notes to Consolidated Financial Statements F-8 2. Financial Statement SchedulesThe following supplemental schedule is filed herewith: Financial Statement Schedule: Schedule 1 — Condensed Financial Information of GAIN Capital Holdings, Inc. (Parent Company Only)as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31,2010 F-39 Schedules other than those listed above have been omitted because they are not applicable or the required information is included in the financialstatements or notes thereto. 85Table of Contents3. List of Exhibits ExhibitNo. Description 3.1 Third Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement onForm S-1, as amended, No. 333-161632). 3.2 Amended and Restated By-laws (Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1, as amended,No. 333-161632). 4.1 Specimen Certificate evidencing shares of common stock (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement onForm S-1, as amended, No. 333-161632). 4.2 Investor Rights Agreement, dated January 11, 2008, by and among the Company, the Investors and the Founding Stockholder, as definedtherein (Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.1 2010 Omnibus Incentive Compensation Plan (Incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1,as amended, No. 333-161632).**10.2 2011 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1, asamended, No. 333-161632).**10.3 Nonqualified Deferred Compensation Plan.* **10.4 Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1, asamended, No. 333-161632). **10.5 Form of Nonqualified Stock Option Agreement (Incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632). **10.6 Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1, asamended, No. 333-161632). **10.7 Form of Restricted Stock Unit Agreement (Time Vesting) (Incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement onForm S-1, as amended, No. 333-161632).**10.8 Form of Restricted Stock Unit Agreement (Performance Vesting) (Incorporated by reference to Exhibit 10.8 of the Registrant’s RegistrationStatement on Form S-1, as amended, No. 333-161632).**10.9 Form of Indemnification Agreement with the Company’s Non-Employee Directors (Incorporated by reference to Exhibit 10.10 of the Registrant’sRegistration Statement on Form S-1, as amended, No. 333-161632).**10.10 Amended and Restated 2006 Equity Compensation Plan, effective December 31, 2006 (Incorporated by reference to Exhibit 10.60 of theRegistrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.11 Amendment No. 2007-1 to the GAIN Capital Holdings, Inc. 2006 Equity Compensation Plan (Incorporated by reference to Exhibit 10.61 of theRegistrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.12 Amendment No. 2008-1 to the GAIN Capital Holdings, Inc. 2006 Equity Compensation Plan (Incorporated by reference to Exhibit 10.62 of theRegistrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.32 Amendment No. 2010-1 to the GAIN Capital Holdings, Inc. 2006 Equity Compensation Plan (Incorporated by reference to Exhibit 10.63 of theRegistrant’s Registration Statement on Form S-1, as amended, No. 333-161632).** 86Table of ContentsExhibitNo. Description10.14 Loan and Security Agreement, dated as of March 29, 2006, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank and JPMorganChase Bank, N.A. (Incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.15 Pledge and Security Agreement, dated as of March 29, 2006, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank andJPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1, as amended,No. 333-161632).10.16 Unconditional Guaranty, dated as of March 29, 2006, by and among GAIN Holdings, LLC, Silicon Valley Bank and JPMorgan ChaseBank, N.A. (Incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.17 First Loan Modification Agreement, dated as of October 16, 2006, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank andJPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1, as amended,No. 333-161632).10.18 Second Loan Modification Agreement, dated as of March 20, 2007, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank and JPChase Bank, N.A. (Incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.19 Third Loan Modification Agreement, dated June 6, 2007, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank and JPMorganChase Bank, N.A. (Incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.20 Fourth Loan Modification Agreement, dated as of March 18, 2008, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank andJPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.173.2 of the Registrant’s Registration Statement on Form S-1, asamended, No. 333-161632).10.21 Fifth Loan Modification Agreement, dated as of June 18, 2009 and effective as of March 17, 2009, by and among GAIN Capital Holdings,Inc., Silicon Valley Bank and JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.18 of the Registrant’s RegistrationStatement on Form S-1, as amended, No. 333-161632).10.22 Sixth Loan Modification Agreement, dated June 16, 2010, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank and JPMorganChase Bank, N.A. (Incorporated by reference to Exhibit 10.50 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.23 Seventh Loan Modification Agreement, dated March 29, 2011, by and among GAIN Capital Holdings, Inc., Silicon Valley Bank andJPMorgan Chase Bank, N.A.*10.24 Separation Agreement, dated as of January 11, 2008, by and between Mark Galant and GAIN Capital Holdings, Inc. (Incorporated byreference to Exhibit 10.23 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.25† FX Prime Brokerage Master Agreement, dated as of December 6, 2006, by and between GAIN Capital Group, LLC and The Royal Bank ofScotland, plc. (Incorporated by reference to Exhibit 10.24 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.26† FX Prime Brokerage Agreement, dated as of July 8, 2005, by and between UBS AG and GAIN Capital, Inc. (Incorporated by reference toExhibit 10.25 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.27† Foreign Exchange Prime Brokerage Agency Agreement, dated as of July 12, 2006, by and between GAIN Capital Group, LLC and The RoyalBank of Scotland, plc. (Incorporated by reference to Exhibit 10.26 of the Registrant’s Registration Statement on Form S-1, as amended, No.333-161632).10.28† Foreign Exchange Prime Brokerage Agreement, dated October 18, 2005, by and between Deutsche Bank AG, London Branch and GCAM,LLC (Incorporated by reference to Exhibit 10.27 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632). 87Table of ContentsExhibitNo. Description10.29 Amendment to Foreign Exchange Prime Brokerage Agreement, dated January 26, 2006, by and between Deutsche Bank AG, London Branchand GCAM, LLC (Incorporated by reference to Exhibit 10.28 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.30 Form of ISDA Master Agreement, 1992 edition (Incorporated by reference to Exhibit 10.29 of the Registrant’s Registration Statement on FormS-1, as amended, No. 333-161632).10.31 Form of Introducing Broker Agreement (Incorporated by reference to Exhibit 10.30 of the Registrant’s Registration Statement on Form S-1, asamended, No. 333-161632).10.32 Form of Agreement for White Label Services (Incorporated by reference to Exhibit 10.31 of the Registrant’s Registration Statement on Form S-1,as amended, No. 333-161632).10.33 Sublease, dated March 31, 2005, by and between GAIN Capital, Inc. and NUI Corporation (Incorporated by reference to Exhibit 10.32 of theRegistrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.34 Agreement of Sublease, dated November 14, 2005, by and between Mellon Investor Services LLC and GAIN Capital, Inc. (Incorporated byreference to Exhibit 10.33 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.35 First Amendment to Sublease, dated July 20, 2006, by and between Mellon Investor Services LLC and GAIN Capital, Inc. (Incorporated byreference to Exhibit 10.34 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.36 Services Agreement, dated February 1, 2008, by and between GAIN Capital Group, LLC and Scivantage, Inc. (Incorporated by reference toExhibit 10.35 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.37 Schedule 1(b) to Services Agreement, dated February 15, 2009, by and between GAIN Capital Group, LLC and Scivantage, Inc.(Incorporated by reference to Exhibit 10.36 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.38 Lease and Lease Agreement, dated August 18, 2009, by and between S/K Bed One Associates LLC and GAIN Capital Holdings, Inc.(Incorporated by reference to Exhibit 10.37 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.39† Access Agreement, dated December 1, 2004, by and between Questrade, Inc. and GAIN Capital, Inc. (Incorporated by reference to Exhibit10.38 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.40 Agreement for Lease, dated May 5, 2009, by and between Pontsarn Investments Limited and GAIN Capital — Forex.com U.K., Ltd.(Incorporated by reference to Exhibit 10.39 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.41† Addendum to Access Agreement, dated July 23, 2007, by and between GAIN Capital Group, LLC and Questrade, Inc. (Incorporated byreference to Exhibit 10.40 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.42† Addendum to Access Agreement, dated October 12, 2007, by and between GAIN Capital Group, LLC and Questrade, Inc. (Incorporated byreference to Exhibit 10.41 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.43† Software Licensing and Services Agreement, dated December 1, 2004, by and between Questrade, Inc. and GAIN Capital, Inc. (Incorporatedby reference to Exhibit 10.42 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632). 88Table of ContentsExhibitNo. Description10.44† License Agreement, dated August 9, 2007, by and between GAIN Capital Group, LLC and MetaQuotes Software Corp. (Incorporated byreference to Exhibit 10.43 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.45† Agreement, dated November 22, 2004, by and between esignal, a division of Interactive Data Corporation, and GAIN Capital, Inc.(Incorporated by reference to Exhibit 10.44 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.46† Sales Lead Agreement, dated October 9, 2006, by and between GAIN Capital Group, LLC and Trading Central (Incorporated by reference toExhibit 10.45 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.47† Forex Introducing Broker Agreement, dated April 20, 2005, by and between GAIN Capital Group, Inc. and TradeStation Securities, Inc.(Incorporated by reference to Exhibit 10.46 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.48† Addendum to Introducing Broker Agreement, dated October 1, 2007, by and between GAIN Capital Group, LLC and TradeStationSecurities, Inc. (Incorporated by reference to Exhibit 10.47 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.49† Second Addendum to Introducing Broker Agreement, dated April 1, 2009, by and between GAIN Capital Group, LLC and TradeStationSecurities, Inc. (Incorporated by reference to Exhibit 10.48 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).10.50 Form of ISDA Master Agreement, 2002 edition (Incorporated by reference to Exhibit 10.49 of the Registrant’s Registration Statement on FormS-1, as amended, No. 333-161632).10.51 Amended and Restated Employment Agreement, dated as of November 23, 2010, by and between GAIN Capital Holdings, Inc. and GlennStevens (Incorporated by reference to Exhibit 10.52 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.52 Executive Employment Agreement, dated as of November 23, 2010, by and between GAIN Capital Holdings, Inc. and Henry Lyons(Incorporated by reference to Exhibit 10.53 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.53 Retention Agreement, dated as of November 23, 2010, by and between GAIN Capital Holdings, Inc. and Henry Lyons (Incorporated byreference to Exhibit 10.54 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.54 Executive Employment Agreement, dated as of December 6, 2010, by and between GAIN Capital Holdings, Inc. and Timothy O’Sullivan(Incorporated by reference to Exhibit 10.55 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.55 Executive Employment Agreement, dated as of November 23, 2010, by and between GAIN Capital Holdings, Inc. and Samantha Roady(Incorporated by reference to Exhibit 10.56 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.56 Executive Employment Agreement, dated as of November 24, 2010, by and between GAIN Capital Holdings, Inc. and Andrew Haines(Incorporated by reference to Exhibit 10.57 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.57 Executive Employment Agreement, dated as of November 23, 2010, by and between GAIN Capital Holdings, Inc. and Kenneth O’Brien(Incorporated by reference to Exhibit 10.58 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).**10.58 Executive Employment Agreement, dated as of December 6, 2010, by and between GAIN Capital Holdings, Inc. and Alexander Bobinski(Incorporated by reference to Exhibit 10.59 of the Registrant’s Registration Statement on Form S-1, as amended, No. 333-161632).** 89Table of ContentsExhibitNo. Description10.59 Executive Employment Agreement, dated as of January 24, 2011, by and between GAIN Capital Holdings, Inc. and Diego Rotsztain.* **10.60 Amended and Restated Executive Employment Agreement, dated as of March 25, 2011, by and between GAIN Capital Holdings, Inc. andDiego Rotsztain.* **10.61 Executive Employment Agreement, dated as of February 23, 2011, by and between GAIN Capital Holdings, Inc. and Jeffrey Scott.* **10.62 Amended and Restated Executive Employment Agreement, dated as of March 25, 2011, by and between GAIN Capital Holdings, Inc. andJeffrey Scott. * **10.63 Asset Purchase Agreement, dated as of October 5, 2010, by and among GAIN Capital Group, LLC, GAIN Capital-Forex.com U.K., andGAIN Capital Forex.com Japan, Co. Ltd., and Capital Market Services, LLC, Capital Market Services UK Ltd., Capital Market ServicesInternational — BM, Ltd., and CMS Japan K.K. (Incorporated by reference to Exhibit 10.64 of the Registrant’s Registration Statement on FormS-1, as amended, No. 333-161632).10.64 Amendment No. 1 to Asset Purchase Agreement, dated as of November 23, 2010, by and among GAIN Capital Group, LLC, GAIN Capital-Forex.com U.K., and GAIN Capital Forex.com Japan, Co. Ltd., and Capital Market Services, LLC, Capital Market Services UK Ltd.,Capital Market Services International — BM, Ltd., and CMS Japan K.K. (Incorporated by reference to Exhibit 10.65 of the Registrant’sRegistration Statement on Form S-1, as amended, No. 333-161632).21.1 Subsidiaries of the Registrant.*23.1 Consent of Deloitte & Touche LLP.*23.2 Consent of Aite Group, LLC., dated March 21, 2011*31.1 Certification of Chief Executive Officer pursuant to rules 13a-14(a) under the Securities Exchange Act of 1934, as amended.*31.2 Certification of Chief Financial Officer pursuant to rules 13a-14(a) under the Securities Exchange Act of 1934, as amended.*32.1 Certification of Chief Executive Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.*32.2 Certification of Chief Financial Officer as required by section 906 of the Sarbanes-Oxley Act of 2002.* *Filed herewith.**Compensation related contract. †Confidential treatment requested. Confidential materials omitted and filed separately with the Securities and Exchange Commission. 90Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized on the 30th day of March, 2011. GAIN CAPITAL HOLDINGS, INC.By: /s/ Glenn H. Stevens Glenn H. StevensPresident and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant andin the capacities indicated. Signature Title Date/s/ Glenn H. StevensGlenn H. Stevens President and Chief Executive Officer (PrincipalExecutive Officer) March 30, 2011/s/ Henry C. LyonsHenry C. Lyons Executive Vice President, Chief Financial Officer andTreasurer (Principal Financial Officer) March 30, 2011/s/ Daryl J. CarloughDaryl J. Carlough Chief Accounting Officer and Corporate Controller(Principal Accounting Officer) March 30, 2011/s/ Peter QuickPeter Quick Chairman of the Board of Directors March 30, 2011/s/ Susanne D. LyonsSusanne D. Lyons Director March 30, 2011/s/ Joseph A. SchenkJoseph A. Schenk Director March 30, 2011/s/ James C. MillsJames C. Mills Director March 30, 2011/s/ Mark E. GalantMark E. Galant Director March 30, 2011/s/ Christopher W. CalhounChristopher W. Calhoun Director March 30, 2011/s/ Christopher S. SugdenChristopher S. Sugden Director March 30, 2011 91Table of ContentsINDEX TOCONSOLIDATED FINANCIAL STATEMENTS ANDFINANCIAL STATEMENT SCHEDULE Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Financial Condition as of December 31, 2010 and 2009 F-3 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2010, 2009 and 2008 F-4 Consolidated Statements of Shareholders’ Equity / (Deficit) for the Years Ended December 31, 2010, 2009 and 2008 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 F-6 Notes to Consolidated Financial Statements F-8 Financial Statement Schedule: Schedule 1 — Condensed Financial Information of GAIN Capital Holdings, Inc. (Parent Company Only) as of December 31, 2010 and 2009 andfor each of the three years in the period ended December 31, 2010 F-39 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofGAIN Capital Holdings, Inc.Bedminster, New JerseyWe have audited the accompanying consolidated statements of financial condition of GAIN Capital Holdings, Inc. and subsidiaries (the “Company”) as ofDecember 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, shareholders’ equity/(deficit), and cash flowsfor each of the three years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal controlover financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of GAIN Capital Holdings, Inc. andsubsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2010, in conformity with accounting principles generally accepted in the United States of America./s/ Deloitte & Touche LLPNew York, New YorkMarch 30, 2011 F-2Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(in thousands except share and per share data) As of December 31, 2010 2009 ASSETS: Cash and cash equivalents $284,210 $222,524 Short term investments 75 4,276 Trading securities 20,060 25,040 Receivables from brokers 98,135 76,391 Property and equipment — (net of accumulated depreciation and amortization of $10,464 and $7,054 at December 31, 2010and 2009, respectively) 7,294 6,843 Prepaid assets 9,938 2,044 Deferred financing costs 138 226 Deferred initial public offering costs — 1,732 Goodwill 3,092 3,092 Intangible assets — (net of accumulated amortization of $2,017 and $809 at December 31, 2010 and 2009, respectively) 9,089 320 Other assets — (net of allowance for doubtful accounts of $74 and $332 at December 31, 2010 and 2009, respectively) 11,040 9,452 Total assets $443,071 $351,940 LIABILITIES AND SHAREHOLDERS’ EQUITY / (DEFICIT): Liabilities Payables to brokers, dealers, FCMs and other regulated entities $6,102 $2,769 Payables to customers 250,572 196,985 Accrued compensation and benefits 5,117 4,040 Accrued expenses and other liabilities 10,506 8,673 Income tax payable 2,550 — Convertible, redeemable preferred stock embedded derivative (see note 10) — 81,098 Notes payable 18,375 28,875 Total liabilities 293,222 322,440 Commitments and Contingencies (See Note 15) Convertible, Redeemable Preferred Stock Series A Convertible, Redeemable Preferred Stock; ($0.00001 par value; 4,545,455 shares authorized; zero and865,154 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 2,009 Series B Convertible, Redeemable Preferred Stock; ($0.00001 par value; 7,000,000 shares authorized; zero and2,610,210 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 5,412 Series C Convertible, Redeemable Preferred Stock; ($0.00001 par value; 2,496,879 shares authorized; zero and1,055,739 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 5,319 Series D Convertible, Redeemable Preferred Stock; ($0.00001 par value; 3,254,678 shares authorized; zero and 3,254,678shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 39,840 Series E Convertible, Redeemable Preferred Stock; ($0.00001 par value; 3,738,688 shares authorized; zero and2,611,606 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 116,810 Total convertible, redeemable preferred stock — 169,390 GAIN Capital Holdings, Inc. Shareholders’ Equity / (Deficit) Common Stock; ($0.00001 par value; 60 million shares authorized; 31,174,651 and 2,966,034 shares issued andoutstanding as of December 31, 2010 and 2009, respectively) — — Accumulated other comprehensive income 428 348 Additional paid-in capital 73,381 (178,409) Retained earnings 76,040 38,195 Total GAIN Capital Holdings, Inc. shareholders’ equity (deficit) 149,849 (139,866) Noncontrolling interest — (24) Total equity (deficit) 149,849 (139,890) Total $443,071 $351,940 See Notes to Consolidated Financial Statements F-3Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(in thousands except share and per share data) For the Fiscal Year Ended December 31, 2010 2009 2008 REVENUE: Trading revenue $187,356 $153,375 $186,004 Other revenue 3,417 2,108 2,366 Total non-interest revenue 190,773 155,483 188,370 Interest revenue 364 292 3,635 Interest expense (2,039) (2,456) (3,905) Total net interest revenue (expense) (1,675) (2,164) (270) Net revenue 189,098 153,319 188,100 EXPENSES: Employee compensation and benefits 45,439 41,503 37,024 Selling and marketing 38,395 36,875 29,312 Trading expenses and commissions 25,658 14,955 16,310 Bank fees 4,239 4,466 3,754 Depreciation and amortization 4,647 2,689 2,496 Communications and data processing 2,951 2,676 2,467 Occupancy and equipment 4,038 3,548 2,419 Bad debt provision 597 760 1,418 Professional fees 3,910 3,729 3,104 Software expense 1,845 1,132 888 Professional dues and memberships 275 698 773 Write-off of deferred initial public offering costs — — 1,897 Change in fair value of convertible, redeemable preferred stock embedded derivative (4,691) (1,687) (181,782) Other 4,343 1,746 1,424 Total 131,646 113,090 (78,496)INCOME BEFORE INCOME TAX EXPENSE AND EQUITY IN EARNINGS OF EQUITY METHOD INVESTMENT 57,452 40,229 266,596 Income tax expense 20,009 12,556 34,977 Equity in earnings of equity method investment — — (214)NET INCOME 37,443 27,673 231,405 Net loss applicable to noncontrolling interest (402) (321) (21) NET INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC. 37,845 27,994 231,426 Other comprehensive income, net of tax: Foreign currency translation adjustment 112 288 28 NET COMPREHENSIVE INCOME 37,957 28,282 231,454 Comprehensive income applicable to noncontrolling interest, net of tax — (24) 7 NET COMPREHENSIVE INCOME APPLICABLE TO GAIN CAPITAL HOLDINGS, INC. $37,957 $28,306 $231,447 Effect of redemption of preferred shares $— $— $(63,913)Net income applicable to GAIN Capital Holdings, Inc. common shareholders $37,845 $27,994 $167,513 Earnings per common share: Basic $8.62 $9.47 $57.54 Diluted $1.00 $0.75 $4.94 Weighted average common shares outstanding used in computing earnings per common share: Basic 4,392,798 2,956,377 2,911,107 Diluted 37,742,902 37,282,069 33,924,548 (1)On November 23, 2010, the Company’s board of directors approved a 2.29-for-1 stock split of our common stock effective immediately prior to the completion of the IPO as well as the settlement of the primaryshare offering which was allocated to all common shareholders on a pro-rata basis resulting in an effective stock split of 2.26-for-1. In connection with and immediately subsequent to the Company’s IPO, certainshareholders were subject to satisfy indemnification obligations related to past preferred stock issuances and subsequent sales. All references to common shares, preferred shares, additional paid-in capital, retainedearnings (accumulated deficit), share and per share data for prior periods have been retroactively restated to reflect the stock split as if it had occurred at the beginning of the earliest period presented.See Notes to Consolidated Financial Statements F-4(1)(1)Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY / (DEFICIT)(in thousands, except share and per share data) Common Stock AdditionalPaid inCapital (AccumulatedDeficit)/RetainedEarnings AccumulatedOtherComprehensiveIncome NoncontrollingInterest Total Shares Amount BALANCE — January 1, 2008 3,469,406 $— $(95,115) $(221,225) $— $— $(316,340) Exercise of options 1,397,072 — 1,686 — — — 1,686 Repurchase of common shares (2,068,122) — (40,752) — — — (40,752) Repurchase of preferred shares — — (60,064) — — — (60,064) Conversion restricted stock units into common stock 150,445 — — — — — — Repurchase of warrants — — (3,848) — — — (3,848) Tax benefit from employee exercises — — 10,709 — — — 10,709 Reversal of call option liability — — 1 — — — 1 Stock compensation expense — — 4,492 — — — 4,492 Foreign currency translation adjustment — — — — 21 7 28 Increase in noncontrolling interest related to acquisition of subsidiary — — — — — 529 529 Net income — — — 231,426 — (21) 231,405 BALANCE — December 31, 2008 2,948,801 $— $(182,891) $10,201 $21 $515 $(172,154) Exercise of options 7,932 — 8 — — — 8 Conversion restricted stock units into common stock 9,301 — — — — — — Tax benefit from employee exercises — — — — — — — Stock compensation expense — — 5,609 — — — 5,609 Foreign currency translation adjustment — — — — 327 (39) 288 Increase in noncontrolling interest related to acquisition of subsidiary — — (1,135) — — (179) (1,314) Net income — — — 27,994 — (321) 27,673 BALANCE — December 31, 2009 2,966,034 $— $(178,409) $38,195 $348 $(24) $(139,890) Exercise of options 75,448 — 107 — — — 107 Conversion restricted stock units into common stock 67,988 — — — — — — Conversion of preferred stock 27,757,770 — 169,390 — — — 169,390 Settlement of preferred stock embedded derivative — — 76,407 — — — 76,407 Net proceeds from initial public offering after underwriting discounts,commissions, and expenses 407,692 — 208 — — — 208 Series E indemnification (100,281) — 835 — — — 835 Stock compensation expense — — 5,457 — — — 5,457 Foreign currency translation adjustment — — — 80 32 112 Increase in noncontrolling interest related to acquisition of subsidiary — — (614) — — 394 (220) Net income 37,845 (402) 37,443 BALANCE — December 31, 2010 31,174,651 $ $73,381 $76,040 $428 $— $149,849 See Notes to Consolidated Financial Statements F-5Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the Fiscal Year EndedDecember 31, 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $37,443 $27,673 $231,405 Adjustments to reconcile net income to cash provided by operating activities Unrealized foreign exchange transactions — liquidity providers and customers (34,061) (7,706) 1,776 Loss on foreign currency exchange rates 239 28 191 Depreciation and amortization 4,647 2,689 2,496 Deferred taxes (1,227) (1,787) (932) Write-off of deferred initial public offering costs — — 42 Amortization of deferred financing costs 87 87 89 Interest income (46) (77) (183) Bad debt provision 597 1,101 1,418 Loss in earnings of equity method investment — — 214 Loss on disposal of fixed assets 37 353 91 Stock compensation expense 5,457 5,609 4,492 Tax benefit from employee stock option exercises — — (10,709)Change in fair value of preferred stock embedded derivative (4,691) (1,687) (181,782) Changes in operating assets and liabilities: Short term investments 4,208 (4,276) — Trading securities 5,018 37 (24,817)Receivables from brokers (26,283) (26,068) 22,620 Prepaid assets (7,894) (412) (849) Other assets 831 (6,072) (3,043) Deferred initial public offering costs — — (42)Payables to customers 96,784 81,312 13,528 Accrued compensation and benefits 1,077 (1,242) 354 Payables to brokers, dealers, FCMs and other regulated entities 3,333 1,090 (483)Accrued expenses and other liabilities 1,198 2,013 939 Income tax payable 2,550 (10,538) 12,505 Cash provided by operating activities 89,304 62,127 69,320 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,873) (4,059) (2,679) Acquisition and funding of Fortune Capital Co., Ltd, net of cash acquired — — (666)Acquisition and funding of S.L. Bruce Financial Corporation, net of cash acquired — — (248)Acquisition and funding of RCG GAIN Limited, net of cash acquired — — (199)Purchase of subsidiary shares from noncontrolling interest (944) — Purchase of customer and marketing lists (8,505) — — Purchase of intangible assets (43) Cash used for investing activities (12,421) (5,003) (3,792) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from initial public offering of common stock, net of underwriting discounts and other direct costs of$3.8 million 208 — — Deferred initial public offering costs 1,732 (1,296) — Payment on notes payable (10,500) (10,500) (10,500) Proceeds from exercise of stock options 107 8 1,686 Proceeds from exercise of warrants — — 97 Issuance of Series E preferred shares — — 117,000 Series E issuance costs — — (190)Tax benefit from employee stock option exercises — — 10,709 Repurchase of warrants — — (3,945)Repurchase of common shares — — (40,752)Repurchase of preferred shares — — (62,043)Purchase of subsidiary shares from noncontrolling interest (427) — — Cash provided by/(used for) financing activities (8,880) (11,788) 12,062 F-6Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)(in thousands) For the Fiscal Year EndedDecember 31, 2010 2009 2008 Effect of exchange rate changes on cash and cash equivalents (6,317) 757 (53)INCREASE IN CASH AND CASH EQUIVALENTS 61,686 46,093 77,537 CASH AND CASH EQUIVALENTS — Beginning of year 222,524 176,431 98,894 CASH AND CASH EQUIVALENTS — End of year $284,210 $222,524 $176,431 SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $1,799 $2,377 $3,959 Taxes $15,674 $28,200 $20,731 Non-cash investing activities: Purchase of fixed assets in accrued expense and other liabilities $54 $1,233 $153 Contingent liability for CMS acquisition $1,429 $— $— Capital lease of property and equipment $— $650 $— Investment in S.L. Bruce Financial Corporation in accrued expenses and other liabilities $— $— $325 Accrual to acquire additional shares of Forex.com Japan Co., Ltd. $— $350 $— Non-cash financing activities: Accrued initial public offering costs $1,305 $436 $— Series E indemnification $835 $— $— Reversal of call option liability $— $— $1 Settlement of Preferred Stock embedded derivative $76,407 $— $— Settlement of Convertible, Redeemable preferred stock $169,390 $— $— See Notes to Consolidated Financial Statements F-7Table of ContentsGAIN CAPITAL HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Nature of Operations and Significant Accounting PoliciesNature of OperationsGAIN Capital Holdings, Inc. and subsidiaries (the “Company”) is a Delaware corporation formed and incorporated on March 24, 2006. GAIN Holdings,LLC is a wholly-owned subsidiary of GAIN Capital Holdings, Inc., and owns all outstanding membership units in GAIN Capital Group, LLC, the operatingcompany.GAIN Capital Group, Inc., a Delaware corporation, was formed and incorporated on August 1, 2003. Immediately following the formation of the corporation,it acquired all the outstanding equity of GAIN Capital, Inc. On March 27, 2006, GAIN Capital Group, Inc. converted to a Delaware limited liability companyknown as GAIN Capital Group, LLC (“Group, LLC”).Group, LLC is a managed flow business in a number of foreign currencies. Its Internet trading platform provides a market for customers to trade, on a marginbasis, spot foreign exchange. In connection with its managed flow activities, Group, LLC seeks to manage its market risk by entering into offsetting positionswith large money center banks and other financial institutions. As a result of its managed flow operations, Group, LLC, may have open positions in variouscurrencies at any given time. Group, LLC manages its open positions and exposure in real time. The majority of Group, LLC’s foreign exchange businessrelates to major foreign currencies such as U.S. dollars, Japanese yen, Euros, United Kingdom pound sterling, Swiss francs and Canadian dollars.The counterparties to Group, LLC’s foreign exchange transactions include retail traders, investment advisors, commercial banks, small to mid-sizedcorporations, hedge funds, investment banks and broker-dealers.Group, LLC is a registered Futures Commission Merchant (“FCM”) with the Commodity Futures Trading Commission (“CFTC”). As such, it is subject tothe regulations of the CFTC, an agency of the U.S. Government, and the rules of the National Futures Association (“NFA”), an industry self-regulatoryorganization.GAIN Capital Holdings, Inc. and subsidiaries strategically expanded its operations from 2007 to 2010: • The Company established a wholly-owned subsidiary, JiaShen Forex Software Development Technology, LLC (“JiaShen, LLC”) in Shanghai,China in 2007. This entity was closed in 2009. See Note 20 for additional information. • GCAM, LLC is a Delaware limited liability company formed on April 10, 2006 to operate as a private investment vehicle. GCAM, LLC isengaged primarily in the business of trading and investing in over the counter (“OTC”) foreign currencies and was the general partner of theGCAM Madison Fund, L.P., through the fund closure in December 31, 2008. The general partner directed the fund’s trading and investments aswell as its day-to-day operations. GCAM, LLC currently directs the asset management program of Group, LLC. In January 2007 Group, LLCsubsequently transitioned its investment in GCAM, LLC to the ultimate parent, GAIN Capital Holdings, Inc. • GAIN Global Markets, Inc. (“GGMI”) was incorporated in the Cayman Islands on January 19, 2006. In 2007, GGMI became wholly owned byGAIN Capital Holdings International, LLC., which is 100% owned by the Company. GGMI is registered with the Cayman Islands MonetaryAuthority (“CIMA”) as an Exchange Contracts Dealer and operates a trading platform called Trade Real-Time which provides self-directed traderswith direct access to Contracts for Difference (“CFD”), Forex, Metals and Energy markets. • Group, LLC entered into a joint venture with Rosenthal Collins Group (“RCG”), a leading independent futures clearing firm, that was approvedby the U.K. Financial Services Authority (“U.K. FSA”) F-8Table of Contents effective January 2008 in which Group, LLC and RCG each owned a 50% interest in RCG GAIN Limited (“RCGGL”). On December 22, 2008,Group, LLC acquired RCG’s 50% interest in RCGGL. Prior to the acquisition of the remaining 50% interest, the joint venture was accounted foras an equity method investment and was fully consolidated as of December 31, 2008. Upon achieving complete ownership, the legal name waschanged to GAIN Capital Forex.com UK Limited (“GCUK”). • On October 3, 2008, the Company acquired all outstanding common stock of S.L. Bruce Financial Corporation, the parent company of StateDiscount Brokers, Inc. which is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial IndustryRegulatory Authority, Inc. (“FINRA”). The Company subsequently changed the name of State Discount Brokers, Inc. to GAIN CapitalSecurities, Inc. (“GCSI”). • GAIN Holdings International, LLC acquired a 51% controlling interest, with rights to acquire up to a 95% interest, in Fortune Capital Co., Ltd.(“FORTUNE”) on December 12, 2008. On October 1, 2009, the Company purchased an additional 196 shares of FORTUNE, increasing theownership interest from 51% to 70% of the outstanding shares, in April 2010, the Company acquired the remaining 30% interest in Forex.comJapan Co., Ltd. for $0.4 million, increasing the ownership interest from 70% to 100%. FORTUNE was previously a privately owned provider offorex trading services in Japan, and has been a white label partner to Group, LLC since 2002. FORTUNE maintains a Type I financialinstruments business registration with Japan’s Financial Services Agency (“Japan FSA”). FORTUNE was subsequently renamed Forex.comJapan Co., Ltd. (“GC Japan”). • The Company incorporated GAIN Capital Forex.com Hong Kong Limited (“GCHK”) on July 9, 2008. In July 2009, GCHK was granted alicense by the Securities and Futures Commission (“SFC”) which regulates forex trading in Hong Kong. • The Company incorporated GAIN Capital — Forex.com Singapore Pte Ltd. in January 2009. • The Company incorporated GAIN Capital Forex.com Australia Pty Ltd. in July 2009. • The Company incorporated GAIN Capital Service Company, LLC in May 2010. • The Company incorporated GAIN GTX, LLC in November 2010. • The Company acquired the customer account balances, customer agreements and customer and marketing lists of MG Financial, LLC (“MG”) inAugust 2010. See Note 6 for additional information. • The Company acquired the customer account balances and effective customer agreements of Capital Market Services, LLC and certain of itsaffiliates (“CMS”) in October 2010. See Note 6 for additional information.Initial Public OfferingOn December 20, 2010 the Company closed its initial public offering of common stock (“IPO”) of 9,000,000 shares of common stock at an offering price of$9.00 per share, of which 407,692 shares were sold by the Company and 8,592,308 shares were sold by selling stockholders, resulting in net proceeds tothe Company of $4.0 million, after deducting underwriting discounts (which included a $0.6 million reimbursement by the underwriters for our out-of-pocketexpenses incurred during the offering).Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock were automaticallyconverted into 27,757,770 shares of common stock, in accordance with our Second Amended and Restated Certificate of Incorporation. As a result, theconversion of the convertible preferred stock the embedded derivative liability was settled and recorded to additional paid-in-capital.Costs directly associated with the Company’s IPO of $3.8 million were capitalized and recorded as deferred initial public offering costs prior to the closing ofthe IPO. Once the IPO was closed, these costs were recorded as a reduction of the net proceeds received. F-9Table of Contents2.Summary of Significant Accounting PoliciesBasis of AccountingThe Company and its subsidiaries’ consolidated financial statements are prepared in accordance with accounting principles generally accepted in the UnitedStates of America (“generally accepted accounting principles”).Stock SplitOn November 23, 2010, the Company’s board of directors approved a 2.29-for-1 stock split of our common stock effective immediately prior to thecompletion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders on a pro-rata basis resulting in aneffective stock split of 2.26-for-1. Immediately subsequent to the Company’s IPO, certain shareholders were subject to satisfy indemnification obligationsrelated to past preferred stock issuances and subsequent sales. All references to common shares, preferred shares, additional paid-in capital, retained earnings(accumulated deficit), share and per share data for prior periods have been retroactively restated to reflect the stock split as if it had occurred at the beginningof the earliest period presented.ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and majority owned subsidiary. Theconsolidated financial statements include 100% of the assets and liabilities of the majority owned subsidiary and the ownership interest of minority investorsis recorded as noncontrolling interest. All intercompany transactions and balances are eliminated in consolidation.The Company applies Accounting Standards Codification (“ASC”) 810-10, Consolidation, in its principles of consolidation. ASC 810-10 addressesarrangements where a company does not hold a majority of the voting or similar interests of a variable interest entity (“VIE”). A company is required toconsolidate a VIE if it has determined it is the primary beneficiary. Accounting Research Bulletin 51 addresses the policy when a company owns a majority ofthe voting or similar rights and exercises effective control.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. In presenting the consolidated financial statements, management makes estimates regarding: • Valuation of assets and liabilities requiring fair value estimates; • The allowance for doubtful accounts; • The realization of deferred taxes; • The carrying amount of goodwill and other intangible assets; • The amortization period of intangible assets with definite lives; • Incentive based compensation accruals and valuation of share-based payment arrangements; and • Other matters that affect the reported amounts and disclosure of contingencies in the consolidated financial statements.Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ from those estimates and could have amaterial impact on the consolidated financial statements, and it is possible that such changes could occur in the near term. F-10Table of ContentsThe Company makes estimates of the uncollectibility of accounts receivable and records an increase in the allowance for doubtful accounts when the prospectof collecting a specific account balance becomes doubtful. Management specifically analyzes accounts receivable and historical bad debt experience whenevaluating the adequacy of the allowance for doubtful accounts. Should any of these factors change, the estimates made by management will also change,which could affect the level of our future provision for doubtful accounts.Revenue RecognitionThe Company’s revenue is derived from our managed flow activities between our retail customers, where we act as the counterparty to our customers’ trades.Revenue is recognized in accordance with ASC 605-10-S99, Revenue Recognition (“Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition).The Company generates revenue from forex trading. SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasiveevidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the seller’s price to the buyer is fixed and determinable; and(4) collectability is reasonably assured.Foreign exchange contracts generally involve the exchange of two currencies at market rates on a specified date; spot contracts usually require the exchange ofcurrencies to occur within two business days of the contract date. Customer transactions and related revenue and expenses are recorded on a trade date basis.Gains or losses are realized when customer transactions are liquidated. Unrealized gains or losses on cash positions revalued at prevailing foreign currencyexchange rates (the difference between contract price and market price) at the date of the statement of financial condition are included in Receivables frombrokers, Payables to customers and Payables to brokers, dealers, FCMs and other regulated entities on the Consolidated Statements of FinancialCondition. Changes in net unrealized gains or losses are recorded in Trading revenue on the Consolidated Statements of Operations and ComprehensiveIncome.Other revenue, on the Consolidated Statements of Operations and Comprehensive Income, is comprised primarily of trading commissions related to the ForexPro trading program which allows customers to receive tighter spreads in return for a commission fee paid to us. The Company also records to Other revenuethe inactivity fees charged monthly to customers who have not executed trades and maintained the required minimum account balance.Interest revenue and interest expense are recorded when earned and incurred, respectively. Net interest revenue (expense) consists primarily of the revenuegenerated by Company cash and customer cash held and invested at banks, money market funds and deposits at wholesale forex trading partners, lessinterest paid to customers on their balances and interest expense on notes payable.AdvertisingAdvertising costs are incurred for the production and communication of advertising, as well as other marketing activities. The Company expenses the cost ofadvertising as incurred, except for costs related to the production of broadcast advertising, which are expensed when the first broadcast occurs. The Companydid not capitalize any production costs associated with broadcast advertising for 2010, 2009, or 2008. The total amount charged to advertising expense was$38.4 million, $36.9 million and $29.3 million for the years ended December 31 2010, 2009 and 2008, respectively.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity of 90 days or less at the time of acquisition to be cash equivalents. Includedin this balance are funds deposited by customers and funds accruing to customers as a result of trades or contracts. At December 31, 2010 and 2009, theCompany’s cash equivalents consisted of money market accounts. Cash equivalents are recorded at fair value. F-11Table of ContentsShort Term InvestmentsThe Company considers all investments with an original maturity of less than one year short term investments. Short term investments consist of short-termcertificates of deposit and are recorded at fair value. All income from the certificates of deposit is recorded as interest income when earned.Trading SecuritiesTrading securities consist of U.S. Treasury Bills and equity securities and are reported at fair value, with unrealized gains or losses resulting from changes infair value recognized as other income, net in the Consolidated Statements of Operations and Comprehensive Income.Fair ValueThe carrying amounts of assets, excluding goodwill and intangibles, and liabilities approximate their fair values due to the short term maturities. Some of theCompany’s financial instruments are not measured at fair value on a recurring basis but nevertheless are recorded at amounts that approximate fair value.Such financial assets and liabilities include: cash, receivables from broker, other assets, payables to customers, and accrued expenses and other liabilities.The fair value of the term loan is based on transaction prices. The fair value spot foreign exchange positions are determined based the estimated amounts thatsuch positions could be settled with the counterparty at the balance sheet date.Concentrations of Credit RiskFinancial instruments that subject the Company to credit risk primarily consist of cash equivalents. The Company’s credit risk is managed by investing cashand cash equivalents primarily in high-quality money market and U.S. Government instruments. The majority of the Company’s cash and cash equivalentsare held at ten financial institutions.Prepaid AssetsThe Company records goods and services paid for but not to be received until a future date as prepaid assets. These include payments for advertising andinsurance. Also included in prepaid assets is an upfront, non-refundable $7.5 million pre-payment for the use of the Forexster Trading Services. Pursuant tothe terms of the Exclusive Marketing Agreement, the prepayment for use of the Forexster Trading Services will be amortized as revenue associated withForexster Trading Services is recognized.Receivables from BrokersThe Company has posted funds with brokers as collateral as required by agreements for holding spot foreign exchange positions. In addition, the Companyhas cash in excess of required collateral. These amounts are reflected as receivables from brokers and include gains or losses realized on liquidated contracts,as well as unrealized gains or losses on open positions. F-12Table of ContentsProperty and EquipmentProperty and equipment are recorded at cost, net of accumulated depreciation. Identifiable significant improvements are capitalized and expenditures formaintenance and repairs are charged to expense as incurred.Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows: Purchased software 3 yearsFurniture and fixtures 3 yearsLeasehold improvements Shorter of lease term or estimated useful lifeTelephone equipment 3 yearsOffice equipment 3 yearsVehicles 5 yearsThe Company accounts for costs incurred to develop its trading platform and related software in accordance with the American Institute of Certified PublicAccountants (“AICPA”) Statement of Position 98-1 (“SOP 98-1”), Accounting for the Costs of Computer Software Developed or Obtained for InternalUse. SOP 98-1 requires that such technology be capitalized in the application and infrastructure development stages. Costs related to training, administrationand non-value-added maintenance are charged to expense as incurred. Capitalized software development costs are being amortized over the useful life, whichthe Company has estimated at three years.Foreign CurrenciesThe Company has determined that its functional currency is U.S. dollars (“USD”). Realized foreign currency transaction gains and losses are recorded inTrading revenue on the Consolidated Statements of Operations and Comprehensive Income during the year at the exchange rate on the date of the transaction.Unrealized foreign currency transaction gains and losses are computed using the closing rate of exchange prevailing at the date of the Consolidated Statementsof Financial Condition. Gains and losses arising from these transactions are also recorded in Trading revenue on the Consolidated Statements of Operationsand Comprehensive Income.In accordance with ASC 830-10, Foreign Currency Matters, monetary assets and liabilities denominated in foreign currencies are converted into USD atrates of exchange in effect at the date of the Consolidated Statements of Financial Condition. The Company recorded foreign currency transaction gains andlosses in Other revenue on the Consolidated Statements of Operations and Comprehensive Income. The Company recorded losses of $0.2 million,$0.03 million and $0.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.Intangible AssetsASC 350, Intangibles — Goodwill and Other (“ASC 350”), requires purchased intangible assets other than goodwill to be amortized over their useful livesunless their lives are determined to be indefinite. If the assets are determined to have a finite life in the future, the Company will amortize the carrying valueover the remaining useful life at that time.The Company compares the recorded value of its indefinite life intangible assets to their fair value on an annual basis and whenever circumstances arise thatindicate that an impairment may have occurred. See Note 6 for additional information.GoodwillIn accordance with ASC 350, the Company tests goodwill for impairment on an annual basis during the fourth quarter and on an interim basis whenconditions indicate impairment has occurred. Goodwill impairment is F-13Table of Contentsdetermined by comparing the estimated fair value of the reporting unit with its respective book value. The Company utilized a discounted cash flow approachin order to determine the fair value. The Company believes that its procedures for estimating discounted future cash flows were reasonable and consistent withmarket conditions at the time of estimation. The Company recorded goodwill with the acquisition of GCAM, LLC, GCSI, GC Japan, and GCUK. Noamount of goodwill is expected to be deductible for tax purposes. See Note 7 for additional information.Other AssetsThe Company recorded receivables from vendors, security deposits, current and deferred tax assets and miscellaneous receivables in Other assets on theConsolidated Statements of Financial Condition. See Note 8 for additional information.Allowance for Doubtful AccountsThe Company records an increase in the allowance for doubtful accounts when the prospect of collecting a specific customer account balance becomesdoubtful. Management specifically analyzes accounts receivable and historical bad debt experience when evaluating the adequacy of the allowance for doubtfulaccounts. Should any of these factors change, the estimates made by management will also change, which could affect the level of our future provision fordoubtful accounts. The allowance for doubtful accounts is included in Other assets on the Consolidated Statements of Financial Condition. Receivables fromcustomers are reserved for and recorded in Bad debt provision on the Consolidated Statements of Operations and Comprehensive Income. The allowance fordoubtful accounts consisted of the following (amounts in thousands): Balance as of January 1, 2008 $(1,129) Addition to provision (1,418) Amounts written off 334 Balance as of December 31, 2008 (2,213) Addition to provision (1,101) Amounts written off 2,641 Recoveries 341 Balance as of December 31, 2009 (332) Addition to provision (597) Amounts written off 855 Balance as of December 31, 2010 $(74) Long-Lived AssetsIn accordance with ASC 360-10, Property, Plant and Equipment, the Company periodically evaluates the carrying value of long-lived assets when events andcircumstances warrant such review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from suchan asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized in the amount by which the carrying value exceeds thefair market value of the long-lived asset. The Company has identified no such impairment losses.Payables to CustomersPayables to customers, included on the Consolidated Statements of Financial Condition, include amounts due on cash and margin transactions. Thesetransactions include deposits, commissions and gains or losses arising from settled trades. The Payables to customers balance also reflects unrealized gainsor losses arising from open positions in customer accounts. F-14Table of ContentsPayables to Brokers, Dealers, FCMs and Other Regulated EntitiesThe Company engages in white label, or omnibus relationships, with other regulated financial institutions. The payables balance includes amounts depositedby these financial institutions in order for the Company to act as clearing broker. The payables balance includes deposits from all NFA registered entities.Noncontrolling InterestNoncontrolling interest represents the portion of the Company’s operating profit that is attributable to the ownership interest of the noncontrolling interestowners in GC Japan. There is no longer a noncontrolling interest as of December 31, 2010. See Note 7 for additional information.Accumulated Other Comprehensive IncomeThe Company’s Accumulated other comprehensive income, consists of foreign currency translation adjustments from their subsidiaries not using theU.S. dollar as their functional currency.Income TaxesIncome tax expense is provided for using the asset and liability method, under which deferred tax assets and liabilities are determined based upon thetemporary differences between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates.Convertible, Redeemable Preferred Stock Embedded DerivativeASC 815, Derivatives and Hedging, establishes accounting and reporting standards for derivative instruments. The Company has determined that it mustbifurcate and account for the conversion feature in its Series A, Series B, Series C, Series D, and Series E preferred stock. The embedded derivative isrecorded at fair value and changes in the fair value are reflected in earnings. The Company recorded a $4.7 million gain on the change in fair market value ofthe preferred stock embedded derivative, which represents the change in fair market value from January 1, 2010 through the effective date of the IPO. Theconversion feature and the associated embedded derivative liability is no longer required to be recognized due to the conversion of all outstanding preferredstock to common stock in connection with the IPO.Share Based PaymentIn accordance with ASC 718, Stock Compensation, the Company recognizes all share-based payments to employees, including grants of employee stockoptions, in the Statements of Operations and Comprehensive Income based on their fair values.ASC 718-10 requires measurement of share based payment arrangements at fair value and recognition of compensation cost over the service period, net ofestimated forfeitures. The fair value of restricted stock units is determined based on the number of units granted and the grant date fair value of GAIN CapitalHolding, Inc.’s common stock.See Note 13 for additional share based payment disclosure.Earnings Per Common ShareBasic earnings per common share is calculated using the weighted average common shares outstanding during the year. Common equivalent shares from stockoptions and restricted stock awards, using the treasury stock method, are also included in the diluted per share calculations unless their effect of inclusionwould be antidilutive. F-15Table of ContentsOn November 23, 2010, the Company’s board of directors approved a 2.29-for-1 stock split of our common stock effective immediately prior to thecompletion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders on a pro-rata basis resulting in aneffective stock split of 2.26-for-1. Immediately subsequent to the Company’s IPO, certain shareholders were subject to satisfy indemnification obligationsrelated to past preferred stock issuances and subsequent sales. All references to common shares, preferred shares, share and per share data for prior periodshave been retroactively restated to reflect the stock split as if it had occurred at the beginning of the earliest period presented.Management RiskIn the normal course of business, the Company executes foreign exchange transactions with its customers upon request on a margin basis. In connection withthese activities, the Company acts as the counterparty in 48 foreign currencies pairs. The Company actively trades currencies in the spot market, earning adealer spread. The Company seeks to manage its market risk by generally entering into offsetting contracts in the interbank market, also on a margin basis.The Company deposits margin collateral with large money center banks and other major financial institutions. The Company is subject to credit risk or lossfrom counterparty nonperformance. The Company seeks to control the risks associated with its customers’ activities by requiring its customers to maintainmargin collateral. The trading platform does not allow customers to enter into trades if sufficient margin collateral is not on deposit with the Company.The Company developed risk-management systems and procedures that allow it to manage the market and credit risk associated with managed flow activitiesin real-time. The Company does not actively initiate directional market positions in anticipation of future movements in the relative prices of currencies andevaluates market risk exposure on a continuous basis. As a result of the Company’s hedging activities, the Company is likely to have open positions invarious currencies at any given time. An additional component of the risk-management approach is that levels of capital are maintained in excess of thoserequired under applicable regulations. The Company also maintains liquidity relationships with three established, global prime brokers and at least six otherwholesale forex trading partners, providing the Company with access to a forex liquidity pool.LitigationThe Company contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probablea liability had been incurred at the date of the consolidated financial statements and the Company can reasonably estimate the amount of that loss, theCompany accrues the estimated loss by a charge to income. In many proceedings, however, it is inherently difficult to determine whether any loss is probableor even possible or to estimate the amount of any loss. In addition, even where loss is possible or an exposure to loss exists in excess of the liability alreadyaccrued with respect to a previously recognized loss contingency, it is not possible to reasonably estimate the size of the possible loss or range of loss.For certain legal proceedings, the Company can estimate possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amountsaccrued, but does not believe, based on current knowledge and after consultation with counsel, such losses will have a material adverse effect on theCompany’s results of operations, cash flows or financial condition. For certain other legal proceedings, the Company cannot reasonably estimate such losses,if any, since the Company cannot predict if, how or when such proceedings will be resolved or what the eventual settlement, fine, penalty or other relief, ifany, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages.Numerous issues must be developed, including the need to discover and determine important factual matters and the need to address novel or unsettled legalquestions relevant to the proceedings in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for anyproceeding. F-16Table of ContentsWrite-Off of Initial Public Offering CostsThe Company deferred costs incurred for an initial public offering (“IPO”) of common stock in 2008 including legal, audit, tax and other professional fees.The IPO was delayed due to market conditions, and as a result the Company recorded a write-off of the deferred costs of $1.9 million incurred during the yearended December 31, 2008.Recent Accounting PronouncementsIn December 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2010-29, Disclosure ofSupplementary Pro Forma Information for Business Combinations. This new standard impacts the pro forma reporting requirements for publiccompanies that enter into business combinations that are material on an individual or aggregate basis. This new standard is effective for the Companybeginning in the first quarter of 2011, however early adoption is permitted. The Company does not expect this new standard to significantly impact itsconsolidated financial statements.In December 2010, the FASB issued ASU No. 2010-28, Intangibles — Goodwill and Other (ASC 350): When to Perform Step 2 of the GoodwillImpairment Test for Reporting Units with Zero or Negative Carrying Amounts — a consensus of the FASB Emerging Issues Task Force, whichmodifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This amendment requires an entity to perform Step2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists and to consider whether there are any adverse qualitative factorsindicating that an impairment may exist. ASU No. 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15,2010. The adoption of ASU No. 2010-28 did not have a material impact on the Company’s consolidated financial statements.In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intendedto enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fairvalue are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented byclass of financing receivable. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring theportfolio’s risk and performance. The adoption of ASU 2010-20 did not have a material impact on the Company’s consolidated financial statements.In February 2010, the FASB issued ASU 2010-09, Subsequent Events (“ASU 2010-09”). ASU 2010-09 amends ASC 855, Subsequent Events, byrequiring less disclosure regarding subsequent events. ASU 2010-09 changes the criteria for determining whether an entity would evaluate subsequent eventsthrough the date that financial statements are issued or when they are available to be issued. The Company is still required to evaluate subsequent eventsthrough the date that the financial statements are issued. ASU 2010-09 was effective for the Company’s interim period ended June 30, 2010. The adoption ofASU 2010-09 did not have a material impact on the Company’s consolidated financial statements.In January 2010, the FASB issued ASU, 2010-6, Improving Disclosures About Fair Value Measurements (“ASU 2010-06”). ASU 2010-6 provides newdisclosures and clarifications of existing disclosures and is effective for interim and annual reporting periods beginning after December 15, 2009, except fordisclosures about purchases, sales, issuances, and settlements in the roll-forward activity in Level 3 fair value measurements. Those disclosures are effectivefor fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Therefore, ASU 2010-06 was effective for theCompany’s fiscal year beginning January 1, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated financialstatements. F-17Table of ContentsIn June 2009, the FASB issued ASC 810, Consolidation, which changes how a reporting entity determines when an entity that is insufficiently capitalized oris not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate anotherentity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that mostsignificantly impact the other entity’s economic performance. The adoption of ASC 810 by the Company in January 1, 2010 did not have a material impact onthe Company’s consolidated financial statements. 3.Fair Value DisclosuresThe following table presents the Company’s assets and liabilities that are measured at fair value and the related hierarchy levels: Fair Value Measurements on a Recurring Basisas of December 31, 2010 Level 1 Level 2 Level 3 Netting Total (in thousands) Assets: Money market accounts $82,526 — — — $82,526 Certificates of deposit $75 — — — $75 Equity securities $60 — — — $60 U.S. treasury securities $20,000 — — — $20,000 Futures contracts $(70) — — $123 $53 Investment in gold $142 — — — $142 Liabilities: CMS Contingent Liability $— — $1,429 — $1,429 Fair Value Measurements on a Recurring Basisas of December 31, 2009 Level 1 Level 2 Level 3 Netting Total (in thousands) Assets: Money market accounts $88,281 — — — $88,281 Certificates of deposit $4,276 — — — $4,276 Equity securities $43 — — — $43 U.S. treasury securities $24,997 — — — $24,997 Futures contracts $(143) — — $182 $39 Investment in gold $110 — — — $110 Liabilities: Convertible, redeemable preferred stock embedded derivative $— — $81,098 — $81,098 Represents cash collateral netting.There were no transfers between levels for the year ended December 31, 2010.Level 1 Financial AssetsThe Company has money market accounts, certificates of deposit, equity securities, U.S. treasury securities, futures contracts and an investment in gold thatare Level 1 financial instruments that are recorded based upon listed or quoted market rates. The money market accounts are recorded in Cash and cashequivalents, the certificates of deposit are recorded in Short term investments, the equity securities and U.S. treasury securities are recorded in Tradingsecurities and the futures contracts and investment in gold are recorded in Receivables from brokers. F-18(1)(1)(1)Table of ContentsLevel 3 Financial AssetsThe Company has a contingent liability associated with the future payments to be made to CMS based upon revenues generated from the CMS customers foran eighteen month period following the acquisition and an embedded derivative liability associated with the conversion feature of its convertible, redeemablepreferred stock.The Company measures the fair value of the future payments to CMS based upon estimated cash flows See Note 6 for additional information.The Company measures the fair value of the embedded derivative through the use of unobservable inputs which include estimations for the expected volatilityof common stock, an appropriate risk-free interest rate plus a credit spread and the fair value of the common stock. See Note 10 for additional information.The table below provides a reconciliation of the fair value of the embedded derivative measured on a recurring basis for which the Company used Level 3 forthe year ended December 31, 2010 (amounts in thousands): Beginning January 1, 2010 $81,098 Unrealized gain included in change in fair value of convertible, redeemable preferredstock embedded derivative (4,691) Purchases, issuances and settlements 76,407 Transfers in/out of Level 3 — Balance at December 31, 2010 $— The Level 3 purchases, issuances and settlements is attributable to the change in fair value of the convertible, redeemable preferred stock embedded derivativerelated to the conversion of all series of preferred stock during 2010 as a result of the IPO. 4.Receivables From BrokersAmounts receivable from brokers consisted of the following at December 31 (amounts in thousands): 2010 2009 Required collateral $26,561 $15,080 Cash in excess of required collateral 75,443 60,724 Open spot foreign exchange positions (3,869) 587 $98,135 $76,391 The Company has posted funds with brokers as collateral as required by agreements for holding spot foreign exchange positions. In addition, the Companyhas cash in excess of required collateral, which includes the value of futures contracts of $0.1 million recorded based upon listed or quoted market rates thatapproximate fair value at December 31, 2010. Open foreign exchange positions include the unrealized gains or losses due to the differences in exchange ratesbetween the dates at which a trade was initiated versus the exchange rates in effect at the date of the consolidated financial statements. These amounts arereflected as Receivables from brokers in the Consolidated Statements of Financial Condition. F-19Table of Contents5.Property and EquipmentProperty and equipment, including leasehold improvements and capitalized software development costs, consisted of the following as of December 31(amounts in thousands): 2010 2009 Software $10,120 $7,846 Computer equipment 4,587 3,801 Leasehold improvements 1,359 1,235 Telephone equipment 642 609 Office equipment 223 226 Furniture and fixtures 198 93 Web site development costs 629 87 17,758 13,897 Less: Accumulated depreciation and amortization (10,464) (7,054) Property and equipment, net $7,294 $6,843 Depreciation expense was $3.4 million, $2.7 million, and $2.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. 6.Intangible AssetsIn 2003, the Company acquired the Forex.com domain name for $0.2 million, and in 2004, the foreignexchange.com domain name was purchased for$0.1 million. Based on the fact that the rights to use these domain names requires the payment of a nominal annual renewal fee, management determined thatthere was no legal or regulatory limitations on the useful life and furthermore that there is currently no technological limitation to their useful lives. Theseindefinite-lived assets are not amortized. In accordance with ASC 350-10, the Company tests intangible assets for impairment on an annual basis in the fourthquarter and on an interim basis when conditions indicate impairment has occurred.The Company acquired a marketing list in November 2006 for $0.8 million that is being amortized over its useful life, with an amortization period no longerthan 18 months. Amortization of $0.2 million was recorded in 2008, with no impairment recorded. The marketing list was fully amortized as of June 30,2008.In August 2010, the Company acquired the account balances and effective customer agreements, customer list and marketing list from MG Financial LLC, or(“MG”), for $0.5 million. The total retail forex customer assets acquired from MG were $3.1 million. The customer and marketing lists are intangible assetsand are being amortized over their useful lives of one year.In October 2010, the Company acquired the customer account balances and effective customer agreements from Capital Market Services, LLC, or (“CMS”),for a total of $8.0 million. The Company determined the fair value of the assets acquired was $9.4 million, which includes the payments made to acquire theassets and approximately $1.4 million of future payments at fair value to be made to CMS based upon revenues generated from the CMS customers for aneighteen month period following the acquisition. The future payments are considered a contingent liability and the Company will mark to market the liabilityon a quarterly basis. The total retail forex customer assets acquired from CMS were $31.9 million. The purchase price was allocated to customers list and isbeing amortized over its useful life of 18 months. F-20Table of ContentsAs of December 31, 2010 and 2009, the accumulated amortization related to intangibles was $2.0 million and $0.8 million, respectively. Intangible assetsconsisted of the following (amounts in thousands): Balance at January 1, 2008 $523 Amortization of marketing list (203) Balance at December 31, 2008 320 Balance at December 31, 2009 320 Purchase of MG customer and marketing list 469 Purchase of CMS customer list 9,465 Purchase of indefinite life intangible assets 43 Amortization (1,208) Balance at December 31, 2010 $9,089 The expected amortization expense for the years ended December 31, 2011 and 2012 is $6.6 million and $2.1 million, respectively. 7.AcquisitionsGoodwill is calculated as the difference between the cost of acquisition and the fair value of the net assets of an acquired business. Goodwill consists of thefollowing as of December 31, 2010 and 2009 (amounts in thousands): GC Japan (formerly, FORTUNE) $1,278 GCAM, LLC 1,078 GAIN Capital Securities, Inc. (formerly, State Discount Brokers, Inc.) 533 GAIN Capital Forex.com U.K., Ltd (formerly, RCGGL) 203 $3,092 The Company owns GCAM, LLC. The Company issued 68,250 Restricted Stock Units (“RSUs”) in exchange for 13,980 shares in GCAM, LLC. TheRSU agreement relating to the purchase of GCAM, LLC in 2007 was revised, so that the restricted shares at January 1, 2008 unrestrict over 24 months. AtDecember 31, 2010 and 2009, the goodwill associated with the acquisition was $1.1 million.The joint venture, entered into on December 20, 2007 and known as RCGGL, received regulatory approval from the U.K. Financial Services Authority (“U.K.FSA”) in January 2008 and was subsequently transferred to the Company on December 22, 2008 with a transfer of 100,000 shares. The Company acquiredthe remaining 100,000 shares of RCGGL owned by RCG on December 31, 2008, resulting in complete control of the legal entity. Goodwill associated with thepurchase of RCG’s shares of RCGGL amounted to $0.2 million. RCG owned 50% interest in the joint venture, and the purchase and transfer of these sharesprovided the Company with 100% ownership of RCGGL, now known as GAIN Capital Forex.com U.K., Ltd.The Company acquired GAIN Capital Securities, Inc. on October 3, 2008, generating $0.5 million in goodwill from the transaction.Goodwill associated with the acquisition of 51% of the outstanding shares of GC Japan in December 2008 amounted to $1.3 million. In October 2009, theCompany acquired an additional 19% of GC Japan per the purchase agreement for $1.3 million. In April 2010, the Company acquired the remaining 30% ofGC Japan’s outstanding shares for $0.4 million, which did not generate any additional goodwill. F-21Table of ContentsThe following schedule summarizes the effects of changes in the Company’s ownership interest in GC Japan on the Company’s equity (amounts inthousands): 2010 2009 Net income attributable to GAIN Capital Holdings, Inc. $37,845 $27,994 Transfers to the noncontrolling interest Decrease in GAIN Capital Holdings, Inc.’s paid-in capital for purchase of GC Japancommon shares in 2010 and 2009 (614) (1,136) Increase in noncontrolling interest related to acquisition of subsidiary 394 — Change from net income attributable to GAIN Capital Holdings Inc. and transfers tononcontrolling interest $37,625 $26,858 The acquisitions, individually and in the aggregate, did not meet the conditions of a material business combination and therefore were not subject to thedisclosure requirements of ASC 805, Business Combinations. The consolidated financial statements include the operating results of each business from thedate of acquisition. No goodwill impairment was recorded for the years ended December 31, 2010, 2009 and 2008. 8.Other AssetsOther assets consisted of the following at December 31 (amounts in thousands): 2010 2009 Vendor and security deposits $3,603 $3,371 Current tax receivable 1,826 3,646 Deferred tax assets 3,119 1,892 Miscellaneous receivables 2,492 543 $11,040 $9,452 9.Notes PayableThe Company has a $52.5 million term loan and a $20.0 million revolving line of credit through a loan and security agreement with Silicon Valley Bank andJPMorgan Chase Bank. The term loan is payable in 20 quarterly installments of principal and the payments commenced on October 1, 2007. Interest is paidmonthly and is based upon the prime rate of interest plus 0.5%. Under the terms of the term loan, when the total funded debt drops below earnings beforeincome tax expense, interest expense, and depreciation and amortization expense, or EBITDA, the interest rate will decline by 0.5%. The interest rate as ofDecember 31, 2010 was 3.75%. The term loan is secured by certain of our assets, a pledge of our membership interests in our wholly-owned subsidiary GAINHoldings, LLC and a guarantee by GAIN Holdings, LLC. The term loan maturity date is July 1, 2012. Interest for the revolving line of credit accrues at afloating per annum rate equal to the prime rate of interest plus 0.5%. The amount of availability under the revolving line of credit is determined by subtractingfrom $20.0 million the amount outstanding under the revolving line of credit. The revolving line of credit maturity date is June 16, 2011. We intend to renewthe revolving line of credit upon maturity. As of December 31, 2010, we had $18.4 million outstanding under the term loan and no amounts were outstandingunder the revolving line of credit. In accordance with the provisions of our term loan and revolving line of credit as outlined in the loan and security agreementand subsequent modifications, we are required to adhere to various financial, regulatory, operational and reporting covenants. As of December 31, 2010 andduring the entire term of such loan, we were in compliance with such covenants. F-22Table of ContentsThe carrying amount of notes payable approximates fair value. The Company had a balance of $18.4 million and $28.9 million outstanding on the term loanas of December 31, 2010 and 2009, respectively, with future maturities of the notes payable as follows (amounts in thousands): Years Ended December 31: 2011 $10,500 2012 7,875 $18,375 Loan fees were capitalized to deferred finance costs and are being amortized over the life of the loan. Deferred loan costs amortized to interest expense were$0.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. The Company had Deferred financing costs on the ConsolidatedStatements of Financial Condition of $0.1 million and $0.2 million at December 31, 2010 and 2009, respectively. 10.Convertible, Redeemable Preferred StockConvertible, Redeemable Series A Preferred Stock — At December 31, 2009, the Company has authorized 4,545,455 shares of Convertible, redeemableSeries A Preferred Stock (“Series A”). The Series A shares convert on a one for one basis. The liquidation value of Series A is calculated as the purchase priceof the shares plus 8 percent per year, commencing upon the initial issuance date. The Series A redemption price is calculated based upon the greater of (i) thepurchase price plus all unpaid dividends, compounded annually from the date of issuance or (ii) the fair market value of the Series A as if converted toCommon Stock.Convertible, Redeemable Series B Preferred Stock — At December 31, 2009, the Company has authorized 7,000,000 shares of Convertible, redeemableSeries B Preferred Stock (“Series B”). The Series B shares are convertible into common shares on a one for one basis. Conversion may occur with a majorityvote, or with automatic conversion upon an initial public offering. In the event of default or liquidation, the value of these preferred shares is calculated as thegreater of (i) 200 percent of the original purchase price per share ($2.22) or (ii) the amount that would be payable in such liquidation to the holder of thatnumber of common shares into which each share of Series B would be convertible immediately prior to such liquidation.The Company’s board of directors and shareholders voted on January 31, 2005 to change the mandatory redemption features of the Series B to require a supermajority vote of the shareholders in the class. The Series B redemption price is calculated as the greater of (i) the original purchase price, plus an amount equalto (a) 50 percent of accrued earnings from the date of issuance to the date of redemption divided by (b) number of outstanding shares of Series B, providedthat the amount shall not exceed all unpaid dividends (at 12 percent, compounded annually) or (ii) the fair market value of Series B as if converted intoCommon Stock, based upon an independent appraisal.In accordance with EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, and after considering the allocation of the proceedsto the Series B, the Company determined that the Series B contained a beneficial conversion feature (“BCF”). In prior years, the Series B Preferred Stock hada stated mandatory redemption date of August 1, 2008, so the Company was amortizing the BCF over the period from issuance until the redemption date. TheBCF was subsequently eliminated pursuant to the Company’s Amended and Restated Certificate of Incorporation.The Series B were issued with attached warrants to purchase Series B at $1.11 per share. The Company allocated the proceeds, net of cash transaction costs,to the Series B Preferred Stock and warrants based on the relative fair value of each instrument. The fair value of the Series B was determined based on adiscounted cash flow analysis and the fair value of the warrants was determined based on the Black-Scholes options pricing model. F-23Table of ContentsWarrants totaling 3,297,733 to purchase Series B remain outstanding as of December 31, 2010 and 2009, respectively.Convertible, Redeemable Series C Preferred Stock — At December 31, 2009, the Company has authorized and issued 2,496,879 shares of convertible,redeemable Series C Preferred Stock (“Series C”). The Series C shares are convertible into common shares at a ratio of 1:1.284095064.Preferred shares can be converted by a majority vote, as defined in the preferred stock agreement. The default or liquidation value of these preferred shares iscalculated as the greater of (i) 200 percent of the original price per share and all unpaid dividends (at 15 percent, compounded annually) or (ii) the amount thatwould be payable in such liquidation to the holder of that number of common shares into which each share of Series C would be convertible immediately priorto such liquidation.Prior to 2005, the Company was accreting the Series C to the redemption value using the effective interest method through the redemption period of five years.The Company’s board of directors and stockholders voted on January 31, 2005 to change the mandatory redemption features of Series C Preferred Stock, sothat it is now redeemable on a super majority vote of the shareholders in the class. The Series C redemption price is calculated as equal to the greater of (i) theSeries C Liquidation value which includes all unpaid dividends or (ii) the fair market value of Series C as if converted into Common Stock, based upon anindependent appraisal.Convertible, Redeemable Series D Preferred Stock — At December 31, 2009, the Company has authorized and issued 3,254,678 shares of convertible,redeemable Series D Preferred Stock for $40 million.Preferred shares can be converted by a majority vote, as defined in the preferred stock agreement. The default or liquidation value of these preferred shares iscalculated as the greater of (i) the sum of the Series D multiplier, or 1.5, times the Series D Original Purchase Price plus all unpaid dividends (at 12 percent,compounded annually) or (ii) the amount that would be payable in such liquidation to the holder of that number of common shares into which each share ofSeries D would be convertible immediately prior to such liquidation.Convertible, Redeemable Series E Preferred Stock — At December 31, 2009, the Company authorized 3,738,688 shares and issued 2,611,606 shares ofconvertible, redeemable Series E Preferred Stock for $117 million, incurring $0.2 million in issuance costs.Preferred shares can be converted by a majority vote, as defined in the preferred stock agreement. The default or liquidation value of these preferred shares iscalculated as the greater of (i) the Series E Original Purchase Price plus all unpaid dividends (at 8 percent, compounded annually) or (ii) the amount thatwould be payable in such liquidation to the holder of that number of common shares into which each share of Series E would be convertible immediately priorto such liquidation.The net proceeds from the issuance of Series E Preferred Stock were used to repurchase Series A (1,162,248 shares), Series B (1,601 shares), and Series CPreferred Stock (173,831 shares) and common stock (914,572 shares), thus reducing the number of shares outstanding on a fully diluted basis. Employeesholding fully vested stock option awards were able to convert a portion of their options to common stock, subject to repurchase by the Company. Existingshareholders received the same election. As a result of this election, there were 66,530 RSUs converted into common stock on a 1:1 ratio as of December 31,2008.Pursuant to the Second Amended and Restated Certificate of Incorporation dated January 11, 2008, there will be an adjustment to the conversion price withrespect to the Series E preferred stock if the initial public offering Offer Price or Revised Offer Price, as applicable (each as defined in our Second Amendedand Restated Certificate of Incorporation), is less than $53.76. F-24Table of ContentsEach preferred stock shareholder who sold shares back to the Company pursuant to a repurchase agreement is required by the repurchase agreement toindemnify the Company if there is an adjustment to the Series E preferred stock conversion price, subject to the indemnification limits described below. Insuch an event, the shareholders will, severally (and not jointly) and pro rata to the payments they received for the repurchased securities sold by eachshareholder, indemnify the Company in an aggregate amount equal to the product of (a) the number of additional shares of common stock issuable as a resultof any adjustment to the Series E preferred stock conversion price with respect to 2,070,312 out of a total of 3,738,688 authorized shares of Series E preferredstock, multiplied by (b) the offer price or revised offer price, as applicable. The preferred stock shareholder shall be entitled to make any indemnificationpayments in cash or in shares of Company common stock. The repurchase agreement provides that the indemnification obligation is capped at an offer priceor revised offer price, as applicable, of $48.96. Should the offer price or revised offer price, as applicable, be lower than $48.96, it shall be deemed to be$48.96 for the purpose of calculating the indemnification amount.Dividends — As set forth in the Amended and Restated Certificate of Incorporation dated January 11, 2008, dividends can be issued upon approval in writingby holders of a majority of the outstanding shares of preferred stock, voting together as a single class, if the board of directors determines that the fully dilutedequity value of the Company exceeds $400 million. Dividends would be declared and paid to the holders of common stock and preferred stock (on an as-converted basis).Rank — The Series D Preferred Stock ranks senior to the Series A, Series B, Series C, and Series E Preferred Stock and the common stock as to dividendsand upon redemption, liquidation, or default. Series C and Series B Preferred Stock rank equally and senior to Series A, Series E and common stock as todividends and upon redemption, liquidation or default. Series A Preferred Stock ranks senior to Series E Preferred Stock and common stock as to dividendsand upon redemption, liquidation or default, with Series E then ranking senior to common stock.Rights and Privileges on Convertible, Redeemable Preferred Stock — At December 31, 2009, the Company had five series of convertible, redeemablepreferred stock subject to certain rights and privileges under the Company’s Second Amended and Restated Certificate of Incorporation.The Company classified the convertible, redeemable preferred stock as mezzanine equity on the Consolidated Statements of Financial Condition atDecember 31, 2009 at the carrying value of the preferred stock.The following table presents a summary of the convertible, redeemable preferred stock (amounts in thousands): PreferredStockSeries A PreferredStockSeries B PreferredStockSeries C PreferredStockSeries D PreferredStockSeries E TotalConvertible,RedeemablePreferredStock BALANCE — December 31, 2009 $2,009 $5,412 $5,319 $39,840 $116,810 $169,390 As a result of the Company’s IPO, the convertible, redeemable preferred stock was converted to common stock and there is no outstanding convertible,redeemable preferred stock at December 31, 2010.Automatic Conversion — Preferred stock converts to common stock immediately prior to a qualified initial public offering (“IPO”), as defined in the investorrights agreement for each series of preferred stock. Series A, Series B, Series D preferred stock convert on a one-to-one basis into shares of common stock, andthe Series C preferred stock converts on a 1:1284095064 basis into shares of common stock. This conversion took place on December 14, 2010 in connectionwith the successful completion of a qualified IPO.If the majority of Series E preferred stockholders vote to do so, or the IPO price equals or exceeds $67.20, all outstanding shares of Series E preferred stockwill be converted on a one-to-one basis into shares of common stock. If the IPO price is less than $67.20, the Series E preferred stock will be converted intoshares of common stock if a majority of all preferred stockholders, voting as one class, approve such conversion. In the event there F-25Table of Contentsis a conversion of Series E preferred stock where the IPO price is less than $53.76, there will be an adjustment to the Series E preferred stock conversion priceas outlined in the Second Amended and Restated Certificate of Incorporation dated January 11, 2008.Preferred Stock Embedded Derivative — The Company has determined that the conversion feature in the Company’s Convertible, Redeemable PreferredStock Series A, Series B, Series C, Series D and Series E meets the definition of an “embedded derivative” in accordance with ASC 815, Derivatives andHedging.The redemption feature enabled the holder to elect a net cash settlement at date of redemption. This event is deemed to be outside the control of the Company.These provisions required that these instruments be bifurcated such that the embedded conversion option is separated from the host contract, and accountedfor as a derivative liability.The pricing model that the Company uses for determining fair values of the embedded derivative is a Black-Scholes options pricing model, which requires theinput of highly subjective assumptions. These assumptions include estimating the expected volatility of our common stock, an appropriate risk-free interestrate plus a credit spread and the fair value of the underlying common stock. The expected volatility is calculated based on stock volatilities for publicly tradedcompanies in a similar industry and general stage of development as the Company. The risk-free interest rate is based on the U.S. Treasury yield curveconsistent with the expected life of the preferred shares until the date of redemption. The expected term of the conversion option is based upon the periodremaining until the redemption date of March 31, 2011. Valuations derived from this model are subject to ongoing internal and external verification and review.Separating an embedded derivative from its host contract requires careful analysis and judgment, and an understanding of the terms and conditions of theinstrument. Selection of inputs involves management’s judgment and may impact net income.At December 31, 2009 the embedded derivative is recorded at fair value and reported in Preferred stock embedded derivative on the Consolidated Statementsof Financial Condition with change in fair value recorded in the Company’s Consolidated Statements of Operations and Comprehensive Income. The gains onthe embedded derivative amounted to $4.7 million, $1.7 million and $181.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.The following summarizes the preferred stock conversion value by preferred stock share class as of December 31, 2009 (amounts in thousands): 2009 Preferred stock series A $14,308 Preferred stock series B 41,490 Preferred stock series C 14,471 Preferred stock series D 10,462 Preferred stock series E 367 $81,098 11.Shareholders’ Equity / (Deficit)Common Stock — At December 31, 2010 and 2009, the Company had authorized 60,000,000 shares of Common Stock (“Common Stock”), of which31,174,651 and 2,966,034 shares were issued and outstanding, respectively.In connection with the IPO, the Company received net proceeds of $3.4 million and is entitled to receive an additional $0.6 million from the underwriters forreimbursement of out-of-pocket expenses. The Company had deferred initial public offering costs of $3.8 million, which were applied to the net proceeds inAdditional Paid-in Capital on the Consolidated Statement of Financial Condition. In addition, the convertible, preferred stock was converted to commonstock and the preferred stock liability associated with the conversion feature was settled. F-26Table of ContentsAs a result, the Company reclassified the convertible, redeemable preferred stock and the associated preferred stock liability of $169.4 million and $76.4million, respectively, to Additional Paid-in Capital on the Consolidated Statement of Financial Condition. 12.Related Party TransactionsManagement has personal funds on deposit in customer accounts of Group, LLC, recorded in Payables to customers on the Consolidated Statements ofFinancial Condition. The balance was $2.8 million and $2.9 million at December 31, 2010 and 2009, respectively.Group, LLC entered into a services agreement with Scivantage, Inc. on February 1, 2008 for a one year term with an option to renew whereby Scivantageprovided certain office workstations and related services in Jersey City, New Jersey. The agreement was later amended to add additional workstations andservices extending the term until December 31, 2009 for a fee of $14,475 per month. Per its terms, the agreement automatically renewed for an additional oneyear and expired on December 31, 2010. Scivantage also provides hosting services to GCSI under a master hosting services agreement entered into onSeptember 16, 2003 in which Scivantage provides the technology infrastructure hosting facility for GCSI, who provides brokerage securities services. Two ofour board of directors members, Messrs. Galant and Sugden, are members of the board of directors of Scivantage. 13.Share Based PaymentOn March 27, 2006, the Company’s shareholders approved the GAIN Capital Holdings, Inc. 2006 Equity Incentive Plan (the “Plan”), under which12.5 million shares are available for awards to employees, consultants and directors. The Plan provides for the issuance of share based award which includerestricted stock units (“RSUs”), Incentive Stock Options (“ISOs”), and nonqualified stock options (“NQSQs”). ISOs are granted at fair market value andare subject to the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. All share based awards are granted at a price or conversionprice determined by the Company’s board of directors. Grants of stock options usually vest over three or four years upon anniversary date. RSUs usuallyvest over four years with one-fourth vesting upon the grant anniversary. All options granted under these plans expire ten years from the date of grant.On November 22, 2010, the Company’s board of directors adopted the GAIN Capital Holdings, Inc. 2010 Omnibus Incentive Compensation Plan, (the “2010Plan”), which became effective December 13, 2010 (the day immediately prior to the date the underwriting agreement was executed and the Common Stock waspriced for the IPO). In addition, on November 23, 2010 the Company’s board of directors approved a 2.29-for 1 stock split of the Company’s common stockeffective immediately prior to the completion of the IPO. Accordingly, all references to stock options, exercise prices and RSUs have been retroactively restatedto reflect the stock split as if it had occurred at the beginning of the earliest period presented. As of the effective date of the 2010 Plan, the 2006 Plan wasmerged with and into the 2010 Plan, and no additional grants will be made under the 2006 Plan. The 2010 Plan makes available 8.5 million shares (1.4million to be issued pursuant to future awards and grants under the 2010 Omnibus Incentive Compensation plan, 6.6 million shares that are subject tooutstanding grants under the 2006 Plan as of the effective date of the 2010 Plan, and 0.5 million shares to be issued pursuant to the 2011 Employee StockPurchase Plan) for awards to employees, nonemployee directors and consultants and advisors in the form of incentive stock options, nonqualified stockoptions, stock awards, stock units, stock appreciation rights and other stock-based awards.Under the 2010 Plan, the committee will determine the exercise price of the options granted and may grant options to purchase shares of our common stock inamounts as determined by the committee. The committee may grant options that are intended to qualify as incentive stock options (“ISOs”) under Section 422of the Internal Revenue Code, or nonqualified stock options (“NQSQs”), which are not intended to so qualify. ISOs may only be granted to employees.Anyone eligible to participate in the 2010 Plan may receive a grant of NQSQs. The exercise price of a stock option granted under the Plan cannot be less thanthe fair market value of a share of our common stock on the date the option is granted. F-27Table of ContentsStock OptionsThe following table summarizes the stock option activity under all plans from January 1, 2010 through December 31, 2010: Number ofOptions WeightedAverageExercise Price WeightedAverageRemainingLife (Years) AggregateIntrinsic Value Outstanding, January 1, 2010 3,505,185 $1.72 Granted 1,325,095 $3.83 Exercised (75,448) $1.42 Forfeited (73,636) $2.08 Outstanding, December 31, 2010 4,681,196 $2.32 5.6 $32,191,376 Vested and expected to vest options 4,608,828 $2.30 5.5 $31,803,178 Exercisable, December 31, 2010 3,508,251 $1.82 4.3 $25,899,497 Fair market value of common stock at exercise date $572,588 Cost to exercise 107,075 Net value of Stock Options exercised $465,513 The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2010: Options Outstanding Options Exercisable Exercise Price NumberOutstandingAs of 12/31/10 WeightedAverageExercise Price WeightedAverageRemainingContractualLife (Years) Number ofOptionsExercisable WeightedAverageExercisePrice $0.38 9,045 $0.38 1.09 9,045 $0.38 $0.77 460,882 0.77 2.48 460,882 0.77 $1.11 466,007 1.11 3.21 466,007 1.11 $1.55 423,668 1.55 4.09 423,668 1.55 $1.99 1,365,658 1.99 4.47 1,365,658 1.99 $2.43 586,672 2.43 4.94 586,672 2.43 $2.87 59,585 2.87 5.09 59,585 2.87 $3.32 1,544 3.32 5.15 1,544 3.32 $3.83 1,308,135 3.83 9.58 135,190 3.83 4,681,196 $2.32 5.6 3,508,251 $1.82 The weighted-average remaining contractual life for the 4.7 million outstanding options as of December 31, 2010, is approximately 5.6 years. There are3.5 million stock options exercisable as of December 31, 2010. The total intrinsic value of stock options exercised during 2010, 2009 and 2008 respectivelywere $0.5 million, $0.1 million and $25.4 million. During 2010, the Company had 0.1 million shares of stock options vest. The Company received$0.1 million, $0.01 million, and $1.7 million from stock option exercises in 2010, 2009 and 2008, respectively.No stock options were granted in 2008 or 2009. In 2010, 1.3 million options were granted under the 2006 Plan, of which 1.0 million was granted to employeesand 0.3 million was granted to board of director’s members, and no options were granted under the 2010 Plan. F-28Table of ContentsThe fair market value of the options granted during 2010 was estimated based on a Black Scholes option pricing valuation model using the followingassumptions as approved by the Compensation Committee of the Company’s Board of Directors. For the fiscal yearended December 31, 2010Average risk-free interest rate 2.43%Expected dividend yield — %Expected life 6.25 yearsExpected volatility 33.45%The expected volatility was calculated based upon the volatility of public companies in similar industries or financial service companies. The average risk freerate is based upon the risk free rate of the U.S. Treasury bond rate with a maturity commensurate with the expected term. The Company has no history orexpectation of paying cash dividends on its common stock.The Company recorded stock-based compensation expense related to options in accordance with ASC 718-10 of $0.3 million in 2010. Stock-basedcompensation expense associated with stock options was immaterial in both 2009 and 2008. The stock-based compensation expense is recorded in Employeecompensation and benefits on the Consolidated Statements of Operations and Comprehensive Income.Restricted Stock Units — The Plan provides for the issuance of RSUs that are convertible on a 1:1 basis into shares of GAIN Capital Holdings, Inc.’scommon stock. GAIN Capital Holdings, Inc. maintains a restricted unit account for each grantee. Restrictions lapse over four years, with 25% lapsing oneach anniversary date of the grant. After the restrictions lapse, the grantee shall receive payment in the form of cash, shares of GAIN Capital Holdings, Inc.’scommon stock, or in a combination of the two, as determined by GAIN Capital Holdings, Inc., upon a change in control of GAIN Capital Holdings, Inc. orthe employee leaving the Company. GAIN Capital Holdings, Inc. may also issue performance grants which have restrictions lapsing immediately, but deliveryof the common stock deferred until a later date.GAIN Capital Holdings, Inc. RSUs are assigned the value of the common stock at date of grant issuance, and the cost is amortized over a four year period.Under the 2006 Plan, GAIN Capital Holdings, Inc. issued 0.4 million and 0.5 million restricted units to employees in 2009 and 2008, respectively, with anadditional 0.04 million and 0.03 million issued to board of director’s members that unrestricted immediately in 2009 and 2008, respectively. No restrictedstock units were issued during 2010.The Company recorded $5.1 million, $5.6 million and $4.4 million in stock-based compensation expense related to RSUs as of December 31, 2010, 2009and 2008, respectively. GAIN Capital Holdings, Inc. recorded $0.1 million in stock-based compensation expense associated with the acquisition of GCAM,LLC in Employee compensation and benefits on the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31,2008.A summary of the status of the Company’s nonvested shares of as of December 31, 2010 and changes during the year ended December 31, 2010, is presentedbelow: Non-Vested Shares Number ofShares Weighted AverageGrant DateFair Value Non-vested at January 1, 2010 1,026,248 $12.22 Granted — Vested (408,933) 11.59 Forfeited (42,881) 12.70 Non-vested at December 31, 2010 574,434 $12.62 F-29Table of ContentsAs of December 31, 2010 there was $4.8 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements grantedunder the 2006 Plan. The cost is expected to be recognized over a weighted-average period of approximately two years. The fair market value on the grant datefor RSUs vested during the years ended December 31, 2010, 2009 and 2008 was $4.7 million, $5.2 million and $3.1 million, respectively. The total value ofthe RSUs that unrestricted during the year ended December 31, 2010 was $2.2 million at the date they became unrestricted. RSUs that were unrestricted as ofDecember 31, 2010 had a value at grant date of $14.1 million. The Company did not grant any RSUs during the year ended December 31, 2010. The fairmarket value of RSUs at the date of grant during the years ended December 31, 2009 and 2008 was $3.6 million and $8.7 million, respectively.Employee Stock Purchase PlanThe 2011 Employee Stock Purchase Plan, or the ESPP, was adopted by our board of directors on November 22, 2010. The ESPP will become effective onJanuary 1, 2011. The ESPP permits eligible employees to purchase shares of our common stock, at a 15% discount from the lesser of the fair market valueper share of our common stock on the first day of the offering period or the fair market value of our common stock on the interim purchase date, through after-tax payroll deductions. Shares reserved for issuance under the plan is initially 500,000. It is intended that the ESPP meet the requirements for an “employeestock purchase plan” under Section 423 of the Internal Revenue Code. There was no activity associated with the ESPP for the year ended December 31, 2010. 14.Income TaxesThe provision for income tax expense/(benefit) consisted of (amounts in thousands): For the Fiscal Year EndedDecember 31, 2010 2009 2008 Current Federal $13,881 $12,144 $27,775 State 2,526 1,207 8,059 Non U.S. 4,829 992 75 21,236 14,343 35,909 Deferred Federal 114 (1,482) (723) State 100 (305) (209) Non U.S. (1,513) (377) 284 Valuation allowance 72 377 (284) (1,227) (1,787) (932) Total income tax expense $20,009 $12,556 $34,977 F-30Table of ContentsDeferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities and are measuredusing the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company’s net deferred tax assets are included inOther assets on the Consolidated Statements of Financial Condition. Significant components of the Company’s deferred tax assets and liabilities atDecember 31, 2010 and 2009 were as follows (amounts in thousands): 2010 2009 Deferred tax assets Allowance for doubtful accounts $22 $138 Deferred rent 313 88 Accrued expenses 117 405 Net foreign operating losses 2,173 661 Stock-based compensation expense 6,921 4,957 Intangibles 439 — Total deferred tax assets 9,985 6,249 Valuation allowance (733) (661) Total deferred tax assets after valuation allowance $9,252 $5,588 Deferred tax liabilities Unrealized trading differences $(4,465) $(3,301) Basis difference in property and equipment (1,430) (200) State taxes (80) (141) Other (158) (54) Total deferred tax liabilities $(6,133) $(3,696) Net deferred tax assets $3,119 $1,892 The following table reconciles the provision to the U.S. federal statutory income tax rate: 2010 2009 2008 Federal income tax at statutory rate 35.00% 35.00% 35.00% Increase/(decrease) in taxes resulting from: State income tax 2.97% 0.08% 1.91% Embedded derivative (2.86)% (1.47)% (23.92)% Foreign rate differential (0.89)% (0.61)% 0.16% Meals & entertainment 0.16% 0.17% 0.03% R&D credit (0.81)% (1.09)% — % Other permanent differences 1.25% (0.87)% (0.07)% Effective Tax Rate 34.82% 31.21% 13.11% The Company has $7.8 million in foreign net operating loss (“NOL”) carry forwards as of December 31, 2010, for which the Company has established fullvaluation allowance against $3.0 million. These NOLs begin to expire in 2013.No provision has been made for foreign taxes associated with the cumulative undistributed earnings of foreign subsidiaries as of December 31, 2010, as theseearnings are expected to be reinvested in working capital and other business needs indefinitely. Upon repatriation of those earnings, in the form of dividends orotherwise, the Company would be subject to income taxes, subject to an adjustment for the participation exemption and foreign tax credits. A determination ofthe amount of the unrecognized deferred tax liability with respect to such earnings is not practicable. F-31Table of ContentsThe Company has recorded a liability of $0.1 million related to uncertain tax positions at December 31, 2010 in accordance with ASC 740-10, Income Taxes.The Company’s open tax years for its federal returns range from 2007 through 2010 and from 2006 through 2010 for its major state jurisdictions. 15.Commitments and ContingenciesLeases — The Company leases office space under non-cancelable operating lease agreements that expire on various dates through 2025. Future annualminimum lease payments, including maintenance and management fees, for non-cancellable operating leases, are as follows (amounts in thousands): Years Ended December 31: 2011 $1,884 2012 1,318 2013 1,213 2014 1,108 2015 1,230 2016 and beyond 11,937 $18,690 Rent expense was $2.4 million, $1.8 million, and $1.4 million for the years ended December 31, 2010, 2009 and 2008, respectively.On December 31, 2009, the Company entered into capital leases for computer equipment that expire on various dates through 2011. Assets recorded undercapital leases amounted to $0.6 million. In accordance with ASC 840-30, Capital leases, the Company measured the present value of the minimum leasepayments and the capital lease obligation of $0.3 million is recorded in Accrued expenses and other liabilities as of December 31, 2010. Future annualminimum lease payments for capital leases are as follows (amounts in thousands): Years Ended December 31: 2011 $330 Litigation — On June 30, 2010, the National Futures Association, or NFA, filed a complaint against GAIN Capital Group, LLC, the Company’s wholly-owned operating subsidiary, and Glenn H. Stevens, the Company’s president and chief executive officer, alleging, among other things, that certain aspects ofthe Company’s liquidation, trade execution and records maintenance, along with the Company’s review of our introducing brokers’ activities did not complywith applicable NFA rules and that, as a result, the matter with the Company and Mr. Stevens did not properly supervise operations. On October 27, 2010 theCompany settled the matter with the NFA without admitting or denying the allegations. Pursuant to the settlement, the NFA made no findings with respect toallegations that Mr. Stevens’ supervision and operations was not compliant with certain NFA rules and standards. As part of the settlement that resulted in theNFA action being terminated, however, the Company agreed to pay a fine of approximately $0.5 million. The Company has also agreed to no longer usecertain liquidation and trade execution processes. For those customers that were impacted by these liquidation and trade execution processes, the Company alsoagreed to reimburse them within 30 days of the settlement.The Company has no material litigation pending as of December 31, 2010. 16.Retirement PlansThe Company sponsors a 401(k) retirement plan. Substantially all of the Company’s employees are eligible to participate in the plan. Pursuant to theprovisions of the plan, the Company is obligated to match 25% of the employee’s contribution to the plan up to 15% of the employee’s compensation for eachpayroll period. The Company matches 50% for employees with three years or more of service. F-32Table of ContentsIn January 2008, the Company added a 401(k) / Profit sharing plan which was made available to eligible employees and added a Roth 401(k) option to theplan. As of December 31, 2008, the 401(k) / Profit sharing plan was merged into the original 401(k) retirement plan. The expense recorded to employeecompensation and benefits on the Consolidated Statements of Operations and Comprehensive Income by the Company for its employees’ participation in theplan during the years ended December 31, 2010, 2009 and 2008 was $0.5 million, $0.5 million, and $0.6 million, respectively.In July 2010 the Board approved and the Company adopted a new “Safe Harbor” 401(k) retirement plan which will be in effect as of January 1, 2011. Thenew plan provides for a 100% match by GAIN on the first 3% of the employee’s salary contributed to the plan and 50% on the next 2% with immediate vestingon all employer contributions. 17.Earnings per Common ShareBasic and diluted earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during theperiod. Diluted earnings per share includes the determinants of basic net income per share and, in addition, gives effect to the potential dilution that wouldoccur if securities or other contracts to issue common stock are exercised, vested or converted into common stock unless they are anti-dilutive. Dilutedweighted average common shares includes preferred stock, warrants, vested and unvested stock options and unvested restricted stock units. No stock optionsor restricted stock units were excluded from the calculation of diluted earnings per share for the years ended December 31, 2010, 2009 and 2008.On November 23, 2010, the Company’s board of directors approved a 2.29-for-1 stock split of our common stock effective immediately prior to thecompletion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders on a pro-rata basis resulting in aneffective stock split of 2.26-for-1. Immediately subsequent to the Company’s IPO, certain shareholders were subject to satisfy indemnification obligationsrelated to past preferred stock issuances and subsequent sales. All references to common shares, preferred shares, additional paid-in capital, retained earnings(accumulated deficit), share and per share data for prior periods have been retroactively restated to reflect the stock split as if it had occurred at the beginningof the earliest period presented. F-33Table of ContentsThe following table sets forth the computation of earnings per share (amounts in thousands except share and per share data): For the Years Ended December 31, 2010 2009 2008 Net income $37,845 $27,994 $231,426 Effect of redemption of preferred shares — — (63,913)Net income applicable to GAIN Capital Holdings, Inc.common shareholders $37,845 $27,994 $167,513 Weighted average common shares outstanding: Basic weighted average common shares outstanding 4,392,798 2,956,377 2,911,107 Effect of dilutive securities: Preferred stock series A 1,645,213 1,725,584 2,034,415 Preferred stock series B 5,405,287 5,669,339 5,902,567 Preferred stock series C 2,835,920 2,974,455 3,079,366 Preferred stock series D 7,017,038 7,359,825 7,359,803 Preferred stock series E 9,561,484 10,028,567 5,744,269 Warrants 3,075,314 3,127,200 3,185,550 Stock options 2,544,927 2,859,884 3,121,134 RSUs 1,264,921 580,838 586,337 Diluted weighted average common shares outstanding 37,742,902 37,282,069 33,924,548 Earnings per common share Basic $8.62 $9.47 $57.54 Diluted $1.00 $0.75 $4.94 (1)The preferred stock dilutive securities were converted to common stock in connection with the Company’s initial public offering in December 2010. Thedilutive preferred stock represents the weighted average outstanding preferred stock for the year ended December 31, 2010.There were no anti-dilutive weighted average common shares for the years ended December 31, 2010, 2009, and 2008. 18.Regulatory RequirementsGAIN Capital Group, LLC a registered futures commission merchant and forex dealer member, is subject to the net capital requirements of Rule 1.17 (the“Rule”) under the Commodity Exchange Act (the “Act”) and capital requirements of the CFTC and NFA. Under the Rule, the minimum required net capital,as defined, is $20.0 million plus 5% of the amount of customer liabilities over $10.0 million. The Company was compliant with the regulations The belowtable summarizes our excess net capital for the respective years, (amounts in thousands). For the Years Ended December 31, 2010 2009 2008 GAIN Capital Group, LLC Net capital $80,429 $102,577 $114,978 Adjusted net capital $76,293 $90,425 $107,726 Excess adjusted net capital $49,885 $64,424 $97,726 F-34(1)Table of ContentsGAIN Global Markets, Inc. (“GGMI”), the Company’s Cayman Island subsidiary, is a registered securities arranger with the Cayman Islands MonetaryAuthority. GGMI is required to maintain a capital level that is the greater of one quarter of relevant annual expenditure, or $100,000. A licensee must at alltimes maintain financial resources in excess of its financial resources requirement. GGMI was compliant with CIMA regulations and required capital levels atDecember 31, 2010.GCSI is a registered broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934. GCSI is a member of the FINRA,Municipal Securities Rulemaking Board (“MSRB”), and Securities Investor Protection Corporation (“SIPC”). GCSI is required to maintain a minimum netcapital balance (as defined) of $0.05 million, pursuant to the SEC’s Uniform Net Capital Rule 15c3-1. GCSI must also maintain a ratio of aggregateindebtedness (as defined) to net capital of not more than 15 to 1. GCSI was compliant with the regulations and required capital levels at December 31, 2010.GAIN Capital Forex.com UK Limited (“GCUK”), is a registered full scope BIPRU 730K investment firm, regulated by the Financial Services Authority(“U.K. FSA”). It is required to maintain the greater of $1.0 million (730k Euros) or the Financial Resources Requirement which is the sum of the firm’soperational, credit, counterparty, and forex risk. GCUK was compliant with U.K. FSA regulations at December 31, 2010 and required capital levels atDecember 31, 2010.Forex.com Japan Co., Ltd., (“GC Japan”), a registered Type I financial instruments business firm regulated by the Financial Services Agency of Japan inaccordance with Financial Instruments and Exchange Law (Law No. 25 of 1948, as amended). It is a member of the Financial Futures Association of Japan.GC Japan is subject to a minimum capital adequacy ratio of 140%. This calculation is derived by dividing Net Capital by the sum of GC Japan’s market,counterparty credit risk, and operational risk. GC Japan was compliant with regulations and required capital levels at December 31, 2010.GAIN Capital Forex.com Hong Kong Limited (“GCHK”) is a registered Type 3 leveraged foreign exchange trading firm with the Securities and FuturesCommission (“SFC”) operating as an approved introducing agent. GCHK is subject to the requirements of section 145 of the Securities and FuturesOrdinance (Cap.571). Under this rule, GCHK is required to maintain a minimum liquid capital requirement of the higher of $0.39 million or the sum of1.5% of its aggregate gross foreign currency position and 5% of its adjusted liabilities calculated in accordance with the Securities and Futures (FinancialResources) Rules (Cap.571N). GCHK was compliant with SFC regulations and required capital levels at December 31, 2010. 19.Segment InformationASC 280, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operatingsegments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly bythe chief operating decision-maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s operationsrelate to foreign exchange trading and related services. Based on the Company’s management strategies, and common production, marketing, development andclient coverage teams, the Company assesses that it operates in a single operating segment.For fiscal years ended December 31, 2010, 2009 and 2008, no single customer accounted for more than 10% of the Company’s trading revenue. TheCompany does not allocate revenues by geographic regions since the Company selectively hedges customer trades on an aggregate basis and does not have amethod to systematically attribute trading volume from a geographic region to associated trading revenue from a particular geographic region. F-35Table of Contents20.Closure of Shanghai CompanyGroup, LLC incorporated Jia Shen Forex Software Development Technology, LLC (“JiaShen”) in Shanghai, China, and commenced operations on January 1,2007. Upon registration of JiaShen with the Shanghai Jin An District government, Group, LLC funded registration capital of $0.8 million.Between 2006 and 2008, a significant portion of the Company’s trading volume, trading revenue, net income and cash flow were generated from residents ofChina. When the Company commenced offering its forex trading services through its Chinese language website to residents of China in October 2003, theCompany believed that its operations were in compliance with applicable Chinese regulations. However, as a result of the Company’s review of its regulatorycompliance in China during 2008 the Company became aware of a China Banking and Regulatory Commission, or CBRC, prohibition on forex trading firmsproviding retail forex trading services to Chinese residents through the Internet without a CBRC permit. The Company does not have such a permit and to itsknowledge, no such permit exists. As a result of this regulatory uncertainty, the Company decided to terminate all service offerings to residents of China andceased our trading support operations located in that country. As of December 31, 2008, the Company no longer accepted new customers.However, pursuant to the Company’s most recent review of the relevant regulatory requirements in China, the Company now believes that it can acceptcustomers from China if the customers come to the Company’s website without being solicited by the Company or by the Company’s introducing brokers,agents or white label partners to do so. As a result, the Company began accepting customers from China in this manner in June 2010. The Company cannotprovide any assurance that it will not be subject to fines or penalties, and if so in what amounts, relating to its forex trading services through the Internet toChinese residents.JiaShen reduced its work force in 2008 and is in the process of formally filing for closure with Chinese authorities. The Company expects JiaShen to be closedby 2011. The Shanghai lease expired in September 2010 and there were no vendor contract termination costs. F-36Table of Contents21.Quarterly Financial Data (Unaudited)The following table sets forth selected quarterly financial data for 2010 and 2009 (in thousands, except per share data): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter For the Year Ended December 31, 2010 Revenues $41,969 $54,707 $51,472 $40,950 Gross profit/(loss) $69,650 $21,184 $(91,975) $58,593 Net income /(loss) $65,560 $13,795 $(98,688) $56,776 Net income/(loss) applicable to non-controlling interest $(402) $— $— $— Net income/(loss) applicable to GAIN Capital Holdings, Inc. $65,962 $13,795 $(98,688) $56,776 Basic net income (loss) per share $22.22 $4.62 $(32.38) $6.62 Diluted net income (loss) per share $1.80 $0.37 $(2.53) $1.44 For the Year Ended December 31, 2009 Revenues $32,055 $44,930 $36,845 $39,489 Gross profit/(loss) $2,807 $(41,380) $29,466 $49,336 Net income /(loss) $(141) $(48,578) $28,189 $48,203 Net income/(loss) applicable to non-controlling interest $(45) $34 $(4) $(306) Net income (loss) applicable to GAIN Capital Holdings, Inc. $(96) $(48,612) $28,193 $48,509 Basic net income (loss) per share $(0.03) $(16.46) $9.53 $16.37 Diluted net income (loss) per share $(0.00) $(1.30) $0.75 $1.30 (1)On November 23, 2010, the Company’s board of directors approved a 2.29-for-1 stock split of our common stock effective immediately prior to thecompletion of the IPO as well as the settlement of the primary share offering which was allocated to all common shareholders on a pro-rata basisresulting in an effective stock split of 2.26-for-1. Immediately subsequent to the Company’s IPO, certain shareholders were subject to satisfyindemnification obligations related to past preferred stock issuances and subsequent sales. All references to common shares, preferred shares, additionalpaid-in capital, retained earnings (accumulated deficit), share and per share data for prior periods have been retroactively restated to reflect the stocksplit as if it had occurred at the beginning of the earliest period presented. 22.Subsequent EventsOn January 19, 2011, the underwriters to the Company’s initial public offering exercised a portion of their overallotment option to purchase shares of theCompany’s common stock, in an amount equal to an aggregate of 80,000 shares, resulting in additional 33,405 shares issued and outstanding.In January 2011, all of the outstanding warrants were exercised resulting in an additional 3.3 million shares of common stock issued and outstanding.On March 29, 2011, the Company entered into a seventh loan modification agreement related to its existing loan and security agreement with Silicon ValleyBank. The loan modification extended the time allowed for the Company to provide monthly consolidated and consolidating balance sheet and incomestatement information, as well as a certificate confirming compliance with the financial covenants under the term loan during the month, to 45 days aftermonth end, rather than 30 days after month end. In addition, the loan modification changed the debt service coverage financial covenant to provide that theCompany is required to comply with such covenant at the end of each fiscal quarter based on the Company’s earnings before interest, taxes, depreciation andamortization (“EBITDA”) for the twelve-month period as of the last day of each quarter. Previously, the Company was required to comply with this covenantbased on our EBITDA for the relevant fiscal quarter. The loan modification also changed the required debt service coverage ratio to a minimum of 3.0 to 1.0from 2.0 to 1.0.The Company has evaluated its subsequent events through the filing date of this Form 10-K Report.****** F-37(1)(1)(1)(1)Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofGain Capital Holdings, Inc.Bedminster, New JerseyWe have audited the consolidated financial statements of Gain Capital Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009,and for each of the three years in the period ended December 31, 2010, and have issued our report thereon dated March 30, 2011; such consolidated financialstatements and report are included in your 2010 Annual Report on Form 10K. Our audits also included Schedule I listed in the Index to Consolidated FinancialStatements and Financial Statement Schedule. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is toexpress an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements takenas a whole, presents fairly, in all material respects, the information set forth therein./s/ Deloitte & Touche LLPNew York, New YorkMarch 30, 2011 F-38Table of ContentsGAIN CAPITAL HOLDINGS, INC.(PARENT COMPANY ONLY)CONDENSED STATEMENTS OF FINANCIAL CONDITION(in thousands, except share and per share data) As of December 31, 2010 2009 ASSETS: Cash and cash equivalents $315 $83 Investments in subsidiaries, equity basis 158,464 129,568 Receivables from affiliates 6,414 3,012 Current tax receivable 1,826 4,618 Deferred initial public offering costs — 1,732 Other assets 3,386 2,119 Total assets $170,405 $141,132 LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT): Liabilities Accrued expenses and other liabilities $2,181 $1,472 Convertible, redeemable preferred stock embedded derivative (See Note 3) — 81,098 Notes payable 18,375 28,875 Total liabilities 20,556 111,445 Commitments and Contingencies (See Note 7) Convertible, Redeemable Preferred Stock Series A Convertible, Redeemable Preferred Stock; ($0.00001 par value; 4,545,455 shares authorized; zero and865,154 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 2,009 Series B Convertible, Redeemable Preferred Stock; ($0.00001 par value; 7,000,000 shares authorized; zero and2,610,210 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 5,412 Series C Convertible, Redeemable Preferred Stock; ($0.00001 par value; 2,496,879 shares authorized; zero and1,055,739 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 5,319 Series D Convertible, Redeemable Preferred Stock; ($0.00001 par value; 3,254,678 shares authorized; zero and 3,254,678issued and outstanding as of December 31, 2010 and 2009, respectively) — 39,840 Series E Convertible, Redeemable Preferred Stock; ($0.00001 par value; 3,738,688 shares authorized; zero and2,611,606 shares issued and outstanding as of December 31, 2010 and 2009, respectively) — 116,810 Total convertible, redeemable preferred stock 169,390 Shareholders’ Equity/(Deficit) Common Stock; ($0.00001 par value; 60 million shares authorized and 31,174,651 and 2,966,034 shares issued andoutstanding as of December 31, 2010 and 2009, respectively) — — Accumulated other comprehensive income 428 347 Additional paid-in capital 73,381 (178,245) Retained earnings 76,040 38,195 Total Shareholders’ Equity/(Deficit) 149,849 (139,703) Total $170,405 $141,132 See Notes to Condensed Financial Statements F-39Table of ContentsGAIN CAPITAL HOLDINGS, INC.(PARENT COMPANY ONLY)CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(in thousands, except share and per share data) For the Fiscal Year EndedDecember 31, 2010 2009 2008 REVENUE: Undistributed earnings of subsidiaries $51,030 $39,673 $88,462 EXPENSES: Employee compensation and benefits 373 525 567 Bank fees 7 10 33 Professional fees 598 897 1,043 Write-off of initial public offering costs — — 1,897 Change in fair value of convertible, redeemable preferred stock embedded derivative (4,691) (1,687) (181,782) Other 277 381 377 Total (3,436) 126 (177,865) INCOME BEFORE INCOME TAX EXPENSE 54,466 39,547 266,327 Income tax expense 16,621 11,553 34,901 NET INCOME $37,845 $27,994 $231,426 Other comprehensive income, net of tax: Foreign currency translation adjustment (186) 16 21 NET COMPREHENSIVE INCOME $37,659 $28,010 $231,447 Effect of redemption of preferred shares $— $— $(63,913) Net income applicable to GAIN Capital Holdings, Inc. common shareholders $37,845 $27,994 $167,513 See Notes to Condensed Financial Statements F-40Table of ContentsGAIN CAPITAL HOLDINGS, INC.(PARENT COMPANY ONLY)CONDENSED STATEMENTS OF CASH FLOWS(in thousands) For the Fiscal Year EndedDecember 31, 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $37,659 $28,010 $231,447 Adjustments to reconcile net income to cash provided by operating activities Equity in income of subsidiaries (52,133) (41,340) (91,159) Loss on foreign currency exchange rates 3 203 59 Deferred taxes 214 (1,787) (842) Write-off of deferred initial public offering costs — — 42 Amortization of deferred finance costs 87 87 89 Stock compensation expense 198 282 541 Tax benefit from employee stock option exercises — (10,709)Change in fair value of preferred stock embedded derivative (4,691) (1,687) (181,782) Changes in operating assets and liabilities: Receivables from affiliates 1,856 3,737 2,637 Other assets (736) (160) (191) Current tax receivable 2,792 (4,618) — Accrued expenses and other liabilities 709 (527) 1,102 Income tax payable — (10,538) 12,505 Cash used for operating activities (14,042) (28,338) (32,261) CASH FLOWS FROM INVESTING ACTIVITIES: Investment and funding of subsidiaries 22,727 39,362 24,873 Cash provided by investing activities 22,727 39,362 24,873 CASH FLOWS FROM FINANCING ACTIVITIES: Deferred initial public offering costs 1,732 (1,296) — Proceeds from initial public offering of common stock, net of underwriting discount and other direct costs of $3.8 million 208 — — Payment on notes payable (10,500) (10,500) (10,500) Proceeds from exercise of stock options 107 8 1,686 Proceeds from exercise of warrants — — 97 Issuance of Series E preferred shares — — 117,000 Series E issuance costs — — (190)Tax benefit from employee stock option exercises — — 10,709 Repurchase of warrants — — (3,945)Repurchase of common shares — — (40,752)Repurchase of preferred shares — — (62,043)Cash provided by/(used for) financing activities (8,453) (11,788) 12,062 Effect of exchange rate changes on cash and cash equivalents — (58) (21) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 232 (822) 653 CASH AND CASH EQUIVALENTS — Beginning of year 83 905 252 CASH AND CASH EQUIVALENTS — End of year $315 $83 $905 SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $1,068 $1,622 $2,795 Taxes $13,759 $28,200 $20,731 Non-cash investing activities: Investment in S.L. Bruce Financial Corporation in accrued expenses and other liabilities $— $— $325 Accrual to acquire additional shares of GAIN Capital Japan Co Ltd $— $350 $— Non-cash financing activities: Accrued initial public offering costs $1,305 $436 $— Series E indemnification $835 $— $— Reversal of call option liability $— $— $1 Settlement of Preferred Stock embedded derivative $76,407 $— $— Settlement of Convertible, Redeemable preferred stock $169,390 $— $— See Notes to Condensed Financial Statements F-41Table of ContentsSCHEDULE I —GAIN CAPITAL HOLDINGS, INC.(PARENT COMPANY ONLY)NOTES TO CONDENSED FINANCIAL STATEMENTS 1.Basis of PresentationBasis of Financial Information — The accompanying financial statements of GAIN Capital Holdings, Inc. (“Parent Company”), including the notes thereto,should be read in conjunction with the consolidated financial statements of GAIN Capital Holdings, Inc. and Subsidiaries (the “Company”) and the notesthereto found on pages F-8 to F-37.The financial statements are prepared in accordance with accounting principles generally accepted in the U.S. which require the Company or Parent Companyto make estimates and assumptions regarding valuations of certain financial instruments and other matters that affect the Parent Company FinancialStatements and related disclosures. Actual results could differ from these estimates.The Parent Company on a stand-alone basis, has accounted for majority-owned subsidiaries using the equity method of accounting.Initial Public OfferingOn December 14, 2010 the Company completed its initial public offering of common stock (“IPO”) of 9,000,000 shares of common stock at an offering priceof $9.00 per share, of which 407,692 shares were sold by the Company and 8,592,308 shares were sold by selling stockholders, resulting in net proceeds tothe Company of $4.0 million, after deducting underwriting discounts (which included a $0.6 million reimbursement by the underwriters for our out-of-pocketexpenses incurred during the offering). Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock were automaticallyconverted into 27,757,770 shares of common stock, in accordance with our Second Amended and Restated Certificate of Incorporation. As a result, theconversion of the convertible preferred stock the embedded derivative liability was settled and recorded to additional paid-in-capital.Costs directly associated with the Company’s IPO of $3.8 million were capitalized and recorded as deferred initial public offering costs prior to the closing ofthe IPO. Once the IPO was closed, these costs were recorded as a reduction of the net proceeds received.Income TaxesIncome tax expense is provided for using the asset and liability method, under which deferred tax assets and liabilities are determined based upon thetemporary differences between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates.Convertible, Redeemable Preferred Stock Embedded DerivativeASC 815 establishes accounting and reporting standards for derivative instruments. The Parent Company has determined that it must bifurcate and accountfor the conversion feature in its previously outstanding Series A, Series B, Series C, Series D, and Series E preferred stock. The embedded derivative isrecorded at fair value and changes in the fair value are reflected in earnings. The conversion feature and the associated embedded derivative liability is nolonger required to be recognized due to the conversion of all preferred stock to common stock in connection with the IPO, see Note 10 to the Company’sconsolidated financial statements. F-42Table of Contents2.Notes PayableFor a discussion of notes payable, see Note 9 to the Company’s consolidated financial statements. 3.Convertible, Redeemable Preferred StockFor a discussion of convertible, redeemable preferred stock, see Note 10 to the Company’s consolidated financial statements. 4.Shareholders’ Equity/(Deficit)For a discussion of the shareholders’ deficit, see Note 11 to the Company’s consolidated financial statements. 5.Transactions with SubsidiariesThe Parent Company has transactions with its subsidiaries determined on an agreed upon basis. Cash dividends from its subsidiaries totaled $42.3 million,$54.6 million and $31.5 million for the years ended December 31, 2010, 2009 and 2008, respectively. 6.Income TaxesASC 740-10-65, Income Taxes, provides measurement and recognition guidance related to accounting for uncertainty in income taxes by prescribing arecognition threshold for tax positions. ASC 740-10-65 also requires extensive disclosures about uncertainties in the income tax positions taken.The Parent Company’s open tax years for its federal returns range from 2007 through 2010 and from 2007 through 2010 for its major state jurisdictions.The Parent Company classifies interest expense and potential penalties related to unrecognized tax benefits as a component of income tax expense. 7.Commitments and ContingenciesFor a discussion of commitments and contingencies, see Note 15 to the Company’s consolidated financial statements. F-43Exhibit 10.3GAIN CAPITAL GROUP, LLC“NONQUALIFIED DEFERRED COMPENSATION PLAN”MASTER PLAN DOCUMENT“NONQUALIFIED DEFERRED COMPENSATION PLAN”MASTER PLAN DOCUMENTBy execution of the Adoption Agreement attached hereto, Gain Capital Group., LLC, the Service Recipient, hereinafter referred to as (the “PlanSponsor”), hereby establishes this Nonqualified Deferred Compensation Plan (the “Plan”) for the benefit of certain Employees or Independent Contractors, theService Provider, hereinafter referred to as (“Participants”), that the Plan Sponsor designates pursuant to the terms set forth herein.PREAMBLEThe Plan Sponsor intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualifieddeferred compensation plan for tax purposes and for purposes of Title I of ERISA and may be: (i) a plan maintained “primarily for the purposes of providingdeferred compensation for a select group of management or highly compensated employees” (“top-hat plan”); or (ii) a plan for Independent Contractors. ThePlan Sponsor in the Adoption Agreement will specify such Plan terms as will apply to all Participants uniformly or as may apply to a given Participant. ThePlan Sponsor need not provide the same Plan benefits or apply the same Plan terms and conditions to all Participants, even as to Participants who are ofsimilar pay, title, and/or other status of the Plan Sponsor. The Plan Sponsor intends that the Plan shall at all times be administered and interpreted inaccordance with Code Section 409A, as added under The American Jobs Creation Act of 2004, and the Treasury Regulations or any other authoritativeguidance issued under that Section.ARTICLE 1DefinitionsDEFINITION OF TERMS. Certain words and phrases are defined when first used in later Articles of this Plan. Whenever any words are used hereinin the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used hereinin the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where theywould so apply. For the purpose of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the followingindicated meanings:1.1 “Account(s)” shall mean a book account reflecting amounts credited to a Participant’s Account(s). To the extent that it is considered necessary orappropriate, the Plan Administrator shall maintain separate subaccounts for each source of contribution under this Plan or shall otherwise provide a means fordetermining that portion of an Account attributable to each contribution source.1.2 “Adoption Agreement” shall mean the written agreement executed by the Plan Sponsor to establish the Plan.1.3 “Aggregated Plans” shall mean this Plan and any other like-type plan or arrangement (account balance plan) of the Plan Sponsor in which aParticipant participates and to which the Plan or Applicable Guidance requires the aggregation of all such nonqualified Deferred Compensation in applying§409A and associated regulations. Page 2 of 291.4 “Applicable Guidance” shall mean, as the context requires, §409A and Section 83, Final Treasury Regulations Section 1.409A, and TreasuryRegulations 1.83, or other written Treasury or IRS guidance regarding or affecting §409A or §83.1.5 “Base Salary” shall mean the annual cash compensation relating to services performed during any Plan Year payable to a Participant as anemployee for services rendered to an employer, but excluding any: bonuses; commissions; overtime pay; incentive Payments; non-monetary awards;relocation expenses; retainers; directors fees and other fees; severance allowances; pay in lieu of vacations; employer-provided pensions, retirement, deferredcompensation, welfare, or fringe benefits; insurance premiums paid by the employer, insurance benefits paid to the Participant or his or her Beneficiary;stock options and grants; car allowances; and expense reimbursements. Base Salary shall be calculated before reduction for compensation voluntarily deferredor contributed by the Participant pursuant to all qualified or nonqualified plans of the employer and shall be calculated to include amounts not otherwiseincluded in the Participant’s gross income under Sections 125, 402(e)(3), 402(h), or 403(b) of the Code pursuant to plans established by the employer;provided, however, that all such amounts will be included in Compensation only to the extent that, had there been no such Plan, the amounts would have beenpayable in cash to the Participant.1.6 “Beneficiary” shall mean the person or persons, natural or otherwise, designated in writing by a Participant before his or her death to receive Planbenefits in the event of the Participant’s death.1.7 “Bonus” shall mean any compensation, in addition to Base Salary and Sales Commission, relating to services performed during any Taxable Yearof the Plan Sponsor, whether or not paid in such Taxable Year or included on the Federal Income Tax Form W-2 for such Taxable Year, payable to aParticipant as an Employee under the Plan Sponsor’s bonus plans, excluding equity-based compensation. Bonus shall be calculated before reduction forcompensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plan(s) of the Plan Sponsor and shall becalculated to include amounts not otherwise included in the Participant’s gross income under §§125, 402(e)(3), 402(h), or 403(b) of the Code pursuant toPlans established by the Plan Sponsor. A Bonus also may be Performance-Based Compensation as defined under the terms of the Plan.1.8 “Cause” shall have the meaning ascribed to such term under the Participant’s employment agreement or offer letter with the Plan Sponsor, or in theabsence of any such agreement or letter, shall mean any of the following acts or circumstances: (i) willful destruction by the Participant of property of the PlanSponsor having a material value to the Plan Sponsor; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed by the Participant (excludingacts involving a de minimis dollar value and not related to the Plan Sponsor); (iii) the Participant’s conviction of or entering a plea of guilty or nolo contendereto any crime constituting a felony or any misdemeanor involving fraud, dishonesty, or moral turpitude (excluding acts involving a de minimis dollar valueand not related to the Plan Sponsor); (iv) the Participant’s breach, neglect, refusal, or failure to materially discharge the Participant’s duties (other than due tophysical or mental illness) commensurate with the Participant’s title and function or the Participant’s failure to comply with the lawful directions of a seniormanaging officer of the Plan Sponsor in any such case that is not cured within fifteen (15) days after the Participant has received written notice thereof fromsuch senior managing officer; or (v) any willful misconduct by the Participant which may cause substantial economic or reputation injury to the PlanSponsor, including, but not limited to, sexual harassment.1.9 “Change in Control” shall mean the occurrence of a Change in Control event, within the meaning of Treasury Regulations §1.409A-3(i)(5) anddescribed in any of subparagraph (a), (b), or (c), (collectively referred to as “Change in Control Events”), or any combination of the Change in ControlEvents. The Plan Sponsor in its Adoption Agreement will elect whether a Change in Control includes any or all the events described below in Page 3 of 29subparagraph (a), (b), or (c). To constitute a Change in Control Event with respect to the Participant or Beneficiary, the Change in Control Event must relateto: (i) the corporation for whom the Participant is performing services at the time of the Change in Control Event; (ii) the corporation that is liable for thePayment of the Deferred Compensation (or all corporations liable for the Payment if more than one corporation is liable); or (iii) a corporation that is a majorityshareholder of a corporation identified in clause (i) or (ii), or any corporation in a chain of corporations in which each corporation is a majority shareholder ofanother corporation in the chain, ending in a corporation identified in clause (i) or (ii).(a) Change in Ownership. A Change in Ownership occurs if a person, or a group of persons acting together, acquires more than fifty percent(50%) of the stock of the corporation, measured by voting power or value. Incremental increases in ownership by a person or group that already ownsfifty percent (50%) of the corporation do not result in a Change of Ownership, as defined in Treasury Regulations §1.409A-3(i)(5)(v).(b) Change in Effective Control. A Change in Effective Control occurs if, over a twelve (12) month period: (i) a person or group acquires stockrepresenting thirty percent (30%) of the voting power of the corporation; or (ii) a majority of the members of the board of directors of the ultimate parentcorporation is replaced by directors not endorsed by the persons who were members of the board before the new directors’ appointment, as defined inTreasury Regulations §1.409A-3(i)(5)(vi).(c) Change in Ownership of a Substantial Portion of Corporate Assets. A Change in Control based on the sale of assets occurs if a personor group acquires forty percent (40%) or more of the gross fair market value of the assets of a corporation over a twelve (12) month period. No change incontrol results pursuant to this Article (c) if the assets are transferred to certain entities controlled directly or indirectly by the shareholders of thetransferring corporation, as defined in Treasury Regulations §1.409A-3(i)(5)(vii).1.10 “Claimant” shall mean a person who believes that he or she is being denied a benefit to which he or she is entitled hereunder.1.11 “Code” shall mean the Internal Revenue Code of 1986, as amended.1.12 “Compensation” shall mean the total cash remuneration, including regular Base Salary, Sales Commission, Bonus, and/or Performance-BasedCompensation paid by the Plan Sponsor to an Eligible Individual with respect to his or her services performed for the Plan Sponsor. Compensation withrespect to an Independent Contractor means all Payments by the Plan Sponsor to the Independent Contractor for services during a Taxable Year.1.13 “Deemed Investment Election” shall mean the elections made by a Participant specifying the manner in which the Participant Account(s) will behypothetically invested in the Deemed Investment Options in accordance with the terms of the Plan.1.14 “Deemed Investment Options” shall mean the hypothetical Investment Options offered by the Plan Sponsor, from time to time, that are used todetermine the Earnings on the Participant Account(s).1.15 “Deferred Compensation” shall mean the Participant’s Account attributable to Elective Deferrals (if any), Nonelective Matching Contributions(if any), Nonelective Discretionary Contributions (if any), and Earnings on such contributions. The “Deferral of Compensation” is Compensation that theParticipant or the Plan Sponsor has deferred under the Plan. Compensation is deferred if: (i) under the terms of the Plan and the relevant facts andcircumstances, the Participant has a Legally Binding Right to Compensation during a Taxable Year; and (ii) such Compensation is or may be payable to (oron behalf of) the Participant in a Page 4 of 29later Taxable Year. An amount generally is payable at the time the Participant has a right to currently receive a transfer of cash or property, including a transferof property includable in income under Code §83.1.16 “Disability or Disabled” shall mean a condition of the Participant whereby he or she either: (i) is unable to engage in any substantial gainfulactivity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for acontinuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to resultin death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than threemonths under an accident and health plan covering employees of the Plan Sponsor. The Plan Administrator will determine whether a Participant has incurred aDisability based on its own good faith determination and may require a Participant to submit to reasonable physical and mental examinations for this purpose.A Participant will also be deemed to have incurred a Disability if determined to be totally disabled by the Social Security Administration, Railroad RetirementBoard, or in accordance with a disability insurance program, provided that the definition of disability applied under such disability insurance programcomplies with the requirements of Treasury Regulation §1.409A-3(i)(4) and authoritative guidance.1.17 “Earnings” shall mean, the Plan’s actual or notional income, attributable to an amount of Deferral of Compensation, (in accordance with Code§31.3121(v)(2)-1(d)(2)) and in accordance with the terms of the Plan. For purposes of this Plan, Earnings on an amount deferred generally includes anamount credited on behalf of a Participant that reflects a rate of return that does not exceed either: (i) the rate of return on a predetermined actual investment or,(ii) if the income does not reflect a rate of return on a predetermined actual investment, a reasonable rate of interest, in accordance with Treasury Regulation§1.409A-1(o).1.18 “Effective Date” shall be the date set forth in the Adoption Agreement.1.19 “Election Form” shall mean the form(s) established, from time to time, by the Plan Administrator on which the Participant makes certaindesignations as required under the terms of the Plan. The Participant Election Form may take the form of an electronic communication followed by appropriateconfirmation according to specifications established by the Plan Administrator.1.20 “Elective Deferral” shall mean the amount of Compensation a Participant elects to defer into the Participant’s Elective Deferral Account and/orScheduled Withdrawal Account under the Plan.1.21 “Elective Deferral Account” shall mean: (i) the sum of the Participant’s Elective Deferral that may be allocated, in whole or in part, by aParticipant pursuant to his or her deferral election to his or her Elective Deferral Account for each Plan Year, plus (ii) Earnings thereon, less (iii) alldistributions made to, or withdrawals by, the Participant and his or her Beneficiary, and tax withholding amounts which may have been deducted from theParticipant’s Elective Deferral Account.1.22 “Eligible Individual” shall mean for any Plan Year (or applicable portion of a Plan Year), an Employee or an Independent Contractor who isdetermined by the Plan Sponsor, or its designee, to be a Participant under the Plan. If the Plan Sponsor determines that an Employee or Independent Contractorfirst becomes an Eligible Individual during a Plan Year, the Plan Sponsor shall notify the individual in writing of its determination and of the date during thePlan Year on which the individual shall first become a Plan Participant.1.23 “Employee” shall mean a person or entity (in accordance with Treasury Regulations §1.409A-1(f)(1) which is on the cash basis method ofaccounting for Federal Page 5 of 29income tax purposes) providing services to the Plan Sponsor in the capacity of a common law Employee of the Plan Sponsor.1.24 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.1.25 “Fiscal Year Compensation” shall mean that in the case where the Plan Sponsor’s taxable year is a non-calendar year, a Participant may elect todefer Bonus Compensation by making an election no later than the close of the Plan Sponsor’s taxable year which precedes the Plan Sponsor’s taxable year inwhich the Participant performs services for which the Compensation is payable. Fiscal Year Compensation includes Compensation relating to a period ofservice coextensive with one or more consecutive taxable years of the Plan Sponsor, of which no amount is paid or payable during the Plan Sponsor’s taxableyear or years constituting the period of service in accordance with Treasury Regulation §1.409A-2(a)(6) and Applicable Guidance.1.26 “Independent Contractor” shall mean a person or entity (as described in Treasury Regulations §1.409A -1(f)(1) that is on the cash basis methodof accounting for Federal income tax purposes) that is providing management services to the Plan Sponsor and who is not an Employee. For purposes of thisPlan, an Independent Contractor excludes a contractor providing significant services to at least two unrelated entities and one that is not related to the PlanSponsor (see Treasury Regulations §1.409A-1(f)((2) for description of Independent Contractors specifically excluded from coverage under IRC Section 409A).1.27 “Legally Binding Right” shall mean, with respect to Compensation: (i) the Participant’s right to such Compensation, granted by the PlanSponsor, after the Participant has performed the services which created the Legally Binding Right, and (ii) where Compensation may not be reducedunilaterally or eliminated by the Plan Sponsor or any other person after the services creating the right to Compensation has been performed. The Plan Sponsor,based on the facts and circumstances, will determine whether a Legally Binding Right exists or does not exist with respect to Compensation, in accordancewith Treasury Regulation §1.409A-1(b)(1).1.28 “Life Annuity” shall mean, with respect to the definition of Payments for purposes of subsequent changes in the time and form of Payment, aseries of substantially equal periodic Payments, payable not less frequently than annually, for the life (or life expectancy) of the Participant, or a series ofsubstantially equal periodic Payments, payable not less frequently than annually, for the life (or life expectancy) of the Participant, followed upon the death orend of the life expectancy of the Participant by a series of substantially equal periodic Payments, payable not less frequently than annually, for the life (or lifeexpectancy) of the Participant’s designated Beneficiary (if any).1.29 “Nonelective Discretionary Contribution” shall mean the Compensation deferred in respect of a Participant at the Plan Sponsor’s sole discretionfor any one Plan Year.1.30 “Nonelective Discretionary Contribution Account” shall mean: (i) the sum of the Plan Sponsor Nonelective Discretionary Contribution amounts(if any), plus (ii) Earnings thereon, less (iii) all distributions made to the Participant or his or her Beneficiary that relate to the Participant’s NonelectiveDiscretionary Contribution Account, and tax withholding amounts deducted (if any) from said Account.1.31 “Nonelective Matching Contribution” shall mean a discretionary or fixed Plan Sponsor contribution made with respect to a Participant’s ElectiveDeferral for any one Plan Year. The Plan Sponsor shall determine in the Adoption Agreement whether the contribution will be fixed or discretionary. Page 6 of 291.32 “Nonelective Matching Contribution Account” shall mean: (i) the sum of the Nonelective Matching Contribution amounts, plus (ii) Earningsthereon, less (iii) all distributions made to the Participant or his or her Beneficiary that relate to the Participant’s Nonelective Matching Contribution Account,and tax withholding amounts deducted (if any) from said Account.1.33 “Participant” shall mean any Eligible Individual: (i) who is selected to participate in this Plan, (ii) who elects to participate in this Plan by signinga Participation Agreement, (iii) who completes and signs certain Election Form(s) required by the Plan Administrator, and (iv) whose signed Election Form(s)are accepted by the Plan Administrator or, (v) a former Eligible Individual who continues to be entitled to a benefit under this Plan.1.34 “Participation Agreement” shall mean the agreement executed by the Eligible Individual and Plan Administrator whereby the Eligible Individualagrees to participate in the Plan.1.35 “Payment” shall mean, for purposes of subsequent changes in the time or form of Payment, each separately identified amount to which aParticipant is entitled under the Plan, on a determinable date, and includes amounts paid for the benefit of the Participant. An amount is “separately identified”only if the amount may be objectively determined under a nondiscretionary formula. For purposes of this Definition, a Payment includes the provision of anytaxable benefit, including Payment in cash or in kind. A Payment includes, but is not limited to, the transfer, cancellation, or reduction of an amount ofDeferred Compensation in exchange for benefits under a welfare benefit plan, a fringe benefit excludible under Code §119 or §132, or any other benefit that isexcludible from gross income.1.36 “Performance-Based Compensation” shall mean that portion of a Participant’s Compensation, if any, that is contingent on the satisfaction ofpre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. Organizational orindividual performance criteria are considered pre-established if established in writing by not later than 90 days after the commencement of the period ofservice to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. Performance-BasedCompensation may include Payments based on performance criteria that are not approved by a compensation committee of the board of directors (or similarentity in the case of a non-corporate Plan Sponsor) or by the stockholders or members of the Plan Sponsor. Performance-Based Compensation does not includeany amount or portion of any amount that will be paid either regardless of performance, or based upon a level of performance that is substantially certain to bemet at the time the criteria is established. Compensation may be Performance-Based Compensation where the amount will be paid regardless of satisfaction ofthe performance criteria due to the Participant’s death, Disability, or a Change in Control event (as defined in Treasury Regulations §1.409A-3(i)(5)(i)),provided that a Payment made under such circumstances without regard to the satisfaction of the performance criteria will not constitute Performance-BasedCompensation. For purposes of this Article, a disability refers to any medically determinable physical or mental impairment resulting in the Participant’sinability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can beexpected to last for a continuous period of not less than six (6) months. Performance-Based Compensation includes Payments based upon subjectiveperformance criteria, provided that: (i) the subjective performance criteria are bona fide and relate to the performance of the Participant, a group of Participantsthat includes the Participant, or a business unit for which the Participant provides services (which may include the entire organization); and (ii) thedetermination that any subjective performance criteria have been met is not made by the Participant or a family member of the Participant (as defined inSection 267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of theParticipant or such a family member, and no amount of the Compensation of the person making such determination is effectively controlled in whole or inpart by the Participant or such a family member. Page 7 of 291.37 “Permissible Payments” shall mean one or more of the following six (6) conditions, specified by the Plan Sponsor in the Adoption Agreement,under which Payment may be made to a Participant or his or her Beneficiary under the terms of the Plan: (i) the Participant’s Separation from Service, (ii) theParticipant’s death, (iii) the Participant’s Disability, (iv) a Change in Ownership or effective control of the Plan Sponsor, or in the ownership of a substantialportion of the assets of the Plan Sponsor, (v) upon the occurrence of an Unforeseeable Emergency, or (vi) a time or a fixed schedule specified under the Plan,in accordance with Treasury Regulation §1.409A-3(a).1.38 “Plan” shall mean this Nonqualified Deferred Compensation Plan of the Plan Sponsor established by and including the Master Plan Document,the Adoption Agreement, the Participation Agreement, all Election Form(s), and the Trust, (if any). For purposes of applying Code § 409A requirements, thisPlan is an account balance plan under Treasury Regulation §1.409A-1(c)(2)(i)(A).1.39 “Plan Administrator” shall be the Plan Sponsor or its designee. A Participant in the Plan should not serve as a singular Plan Administrator. If aParticipant is part of a group of persons designated as a committee or Plan Administrator, then the Participant may not participate in any activity or decisionrelating solely to his or her individual benefits under this Plan. Matters solely affecting the applicable Participant will be resolved by the remaining committeemembers.1.40 “Plan Sponsor” shall mean the person or entity: (i) receiving the services of the Participant; (ii) with respect to whom the Legally Binding Right toCompensation arises; and (iii) all persons with whom such person or entity would be considered a single employer under Code §414(b) or §414(c).1.41 “Plan Year” shall mean, for the first Plan Year, the period beginning on the Effective Date of the Plan and ending December 31 of such calendaryear, and thereafter, a twelve (12) month period beginning January 1 of each calendar year and continuing through December 31 of such calendar year.1.42 “Sales Commission Compensation” shall mean Compensation or portions of Compensation earned by the Participant if: (i) a substantialportion of the services provided by the Participant to the Plan Sponsor consists of the direct sale of a product or service to an unrelated customer; (ii) theCompensation paid by the Plan Sponsor to the Participant consists of either a portion of the purchase price for the product or service or an amount calculatedsolely by reference to the volume of sales; and (iii) Payment of the Compensation is contingent upon the Plan Sponsor receiving Payment for the product orservices from a customer who is unrelated to the Plan Sponsor or to the Participant. A customer is related if treated as related under Treasury Regulations§1.409A-2(a)(12)(i).1.43 “Scheduled Withdrawal Account” shall mean an Account established for determining the amount payable to a Participant at a Specified Time orpursuant to a Fixed Schedule under the terms of the Plan.1.44 “Section 409A” shall mean Section 409A of the Code and the Treasury Regulations and other Applicable Guidance issued under that Section.1.45 “Separation from Service” shall mean:(a) Employee Participants. The occurrence of a Participant’s death, retirement, or “other termination of employment” (as defined in TreasuryRegulations §1.409A-1(h)(1)) with the Plan Sponsor (as defined in Treasury Regulations §1.409A-1(h)(3)). Page 8 of 29(i) Effect of Leave. A Participant does not incur a Separation from Service if the Participant is on military leave, sick leave, or other bona fideleave of absence if the period of such leave does not exceed six (6) months or, if longer, the period for which a statute or contract provides theParticipant with the right to reemployment with the Plan Sponsor. If a Participant’s leave exceeds six (6) months but the Participant is not entitledto reemployment under a statute or contract, the Participant incurs a Separation from Service on the next day following the expiration of such six(6) month period.(ii) Termination of Employment. A Participant will have incurred a Separation from Service where the Plan Sponsor and the Participantreasonably anticipated that no further services would be performed after a certain date. Notwithstanding the above, a Participant is presumed tohave Separated from Service (whether as an Employee or an Independent Contractor), when the level of bona fide services performed decreases toa level equal to or less than twenty percent (20%) of the services performed by the Participant during the immediately preceding 36-month period(or the full period of services to the employer if the Participant has been providing services to the Plan Sponsor for less than 36 months). AParticipant will be presumed not to have Separated from Service where the level of bona fide services performed continues at a level that is fiftypercent (50%) or more of the average level of service performed by the Participant during the immediately preceding 36-month period (or the fullperiod of services to the employer if the Participant has been providing services to the Plan Sponsor for less than 36 months).(b) Independent Contractor Participants. A Separation from Service will occur upon the expiration of the contract (or in the case of more than onecontract, all contracts) under which services are performed for the Plan Sponsor (as defined in Treasury Regulations §1.409A -1(h)(3)), if the expirationconstitutes a good-faith and complete termination of the contractual relationship. The Plan is considered to satisfy the requirement with respect to anamount payable to an Independent Contractor upon a Separation from Service if: (i) no amount will be paid to the Participant before a date at least twelve(12) months after the day on which the contract expires under which the Participant performs services for the Plan Sponsor (or, in the case of more thanone contract, all such contracts expire); and (ii) no amount payable to the Participant on that date will be paid to the Participant if, after the expiration ofthe contract (or contracts) and before that date, the Participant performs services for the Service Recipient as an Independent Contractor or an Employee.1.46 “Series of Separate Payments” shall mean Payment of a series of substantially equal periodic amounts to be paid over a predetermined numberof years, except to the extent that any increase in the Payment amounts reflect reasonable Earnings through the date of Payment.1.47 “Service Year” shall mean a Participant’s Taxable Year in which the Participant performs services which give rise to Compensation.1.48 “Specified Employee” shall mean a Participant who is a key employee as defined in Code §416(i) (without regard to Section 416(i)(5)). However,a Participant is not a Specified Employee unless any stock of the Plan Sponsor is publicly traded on an established securities market or otherwise, as definedin Code §1.897-1(m). If a Participant is a key employee at any time during the twelve (12) months ending on the identification date, the Participant is aSpecified Employee for the twelve (12) month period commencing on the first day of the fourth month following the identification date. For purposes of thisArticle, the identification date is December 31 unless a different date is specified by the Plan Sponsor in the Adoption Agreement. The Plan Sponsor, indetermining whether this Article and all related Page 9 of 29Plan provisions apply, will determine whether the Plan Sponsor has any publicly traded stock as of the date of a Participant’s Separation from Service.1.49 “Specified Time or Fixed Schedule” shall mean, with respect to a Payment of Deferred Compensation, if objectively determinable: (i) the amountpayable; and (ii) the Payment date or dates that are nondiscretionary. For purposes of this Article, an amount is objectively determinable if the amount isspecifically identified or if the amount may be determined at the time the Payment is due pursuant to an objective, nondiscretionary formula specified at thetime the amount is deferred and in accordance with Treasury Regulations §1.409A-3(i)(1)(i).1.50 “Taxable Year” shall mean the twelve (12) consecutive month period ending each December 31.1.51 “Treasury Regulations” shall mean regulations promulgated by the Internal Revenue Service for the United States Department of the Treasury,as they may be amended from time to time.1.52 “Trust” shall mean one or more trusts that may be established in accordance with the terms of this Plan.1.53 “Unforeseeable Emergency” shall mean: (i) a severe financial hardship to the Participant resulting from an illness or accident of the Participant,the Participant’s spouse, the Participant’s Beneficiary, or the Participant’s dependents (as defined in Code §152 (a)); (ii) loss of the Participant’s property dueto casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The PlanSponsor will determine whether a Participant incurs an Unforeseeable Emergency based on the relevant facts and circumstances and in accordance withTreasury Regulations §1.409A-3(a)(6)(i)(3) or Applicable Guidance. However, in any case, Payment on account of an Unforeseeable Emergency may not bemade to the extent that such emergency is or may be relieved: (i) through reimbursement or compensation from insurance or otherwise; (ii) by liquidation of theParticipant’s assets, to the extent the liquidation of such assets would not cause severe financial hardship; or (iii) by the cessation of deferrals under this Plan.The amount of any Payment based on an Unforeseeable Emergency is limited to the amount that is reasonably necessary to satisfy the emergency need, whichmay include amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. Thedetermination as to the amount of Payment must take into account any additional compensation that is available to the Participant if he or she cancels adeferral election in accordance with terms of the Plan. If the Plan Sponsor in the Adoption Agreement elects to permit Payment based on an UnforeseeableEmergency, the Plan shall provide for Payment upon all Unforeseeable Emergencies, provided that any event upon which a Payment may be made qualifies asan Unforeseeable Emergency.1.54 “Valuation Date” shall mean the date through which Earnings are credited/debited to a Participant Account(s). The Valuation Date shall be asclose to the payout or other event triggering valuation as is administratively feasible. The Valuation date for purposes of the Article shall be interpreted as eachday at the close of business of the New York Stock Exchange (currently 4:00 p.m. Eastern Time), on days that the New York Stock Exchange (NYSE) isopen for trading or any other day on which there is sufficient trading in securities of the applicable fund to materially affect the unit value of the fund and thecorresponding unit value of the Participant’s Deemed Investment Option(s). If the NYSE extends its closing beyond 4:00 p.m. Eastern Time, and continues tovalue after the time of closing, the Plan Administrator reserves the right to treat communications received after 4:00 p.m. Eastern Time as being received as ofthe beginning of the next day.1.55 “Year of Plan Participation” shall mean each completed twelve (12) month period during which the Participant is providing service on a full-time basis to the Plan Page 10 of 29Sponsor, (determined without regard to whether deferrals have been made by a Participant for any Plan Year), inclusive of any approved leaves of absence,beginning on the Participant’s date of entry into this Plan.1.56 “Year of Service” shall mean each completed twelve (12) month period during which the Participant is providing service on a full-time basis tothe Plan Sponsor, with a minimum of 1,000 hours of service, inclusive of any approved leaves of absence, beginning on the Participant’s date of hire.ARTICLE 2Selection, Enrollment, Eligibility2.1 Selection by Plan Sponsor. Participation in this Plan shall be limited to a select group of management or highly compensated employees orIndependent Contractors of the Plan Sponsor, as determined by the Plan Sponsor in its sole and absolute discretion. The initial group of Eligible Individualsshall become Participants on the Effective Date. Any Eligible Individual selected as a Plan Participant after the Effective Date, shall become a Participant on adate determined by the Plan Sponsor.2.2 Re-Employment. If a Participant who incurs a Separation from Service is subsequently re-employed, he or she may, at the sole and absolutediscretion of the Plan Administrator, become a Participant in accordance with the provisions of the Plan.2.3 Enrollment Requirements. As a condition of participation in this Plan, each selected Plan Participant shall complete, execute, and return to thePlan Administrator a Participation Agreement and Election Form within the time specified by the Plan Administrator. In addition, the Plan Administrator shallestablish such other enrollment requirements as it determines necessary or advisable. All elections to defer Compensation with respect to a Plan Year shall beirrevocable, except as permitted under a subsequent Article.2.4 Termination of Participation. If the Plan Administrator determines that: (i) a Participant who has not experienced a Separation from Service nolonger qualifies as a member of a select group of management or highly compensated employees; or (ii) a Participant’s participation in the Plan could jeopardizethe status of this Plan as “unfunded” and “maintained by the Plan Sponsor primarily for the purpose of providing Deferred Compensation for a select groupof management or highly compensated employees,” then the Plan Sponsor may in its sole and absolute discretion prevent the Participant from making futuredeferral elections and receiving nonelective contributions to the Plan.ARTICLE 3Deferral of Compensation3.1 Minimum and Maximum Elective Deferral Limits. For each Plan Year, a Participant may elect to defer Compensation in fixed dollar amountsor percentages subject to the minimums or maximums (if any) established by the Plan Sponsor and communicated to the Participant in his or her ElectionForm. If a deferral election is made for less than the minimum amount, or if no deferral election is made, the amount deferred for such Plan Year shall be zero.If a deferral election is made for more than the stated maximum amount, then the amount deferred shall default to the maximum amount. The Plan Sponsormay at any time establish an aggregate limit on the amount of Compensation that any Participant may elect to defer under the Plan, provided that such limitshall not reduce a Participant’s Elective Deferral for the Plan Year under any Election Form in effect at the time the limit is established. Once such a limit is ineffect, the Elective Deferral specified by each of the Participant’s Election Forms shall be limited so that the aggregate of the Participant’s Elective Deferral doesnot exceed the maximum. Page 11 of 293.2 Election to Defer Compensation.(a) In General. Except as otherwise provided below, an Eligible Individual shall make an election to defer Compensation, on the Election Formprovided by the Plan Sponsor, not later than the last business day of the Plan Year ending before the first Plan Year in which services relating to suchCompensation are performed; provided that Base Salary payable for a regular payroll period that ends after the last day of the Service Year shall betreated as relating to services performed in the next Service Year. Thus, a deferral election generally must be made by the last business day in Decemberbefore the Service Year to which the election relates. The Plan Administrator, however, may establish an earlier deadline for the completion and deliveryof Election Form. If no such Election Form is timely delivered for a Plan Year, the Elective Deferral amount shall be zero for that Plan Year. An election todefer Compensation may include an election as to both the time and form of Payment. An Election Form, to be valid, must be completed and signed bythe Participant and accepted by the Plan Administrator. An election to defer Compensation shall be irrevocable and shall continue in effect for the entirePlan Year with respect to which it is made, except as otherwise provided in the Plan. An election to defer may be changed or revoked up to the last dayfor delivery of the Election Form. Accordingly, an election to defer Compensation will not be considered as having been made until such time, at whichtime the Election Form shall become irrevocable.(b) First Year of Eligibility. If an Employee or Independent Contractor first becomes an Eligible Individual after the beginning of a Plan Year,and if he or she has not in any prior Plan Year become eligible to participate in any nonqualified deferred compensation plan of the Plan Sponsor withwhich the Plan would be aggregated for purposes of Treasury Regulations §1.409A -2(a)(6), he or she may make an initial deferral election within thirty(30) days after the date he or she first becomes an Eligible Individual, with respect to Compensation paid for services to be performed subsequent to theelection. In the event an election of deferral is made with respect to a Bonus in the first year of eligibility, but after the beginning of a service period, thedeferral election will apply to the portion of the bonus paid for services performed subsequent to the election and will be calculated based on the totalbonus for the service period multiplied by the ratio of the number of days remaining in the service period to the total days in the service period. Where anEligible Individual has ceased being eligible to participate in the Plan (other than the accrual of Earnings), regardless of whether all amounts deferredunder the plan have been paid, and subsequently becomes eligible to participate in the plan again, the Employee may be treated as being initially eligibleto participate in the plan if the said Employee had not been eligible to participate in the plan (other than the accrual of Earnings) at any time during thetwenty-four (24) month period ending on the date the Employee again becomes eligible to participate in the plan. Under such circumstances, the rules ofthis Article will again apply.(c) Initial Deferral Election with Respect to Performance-Based Compensation. Notwithstanding anything in the Articles above to thecontrary, to the extent that the Plan Administrator determines that an Eligible Individual’s Bonus constitutes Performance-Based Compensation, (asdefined in Treasury Regulations §1.409A-1(e)), the Plan Administrator, in its sole discretion, may permit an Eligible Employee to elect to defer suchPerformance-Based Compensation on or before the date that is six months before the end of the performance period, provided that the Participantperforms services continuously from the later of: (i) the beginning of the performance period; or (ii) the date the performance criteria are establishedthrough the date an election is made under this Article; (iii) and provided further that in no event may an election to defer Performance-BasedCompensation be made after such Compensation has become readily ascertainable. If the Performance-Based Compensation is a specified or calculableamount, the Compensation is readily ascertainable if and when the amount is first substantially certain to be paid. If the Page 12 of 29Performance-Based Compensation is not a specified or calculable amount because, for example, the amount may vary based upon the level ofperformance, the Compensation, or any portion of the Compensation, is readily ascertainable when the amount is first both calculable and substantiallycertain to be paid. For this purpose, the Performance-Based Compensation is bifurcated between the portion that is readily ascertainable and the amountthat is not readily ascertainable. Accordingly, in general, any minimum amount that is both calculable and substantially certain to be paid will be treatedas readily ascertainable.(d) Initial Deferral Election with Respect to Sales Commission Compensation. For purposes of the deferral election timing rules, aParticipant earning Sales Commission Compensation shall be deemed to provide the services to which such Sales Commissions relate in the TaxableYear in which the customer remits Payment to the Plan Sponsor.(e) Initial Deferral Election with Respect to Certain Forfeitable Amounts. If Payment of Deferred Compensation is subject to a conditionrequiring the Participant to continue to provide service for a period of at least twelve (12) months from the date the Participant obtains a Legally BindingRight to avoid forfeiture of Payment, an election to defer Compensation may be made on or before the 30 day after the Participant obtains a LegallyBinding Right to the Compensation, provided that the Participant makes the election at least twelve (12) months prior to the earliest date at which theforfeiture condition could lapse.(f) Initial Deferral Election with Respect to a Fiscal Year Bonus Compensation. Fiscal Year Bonus Compensation may be deferred at theParticipant’s election only if the election to defer such Compensation is made no later than the end of the Plan Sponsor’s fiscal year immediatelypreceding the first fiscal year of the Plan Sponsor in which any services are performed for which such Compensation is payable.(g) Terminations of Deferral Elections Following a Financial Hardship. If a Participant faces an Unforeseeable Emergency and/or receives ahardship distribution in accordance with Section 1.401(k)-1(d)(3) of the Treasury Regulations, the Participant may petition the Plan Administrator tocancel his or her deferral election for the remainder of the Plan Year. Whether a Participant is faced with an Unforeseeable Emergency shall be determinedby the Plan Administrator in accordance with Treasury Regulations §1.409A-3(g)(3). A Participant whose deferral election is canceled pursuant to thisArticle may again elect to defer Compensation for any succeeding Plan Year, in accordance with the terms of the Plan.(h) Cancellation of Deferral Elections Due to Disability. Upon the occurrence of a “Disability”, the Participant may petition the PlanAdministrator to cancel his or her deferral election, where such cancellation occurs by the later of: (a) the end of the taxable year of the Participant; or(b) the 15th day of the third month following the date the Participant incurs a disability. For purposes of this Article, a “Disability” refers to anymedically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties of his or her position or anysubstantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not lessthan six (6) months.3.3 Withholding and Crediting of Elective Deferral Amounts. For each Plan Year, the Base Salary portion of the Elective Deferral shall be withheldfrom each regularly scheduled payroll during the Plan Year and credited to the Participant’s Elective Deferral Account and/or Scheduled Withdrawal Accountin approximately equal amounts (or as otherwise specified by the Plan Administrator), as adjusted from time to time for increases and decreases in BaseSalary (if the Elective Deferral with respect to Base Salary is expressed as a percentage). The Bonus, Sales Commission, and/or Performance-BasedCompensation portion Page 13 of 29thof the Elective Deferral shall be withheld and credited to an Elective Deferral Account at the time such Compensation otherwise would be paid to theParticipant.3.4 Nonelective Matching Contributions. The Plan Sponsor will specify in the Adoption Agreement whether the Plan Sponsor will or may makematching contributions to Elective Deferrals.3.5 Nonelective Discretionary Contributions. The Plan Sponsor will specify in the Adoption Agreement whether the Plan Sponsor will or may makediscretionary contributions from time to time. The Plan Sponsor shall direct that any such contributions be allocated to those Participants that it may select inits sole and absolute discretion. The amount so credited on behalf of a Participant may be smaller or larger than the amount credited to any other Participant,and the amount credited to any Participant for a Plan Year may be zero. No Participant shall have a right to compel the Plan Sponsor to make a NonelectiveDiscretionary Contribution and no Participant shall have the right to share in any such contribution for any Plan Year unless selected by the Plan Sponsor inits sole and absolute discretion.ARTICLE 4Earnings on Account(s)4.1 Deemed Investment Options. The Plan Administrator shall select from time to time certain mutual funds, insurance company separate accounts,indexed rates, or other methods (the “Deemed Investment Options”) for purposes of crediting Earnings to each Participant’s Account(s). The PlanAdministrator may discontinue, substitute, or add Deemed Investment Options. Any discontinuance, substitution, or addition of a Deemed Investment Optionwill take effect as soon as administratively practicable.4.2 Allocation of Deemed Earnings or Losses on Accounts. Subject to the following Article, each Participant shall have the right to direct the PlanAdministrator as to how the Participant’s Elective Deferrals, and/or Nonelective Discretionary Contributions, and/or Nonelective Matching Contributions shallbe deemed to be invested, subject to any operating rules and procedures imposed from time to time by the Plan Administrator. As of each Valuation Date, theParticipant’s Account(s) will be credited or debited to reflect the Participant’s Deemed Investment Elections.4.3 Deemed Investment Elections of Participants. A Participant’s Deemed Investment Elections for his or her Account(s) shall be subject to thefollowing rules:(a) Any initial or subsequent Deemed Investment Election shall be in writing, on a form supplied by and filed with the Plan Sponsor (or made inany other manner specified by the Plan Administrator), and shall be effective on such date as specified by the Plan Administrator.(b) All Deemed Investment Elections shall continue indefinitely until changed by the Participant in the manner permitted by the PlanAdministrator.(c) If the Plan Sponsor receives an initial or revised Deemed Investment Election which it determines to be incomplete, unclear, or improper, theParticipant’s Deemed Investment Election then in effect shall remain in effect (or, in the case of a deficiency in an initial Deemed Investment Election, theParticipant shall be deemed to have filed no Deemed Investment Election) until a date so designated by the Plan Administrator in its sole and absolutediscretion, unless the Plan Administrator provides for, and permits the application of, corrective action prior to that date.(d) Each Participant, as a condition of his or her participation in the Plan, agrees to indemnify and hold harmless the Plan Sponsor and the PlanAdministrator Page 14 of 29from any losses or damages of any kind relating to the Deemed Investment of the Participant’s Account(s).(e) A Participant’s election must total one hundred percent (100%). If the Plan Administrator possesses (or is deemed to possess, as providedabove) at any time Deemed Investment Elections of less than 100% of a Participant’s Account(s), the Participant shall be deemed to have directed that theundesignated portion of the said Account(s) be deemed to be invested in a money market or similar fund made available under this Plan as determinedby the Plan Administrator.(f) The Deemed Investment Options are to be used for measurement purposes only, and a Participant’s election of any such Deemed Investments,the allocation of such Deemed Investments to his or her Account(s), the calculation of additional amounts, and the crediting or debiting of such amountsto a Participant’s Account(s) shall not be considered or construed in any manner as an actual investment of his or her Account balance in any suchDeemed Investments. In the event that the Plan Sponsor or the trustee of the Trust (if any), in its own discretion, decides to invest funds in any or all ofthe investments on which any of the Deemed Investments are based, no Participant (or Beneficiary) shall have any rights in or to such investmentsthemselves. Without limiting the foregoing, a Participant’s Account(s) shall at all times be a bookkeeping entry only and shall not represent anyinvestment made on his or her behalf by the Plan Sponsor or the Trust (if any). The Participant (or Beneficiary) shall at all times remain an unsecuredcreditor of the Plan Sponsor. Any liability of the Plan Sponsor to any Participant, former Participant, or Beneficiary with respect to a right to Paymentshall be based solely upon contractual obligations created by this Plan.ARTICLE 5Vesting of Benefits5.1 Elective Accounts. A Participant shall at all times be 100% vested in his or her Elective Deferral Account(s) and/or Scheduled WithdrawalAccount(s), if any.5.2 Nonelective Matching and Discretionary Contribution Accounts. The Plan Sponsor will specify in the Participation Agreement of the Participantor Adoption Agreement any vesting schedule applicable to a Participant’s Nonelective Matching Contribution Account(s) and/or Nonelective DiscretionaryAccount(s).5.3 Accelerated Vesting on Specified Events. The Plan Sponsor will specify in the Adoption Agreement the extent to which vesting will be acceleratedfor a Participant’s Nonelective Account(s) (if any) upon: (i) the Participant’s attainment of a specified age; (ii) Separation from Service after a specified age;(iii) the Participant’s death; (iv) the Participant’s Disability; or (v) upon a Change in Control event.5.4 Forfeiture. In the event the Participant’s employment is terminated for Cause, no benefits of any kind will be due or payable by the Plan Sponsorunder the terms of this Plan from the Participant’s Nonelective Account(s) and all rights of the Participant, his or her designated Beneficiary, executors, oradministrators, or any other person, to receive Payments thereof shall be forfeited. A Participant will forfeit any portion of an Account that is non-vested uponSeparation from Service.ARTICLE 6Taxes and Withholdings6.1 Federal Insurance Contribution Act (FICA). Deferred Compensation amounts, in accordance with Code §3121(v)(2), are taken into account aswages for FICA tax purposes as Page 15 of 29of the later of: (i) when the services are performed; or (ii) when there is no substantial risk of forfeiture with respect to the Employee’s right to receive thedeferred amounts in a later calendar year. Amounts are subject to FICA taxes at the time of the deferral, unless the Employee is required to perform substantialfuture services in order for the Employee to have a legal right to the future Compensation. If the Employee is required to perform future services in order to havea vested right to the future Payment, the deferred amounts (plus Earnings up to the date of vesting) are subject to FICA taxes when all the required serviceshave been performed. FICA taxes only apply up to the annual wage base for Social Security taxes and without withholding limitations for Medicare taxes. Foreach Plan Year in which an Elective Deferral is being withheld from an Employee, the Plan Sponsor shall withhold from that portion of the Employee’sCompensation that is not being deferred, the Participant’s share of FICA on such Elective Deferral amounts. If necessary, the Plan Sponsor may reduce all or aportion of the Elective Deferral in order to comply with this Article.6.2 Federal Unemployment Tax Act (FUTA). Deferred Compensation amounts are taken into account for FUTA purposes at the later of: (i) whenservices are performed; or (ii) when there is no substantial risk of forfeiture with respect to the Employee’s right to receive the deferred amounts up to theFUTA wage base.6.3 Self-Employment Contributions Act (SECA). For non-employees such as Independent Contractors and directors, SECA taxes apply up to theamount of the Social Security wage base.6.4 Income Tax Withholding. The Plan Sponsor will withhold from any Payment made under this Plan, and from any amount taxable under Code §409A, all applicable taxes, and any and all other amounts required to be withheld under Federal, state, or local law, and other Applicable Guidance.ARTICLE 7Entitlement to Payment of Benefits7.1 Payments in General. The Plan Sponsor will specify in the Adoption Agreement whether or not the Participant is permitted to select the time andform of Payment, with respect to his or her Account(s). Additionally, the Plan Sponsor may indicate whether or not a Participant will be permitted to makesubsequent changes in the time or form of a prior Payment election. If the Participant is not granted such permission(s), the time and form of Payments withrespect to a Participant’s Accounts, will be determined by the Plan Sponsor, and stipulated in the Adoption Agreement.(a) Payment Election. If the Participant is permitted to select for each Plan Year the time and form of Payment, the Payment election must bemade before the beginning of the period for which the right to the compensation arises. If the Participant is not permitted to select the time and form ofPayment, the Plan Sponsor must make an initial Payment election no later than the time the Participant obtains a Legally Binding Right to theCompensation.(b) Installment Payments and Life Annuities. A life annuity, for purposes of Code Section 409A, is treated as a single Payment. A change inthe form of Payment from one type of life annuity to another before any annuity Payment has been made is not subject to the subsequent changes in thetime or form of Payment, as provided below, provided that the annuities are actuarially equivalent applying reasonable actuarial assumptions. The PlanSponsor in the Adoption Agreement will elect whether to treat a series of installment Payments that is not a life annuity as a single Payment or as a seriesof separate Payments. If Payment is to be made through installment Payments, the Participant’s Account(s) shall be calculated as of the Valuation Dateof Page 16 of 29said event. Installment Payments (if applicable) made after the first Payment shall be paid on or about the applicable modal anniversary of the firstPayment date until all required installments have been paid. The amount of each Payment shall be determined by dividing the value of the Participant’sAccount(s) immediately prior to such Payment by the number of Payments remaining to be paid. Any unpaid Account(s) shall continue to be credited ordebited with Earnings, in which case any deemed income, gain, loss, or expenses shall be reflected in the actual Payments. The final installmentPayment shall be equal to the balance of the Account(s), calculated as of the applicable modal anniversary.(c) Subsequent Changes in the Time or Form of Payment. If permitted by the Plan Sponsor in the Adoption Agreement, a Participant and/orthe Plan Sponsor may elect to change the time or form of Payments (collectively, “Payment elections”), provided the following conditions are met:(i) Such change will not take effect until at least twelve (12) months after the date on which the new Payment election is made and approvedby the Plan Administrator;(ii) If the change of Payment election relates to a Payment based on Separation from Service or on a Change in Control, or if the Payment isat a Specified Time or pursuant to a Fixed Schedule, the change of Payment election must result in Payment being deferred for a period of not lessthan five (5) years from the date such Payment would otherwise have been paid (or in the case of a life annuity or installment Payments treated asa single Payment, five (5) years from the date the first amount was scheduled to be paid);(iii) If the change of Payment election relates to a Payment at a Specified Time or pursuant to a Fixed Schedule, the Participant or PlanSponsor must make the change of Payment election not less than twelve (12) months before the date the Payment is scheduled to be paid (or in thecase of a life annuity or installment Payments treated as a single Payment, twelve (12) months before the date the first amount was scheduled to bepaid).(d) Multiple Permissible Payment Events. If the Plan permits multiple Permissible Payment events, the subsequent changes in the time or form ofPayment shall apply separately as to each Payment due upon each Payment event. The addition of a Permissible Payment event to Deferred Compensationpreviously deferred is subject to the provisions of the above Article where the additional event may cause a change in the time or form of Payment.7.2 Permissible Payment Events. The Plan will pay benefits based on the earliest of: (i) Separation from Service; (ii) death; (iii) Disability; (iv) aChange in Control; or (v) upon the occurrence of an Unforeseeable Emergency.(a) Payment Following Separation from Service. If permitted by the Plan Sponsor in the Adoption Agreement, the Plan will pay theParticipant’s Account(s) following a Separation from Service. Amounts shall be paid in accordance with the Participant or Plan Sponsor Paymentelection, with Payment or Payments being made or commencing within ninety (90) days following the event.(i) Payment to Specified Employees upon Separation from Service. Notwithstanding anything contrary in the Plan or in the Paymentelection of a Participant or the Plan Sponsor, the Plan may not make Payment to any Participant who is a Specified Employee as of the date of aSeparation from Service, earlier than six (6) months after the date of Separation from Service (or, if earlier than the end of the six-month period,the date of death of the Specified Page 17 of 29Employee), in accordance with Treasury Regulations §1.409A -(i)(2)(i). This Article does not apply to a Payment made on account of: (i) adomestic relations order, as described in Treasury Regulations §1.409A -3(j)(4)(ii); (ii) a conflict of interest, as described in Treasury Regulations§1.409A -3(j)(4)(iii), or (iii) Payment of employment taxes, described in Treasury Regulations §1.409A-3(j)(4)(vi).(b) Payment(s) Following Death. If Payment is in the form of a lump sum, the Plan will pay to the Participant’s designated Beneficiary: (i) theParticipant’s vested Account(s) following the Participant’s death; and/or (b) a specified and/or formula dollar amount stated in the ParticipationAgreement. If the Plan allows for installment Payments the Plan Sponsor will indicate the treatment of remaining installments (if any) in the AdoptionAgreement. Payment or Payments following a Participant’s death will be made or commence within ninety (90) days following the valid proof of theParticipant’s death.(c) Payment Following Disability. If permitted by the Plan Sponsor in its Adoption Agreement, the Plan will pay the Participant’s vestedAccount(s) following a qualifying Disability. Amounts shall be paid in accordance with the Participant or Plan Sponsor Payment election with Paymentor Payments being made or commencing within ninety (90) days following the event.(d) Payment Following Change in Control. If permitted by the Plan Sponsor in the Adoption Agreement, the Plan will pay the Participant’svested Account(s) following a Change in Control event. A Participant shall be paid his or her vested Account(s) following a Change in Control withPayments being made or commencing within ninety (90) days following the Change in Control event, but only to the extent such Payment(s) complieswith regulations and other guidance issued by the United States Secretary of the Treasury or Internal Revenue Service with respect toSection 409A(a)(2)(A)(v) of the Code.(e) Payment in the Event of an Unforeseeable Emergency. If permitted by the Plan Sponsor in the Adoption Agreement, the Participant maypetition the Plan Administrator for Payment of an amount from his or her vested Account(s) to meet such Unforeseeable Emergency. If the PlanAdministrator approves a Participant’s petition for such a Payment then the Participant shall receive said Payment, in a lump sum, as soon asadministratively feasible after such approval.(f) Payment at a Specified Time Pursuant to Scheduled Withdrawal Accounts. If permitted by the Plan Sponsor in the AdoptionAgreement, the Plan will pay benefits to a Participant at a Specified Time. The Participant shall make an election on the Participant Election Form at thetime of making a deferral to receive a scheduled distribution from the Account established by the Participant for such purpose, including Earningscredited thereon. The Participant may elect to receive the scheduled distribution(s) on January 1st of any future Plan Year, provided that the scheduleddistribution shall be no earlier than the stated number of years subsequent to the deferral election, as specified in the Adoption Agreement. A ScheduledWithdrawal Account shall be paid (or commence to be paid) within sixty (60) days after the selected scheduled distribution date. Amounts shall bedistributed in a single lump sum or in installments over a period of up to five (5) years as selected by the Participant in their election forms, at the timethe deferral of Compensation is made. The Participant may elect to allocate additional deferrals to an existing Scheduled Withdrawal Account insubsequent Participant Election Forms but may only change a scheduled distribution date for an existing Account in accordance with the provision ofthe Plan. The Participant may establish up to five (5) separate Scheduled Withdrawal Accounts with different schedule distribution dates but shall notestablish a sixth (6) such Account until all of the funds in one of the first Scheduled Withdrawal Accounts have been paid out. Page 18 of 29th(g) Payment at a Specified Age. Notwithstanding the foregoing Articles, if the Plan Sponsor elects in the Adoption Agreement to distribute thevested Account(s) upon a Specified Age, the Participant’s vested Account(s) shall be calculated as of the Valuation Date. The Participant’s vestedAccount(s) shall be paid in accordance with the Participant or Plan Sponsor Payment election with Payment or Payments being made or commencingwithin sixty (60) days following the event.7.3 Effect of Other Permissible Payment Events. Should an event occur that triggers a Payment under Separation from Service, death, Disability, ora Change in Control, any Account balances subject to Scheduled Withdrawal Account(s) that have not yet been paid shall not be paid under the election as totime and form of the Account(s), but instead shall be paid, in time and form, in accordance with the event that triggers the distribution.7.4 Lump Sum Payment of Minimum Account Balances. Notwithstanding anything else contained herein to the contrary, if a Participant orBeneficiary is to receive a Permissible Payment in the form of installments, the Plan Sponsor shall state in the Adoption Agreement a minimum vested Accountbalance which shall then cause Payment to be made instead in a lump sum rather than installments as originally elected or specified.7.5 No Accelerations. Notwithstanding anything in this Plan to the contrary, neither the Plan Sponsor nor a Participant may accelerate the time orschedule of any Payment or amount scheduled to be paid under this Plan, except as otherwise permitted by authoritative guidance. The Plan Sponsor shalldeny any change made to an election if the Plan Sponsor determines that the change violates the requirements of authoritative guidance. However, the PlanSponsor may, as specified in the Adoption Agreement, accelerate certain distributions under this Plan to the extent permitted under authoritative guidance asfollows:(a) Domestic Relations Order. Direct Payment of a Participant’s vested Account Balance may be made to an individual other than a Participantas necessary to fulfill a domestic relations order, as defined in Section 414(p)(1)(B) of the Code.(b) Conflicts of Interest.(i) Compliance with ethics agreements with the Federal government may allow an acceleration of a Payment under the plan to theextent necessary for any Federal officer or employee in the executive branch to comply with an ethics agreement with the Federal government.(ii) Compliance with ethics laws or conflicts of interest laws may allow an acceleration of the time or schedule of a Payment under theplan, to the extent reasonably necessary to avoid the violation of an applicable Federal, state, local, or foreign ethics law or conflicts of interest law(including where such Payment is reasonably necessary to permit the Participant to participate in activities in the normal course of his or herposition in which the Participant would otherwise not be able to participate under an applicable rule). A Payment is reasonably necessary to avoidthe violation of a Federal, state, local, or foreign ethics law or conflicts of interest law if the Payment is a necessary part of a course of action thatresults in compliance with a Federal, state, local, or foreign ethics law or conflicts of interest law that would be violated absent such course ofaction, regardless of whether other actions would also result in compliance with the Federal, state, local, or foreign ethics law or conflicts ofinterest law. For this purpose, a provision of foreign law is considered applicable only to foreign earned income (as defined underSection 911(b)(1) without regard to Section 911(b)(1)(B)(iv) and without regard to the requirement that the income be attributable to servicesperformed during the period described in Section Page 19 of 29911(d)(1)(A) or (B)) from sources within the foreign country that promulgated such law.(c) Limited Cashouts. The time of Payment to a Participant may be accelerated, provided that: (i) the Payment accompanies the termination inthe entirety of the Participant’s interest in this Plan and all arrangements which would be aggregated with this Plan under 409A Regulations; and (ii) thePayment is not greater than the limitation on elective deferrals in a “Qualified Plan” (the Applicable Dollar Amount under IRS Section 402(g)(1)(B)) inthe calendar year of acceleration.(d) Payment of Employment Taxes. The time or schedule of a Payment to pay the Federal Insurance Contributions Act (FICA) or the RailroadRetirement Act (RRTA) tax imposed on Compensation deferred by a Participant and Plan Sponsor contributions under this Plan (the “FICA amount” and“RRTA amount” respectively) may be accelerated. Additionally, the acceleration of the time of Payment to pay the income tax on wages imposed as aresult of the Payment of the FICA amount or RRTA amount, and to pay the additional income tax on wages attributable to the pyramiding of wages andtaxes also is permissible. However, the total Payment under this acceleration provision may not exceed the aggregate of the FICA amount or RRTAamount plus the income tax required to be withheld with respect to such FICA amount or RRTA amount.(e) Payment upon Income Inclusion under Section 409A. The time or schedule of a Payment to a Participant may be accelerated at any time thisPlan fails to meet the requirements of Section 409A and related Treasury Regulations. However, such Payment may not exceed the amount required to beincluded in income as a result of the failure to comply with the requirements of Section 409A and authoritative guidance.7.6 Unsecured General Creditor Status of Participant:(a) Payment to the Participant or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of thegeneral, unrestricted assets of the Plan Sponsor and no person shall have any interest in any such asset by virtue of any provision of this Plan. ThePlan Sponsor’s obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires aright to receive Payments from the Plan Sponsor under the provisions hereof, such right shall be no greater than the right of any unsecured generalcreditor of the Plan Sponsor and no such person shall have or acquire any legal or equitable right, interest, or claim in or to any property or assets of thePlan Sponsor.(b) In the event that the Plan Sponsor purchases an insurance policy or policies insuring the life of a Participant or employee, to allow the PlanSponsor to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or Beneficiary shall have any rights whatsoeverin said policy or the proceeds therefrom. The Plan Sponsor or the Trustee of the Trust (if any) shall be the primary owner and beneficiary of any suchinsurance policy or property and shall possess and may exercise all incidents of ownership therein. No insurance policy with regard to any director,“highly compensated employee”, or “highly compensated individual” as defined in IRS Section 101(j) shall be acquired before satisfying theSection 101(j) “Notice and Consent” requirements.(c) In the event that the Plan Sponsor purchases an insurance policy or policies on the life of a Participant as provided for above, then all of suchpolicies shall be subject to the claims of the creditors of the Plan Sponsor. Page 20 of 29(d) If the Plan Sponsor chooses to obtain insurance on the life of a Participant in connection with its obligations under this Plan, the Participanthereby agrees to take such physical examinations and to truthfully and completely supply such information as may be required by the Plan Sponsor orthe insurance company designated by the Plan Sponsor.7.7 Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator may makesuch distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence; or (ii) to theconservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Plan Sponsorand the Plan Administrator from further liability on account thereof.7.8 Delay in Payment by Plan Sponsor.(a) A Payment may be delayed to a date after the designated Payment date under any of the circumstances described below, and the provision willnot fail to meet the requirements of establishing a Permissible Payment event. The delay in the Payment will not constitute a subsequent deferral election,so long as the Plan Sponsor treats all Payments to similarly situated Participants on a reasonably consistent basis.(i) Payments subject to Section 162(m). A Payment may be delayed to the extent that the Plan Sponsor reasonably anticipates that if thePayment were made as scheduled, the Plan Sponsor’s deduction with respect to such Payment would not be permitted due to the application ofCode §162(m). If a Payment is delayed, such Payment must be made either:(1) during the Participant’s first taxable year in which the Plan Sponsor reasonably anticipates, or should reasonably anticipate,that if the Payment is made during such year, the deduction of such Payment will not be barred by application of Code §162(m) or,(2) during the period beginning with the date of the Participant’s Separation from Service and ending on the later of the last day ofthe Taxable Year of the Plan Sponsor in which the Participant separates from service or the fifteenth (15) day of the third monthfollowing the Participant’s Separation from Service. Where any scheduled Payment to a specific Participant in a Plan Sponsor’s TaxableYear is delayed in accordance with this Article, the delay in Payment will be treated as a subsequent deferral election unless all scheduledPayments to that Participant that could be delayed in accordance with this Article are also delayed. Where the Payment is delayed to a dateon or after the Participant’s Separation from Service, the Payment will be considered a Payment upon a Separation from Service forpurposes of the rules under Treasury Regulations §1.409A-3(i)(2) (Payments to Specified Employees upon a Separation from Service)and, the six (6) month delay rule will apply for Specified Employees.(ii) Payments that would violate Federal securities laws or other applicable law. A Payment may be delayed where the Plan Sponsorreasonably anticipates that the making of the Payment will violate Federal securities laws or other applicable law provided that the Payment ismade at the earliest date at which the Plan Sponsor reasonably anticipates that the making of the Payment will not cause such violation. Themaking of a Payment that would cause inclusion in gross income or the application of any penalty provision or other provision of the InternalRevenue Code is not treated as a violation of applicable law. Page 21 of 29th(iii) Other events and conditions. A Plan Sponsor may delay a Payment upon such other events and conditions as the Commissioner ofthe IRS may prescribe.(iv) Notwithstanding the above, a Payment may be delayed where the Payment would jeopardize the ability of the Plan Sponsor to continueas a going concern.(b) Treatment of Payment as Made on Designated Payment Date. Each Payment under this Plan is deemed made on the required Paymentdate even if the Payment is made after such date, provided the Payment is made by the latest of: (i) the end of the calendar year in which the Payment isdue; (ii) the 15th day of the third calendar month following the Payment due date; (iii) in case the Plan Sponsor cannot calculate the Payment amount onaccount of administrative impracticality which is beyond the Participant’s control (or the control of the Participant’s estate), in the first calendar year inwhich Payment is practicable; (iv) in case the Plan Sponsor does not have sufficient funds to make the Payment without jeopardizing the PlanSponsor’s solvency, in the first calendar year in which the Plan Sponsor’s funds are sufficient to make the Payment.ARTICLE 8Beneficiary Designation8.1 Designation of Beneficiaries.(a) Each Participant may designate any person or persons (who may be named contingently or successively) to receive any benefits payable underthe Plan upon the Participant’s death, and the designation may be changed from time to time by the Participant by filing a new designation. Eachdesignation will revoke all prior designations by the same Participant, shall be in the form prescribed by the Plan Administrator, and shall be effectiveonly when filed in writing with the Plan Administrator during the Participant’s lifetime.(b) In the absence of a valid Beneficiary designation, or if, at the time any benefit Payment is due to a Beneficiary, there is no living Beneficiaryvalidly named by the Participant, the Plan Sponsor shall pay the benefit Payment to the Participant’s spouse, if then living, and if the spouse is not thenliving to the Participant’s then living descendants, if any, per stirpes, and if there are no living descendants, to the Participant’s estate. In determining theexistence or identity of anyone entitled to a benefit Payment, the Plan Sponsor may rely conclusively upon information supplied by the Participant’spersonal representative, executor, or administrator.(c) If a question arises as to the existence or identity of anyone entitled to receive a death benefit Payment under the Plan, or if a dispute arises withrespect to any death benefit Payment under the Plan, the Plan Sponsor may distribute the Payment to the Participant’s estate without liability for any taxor other consequences, or may take any other action which the Plan Sponsor deems to be appropriate.8.2 Information to be Furnished by Participants and Beneficiaries; Inability to Locate Participants or Beneficiaries. Any communication,statement, or notice addressed to a Participant or to a Beneficiary at his or her last post office address as shown on the Plan Sponsor’s records shall be bindingon the Participant or Beneficiary for all purposes of this Plan. The Plan Sponsor shall not be obligated to search for any Participant or Beneficiary beyond thesending of a registered letter to the last known address. Page 22 of 29ARTICLE 9Termination, Amendment, or Modification9.1 Plan Termination. The Plan Sponsor reserves the right to terminate this Plan in accordance with one of the following, subject to the restrictionsimposed by Section 409A and authoritative guidance:(a) Corporate Dissolution or Bankruptcy. This Plan may be terminated within twelve (12) months of a corporate dissolution taxed under Code§ 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), and distributions may then be made to Participantsprovided that the amounts deferred under this Plan are included in the Participants’ gross income in the latest of:(i) The calendar year in which the Plan termination occurs;(ii) The calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or(iii) The first calendar year in which the Payment is administratively practicable.(b) Change in Control. This Plan may be terminated within the thirty (30) days preceding or the twelve (12) months following a Change inControl. This Plan will then be treated as terminated only if all substantially similar arrangements sponsored by the Plan Sponsor are terminated so thatall participants in all similar arrangements are required to receive all amounts of Compensation deferred under the terminated arrangements within twelve(12) months of the date of termination of the arrangements.(c) Discretionary Termination. The Plan Sponsor may also terminate this Plan and make distributions provided that:(i) All plans sponsored by the Plan Sponsor that would be aggregated with any terminated arrangements under Treasury Regulations§1.409A -1(c) are terminated;(ii) No Payments, other than Payments that would be payable under the terms of this plan if the termination had not occurred, are madewithin twelve (12) months of this plan termination;(iii) All Payments are made within twenty-four (24) months of this plan termination; and(iv) Neither the Plan Sponsor nor any of its affiliates adopts a new plan that would be aggregated with any terminated plan if the sameParticipant participated in both arrangements at any time within three (3) years following the date of termination of this Plan.(v) The termination does not occur proximate to a downturn in the financial health of the Plan Sponsor.The Plan Sponsor also reserves the right to suspend the operation of this Plan for a fixed or indeterminate period of time.9.2 Amendment. The Plan Sponsor reserves the right to amend this Plan at any time to comply with Section 409A and other Applicable Guidance orfor any other purpose, provided that such amendment will not cause the Plan to violate the provisions of Section 409A. Except to the extent necessary to bringthis Plan into compliance with Section 409A: (i) no amendment or modification shall be effective to decrease the value or vested percentage of a Page 23 of 29Participant’s Account(s) in existence at the time an amendment or modification is made, and (ii) no amendment or modification shall materially and/oradversely affect the Participant’s rights to be credited with additional amounts on such Account(s), or otherwise materially and adversely affect theParticipant’s rights with respect to such Account(s).ARTICLE 10Administration10.1 Plan Administrator Duties. The Plan Administrator shall be responsible for the management, operation, and administration of the Plan. ThePlan Administrator shall act at meetings by affirmative vote of a majority of its members. Any action permitted to be taken at a meeting may be taken without ameeting if, prior to such action, a unanimous written consent to the action is signed by all members and such written consent is filed with the minutes of theproceedings of the Plan Administrator, provided, however that no member may vote or act upon any matter which relates solely to himself or herself as aParticipant. The Chair, or any other member or members of the Plan Administrator designated by the Chair, may execute any certificate or other writtendirection on behalf of the Plan Administrator. When making a determination or calculation, the Plan Administrator shall be entitled to rely on informationfurnished by a Participant or the Plan Sponsor. No provision of this Plan shall be construed as imposing on the Plan Administrator any fiduciary duty underERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.10.2 Plan Administrator Authority. The Plan Administrator shall enforce this Plan in accordance with its terms, shall be charged with the generaladministration of this Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:(a) To select the Deemed Investment Options available from time to time;(b) To construe and interpret the terms and provisions of this Plan;(c) To compute and certify the amount and kind of benefits payable to Participants and their Beneficiaries; to determine the time and manner inwhich such benefits are paid; and to determine the amount of any withholding taxes to be deducted;(d) To maintain all records that may be necessary for the administration of this Plan;(e) To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries, andgovernmental agencies as shall be required by law;(f) To make and publish such rules for the regulation of this Plan and procedures for the administration of this Plan as are not inconsistent withthe terms hereof;(g) To administer this Plan’s claims procedures;(h) To approve election forms and procedures for use under this Plan; and(i) To appoint a plan record keeper or any other agent and to delegate to them such powers and duties in connection with the administration of thisPlan as the Plan Administrator may from time to time prescribe. Page 24 of 2910.3 Binding Effect of Decision. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with theadministration, interpretation, and application of this Plan and the rules and regulations promulgated hereunder shall be final and conclusive and bindingupon all persons having any interest in this Plan.10.4 Compensation, Expenses, and Indemnity. The Plan Administrator shall serve without compensation for services rendered hereunder. The PlanAdministrator is authorized at the expense of the Plan Sponsor to employ such legal counsel and/or Plan record keeper as it may deem advisable to assist in theperformance of its duties hereunder. Expense and fees in connection with the administration of this Plan shall be paid by the Plan Sponsor.10.5 Plan Sponsor Information. To enable the Plan Administrator to perform its functions, the Plan Sponsor shall supply full and timely informationto the Plan Administrator, on all matters relating to the Compensation of its Participants, the date and circumstances of the Disability, death, or Separationfrom Service of its employees or Independent Contractors who are Participants, and such other pertinent information as the Plan Administrator mayreasonably require.10.6 Periodic Statements. Under procedures established by the Plan Administrator, a Participant shall be provided a statement of account on anannual basis (or more frequently as the Plan Administrator shall determine) with respect to such Participant’s Accounts.ARTICLE 11Claims Procedures11.1 Claims Procedure. This Section is based on final regulations issued by the Department of Labor and published in the Federal Register onNovember 21, 2000 and codified in Section 2560.503-1 of the Department of Labor Regulations. If any provision of this Section conflicts with therequirements of those regulations, the requirements of those regulations will prevail.(a) Claim. A Participant or Beneficiary (hereinafter referred to as a “Claimant”) who believes he or she is entitled to any Plan benefit under thisPlan may file a claim with the Plan Sponsor. The Plan Sponsor shall review the claim itself or appoint an individual or entity to review the claim.(b) Claim Decision. The Claimant shall be notified within ninety (90) days after the claim is filed forty-five (45) days for a Disability Claim),whether the claim is allowed or denied, unless the claimant receives written notice from the Plan Sponsor or appointee of the Plan Sponsor prior to theend of the ninety (90) day period (forty-five (45) days for a Disability Claim) stating that special circumstances require an extension of the time fordecision. For a claim other than for Disability, such extension is not to extend beyond the day which is one-hundred eighty (180) days after the day theclaim is filed as long as the Plan Sponsor notifies the claimant of the circumstances requiring the extension, and the date as of which a decision isexpected to be rendered. For a Disability Claim, a thirty (30) day extension is permitted, with an additional thirty (30) days permitted, provided that thePlan Sponsor notifies the claimant prior to expiration of the first thirty (30) day extension, of the circumstances requiring the extension, and the date asof which a decision is expected to be rendered. If the Plan Sponsor denies the claim, it must provide to the Claimant, in writing or by electroniccommunication:(i) The specific reasons for such denial;(ii) Specific reference to pertinent provisions of this Plan on which such denial is based; Page 25 of 29(iii) A description of any additional material or information necessary for the Claimant to perfect his or her claim, by providing suchmaterial to the Plan Sponsor within forty-five (45) days, and an explanation why such material or such information is necessary; and(iv) A description of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the Claimant’sright to bring a civil action under Section 502(a) of ERISA following a denial of the appeal of the denial of the benefits claim.(c) Review Procedures. A request for review of a denied claim must be made in writing to the Plan Sponsor within sixty (60) days after receivingnotice of denial. The decision upon review will be made within sixty (60) days (forty-five (45) days for a Disability claim) after the Plan Sponsor’sreceipt of a request for review. If the Plan Sponsor determines that an extension of time for processing is required, written notice of the extension shall befurnished to the claimant (which will include the expected date of rendering a decision) prior to the termination of the initial period, but in no event willthe extension exceed sixty (60) days (forty-five (45) days for a Disability claim). The reviewer shall afford the Claimant an opportunity to review andreceive, without charge, all relevant documents, information, and records and to submit issues and comments in writing to the Plan Sponsor. Thereviewer shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim regardless ofwhether the information was submitted or considered in the benefit determination. Upon completion of its review of an adverse initial claimdetermination, the Plan Sponsor will give the Claimant, in writing or by electronic notification, a notice containing:(i) its decision;(ii) the specific reasons for the decision;(iii) the relevant Plan provisions on which its decision is based;(iv) a statement that the Claimant is entitled to receive, upon request and without charge, reasonable access to, and copies of, all documents,records and other information in the Plan’s files which is relevant to the Claimant’s claim for benefit;(v) a statement describing the Claimant’s right to bring an action for judicial review under ERISA Section 502(a); and(vi) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination on review, astatement that a copy of the rule, guideline, protocol, or other similar criterion will be provided without charge to the Claimant upon request.(d) Calculation of Time Periods. For purposes of the time periods specified in this Section, the period of time during which a benefitdetermination is required to be made begins at the time a claim is filed in accordance with this Plan’s procedures without regard to whether all theinformation necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant’s failure to submit all informationnecessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimantresponds.(e) Failure of Plan to Follow Procedures. If the Plan Sponsor fails to follow the claims procedure required by this Section, a Claimant shall bedeemed to Page 26 of 29have exhausted the administrative remedies available under this Plan and shall be entitled to pursue any available remedy under Section 502(a) ofERISA on the basis that this Plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.(f) Failure of Claimant to Follow Procedures. A Claimant’s compliance with the foregoing provisions of this Section is a mandatoryprerequisite to the Claimant’s right to commence any legal action with respect to any claim for benefits under the Plan.11.2 Arbitration of Claims. All claims or controversies arising out of or in connection with this Plan shall, subject to the initial review provided for inthe foregoing provisions of this Article, be resolved through arbitration. Except as otherwise mutually agreed to by the parties, any arbitration shall beadministered under and by the Judicial Arbitration & Mediation Services, Inc. (“JAMS”), in accordance with the JAMS procedures then in effect. Thearbitration shall be held in the JAMS office nearest to where the Claimant is or was last employed by the Plan Sponsor or at a mutually agreeable location. Theprevailing party in the arbitration shall have the right to recover its reasonable attorney’s fees, disbursements, and costs of the arbitration (includingenforcement of the arbitration decision) subject to any contrary determination by the arbitrator.ARTICLE 12The Trust12.1 Establishment of Trust. The Plan Sponsor may establish a grantor trust (the “Trust”), of which the Plan Sponsor is the grantor, within themeaning of subpart E, part I, subchapter J, subtitle A of the Code, to pay benefits under this Plan. If the Plan Sponsor establishes a Trust, all benefitspayable under this Plan to a Participant shall be paid directly by the Plan Sponsor from the Trust. To the extent such benefits are not paid from the Trust, thebenefits shall be paid from the general assets of the Plan Sponsor. The Trust, (if any), shall be a grantor trust which conforms to the terms of the model trustas described in IRS Revenue Procedure 92-64, I.R.B. 1992-33, as same may be amended or modified from time to time. If the Plan Sponsor establishes aTrust, the assets of the Trust will be subject to the claims of the Plan Sponsor’s creditors in the event of its insolvency. Except as may otherwise be providedunder the Trust, the Plan Sponsor shall not be obligated to set aside, earmark, or escrow any funds or other assets to satisfy its obligations under this Plan,and the Participant and/or his or her designated Beneficiaries shall not have any property interest in any specific assets of the Plan Sponsor other than theunsecured right to receive Payments from the Plan Sponsor, as provided in this Plan.12.2 Interrelationship of the Plan and the Trust. The provisions of this Plan shall govern the rights of a Participant to receive distributions pursuantto this Plan. The provisions of the Trust (if established) shall govern the rights of the Participant and the creditors of the Plan Sponsor to the assets transferredto the Trust. The Plan Sponsor and each Participant shall at all times remain liable to carry out its obligations under this Plan. The Plan Sponsor’s obligationsunder this Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust.12.3 Contribution to the Trust. Amounts may be contributed by the Plan Sponsor to the Trust at the sole discretion of the Plan Sponsor.ARTICLE 13Miscellaneous Page 27 of 2913.1 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining partshereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. To the extent any provision of thisPlan is determined by the Plan Administrator (acting in good faith), the Internal Revenue Service, the United States Department of the Treasury, or a court ofcompetent jurisdiction to fail to comply with Section 409A of the Code or authoritative guidance with respect to any Participant or Participants, such provisionshall have no force or effect with respect to such Participant or Participants.13.2 Nonassignability. Neither any Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate,mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any parthereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior toactual Payment, be subject to seizure, attachment, garnishment (except to the extent the Plan Sponsor may be required to garnish amounts from Payments dueunder this Plan pursuant to applicable law), or sequestration for the Payment of any debts, judgments, alimony, or separate maintenance owed by aParticipant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency, or betransferable to a spouse as a result of a property settlement or otherwise. If any Participant, Beneficiary, or successor in interest is adjudicated bankrupt orpurports to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber transfer, hypothecate, alienate, or convey in advance of actualreceipt, the amount, if any, payable hereunder, or any part thereof, the Plan Administrator, in its discretion, may cancel such distribution or Payment (or anypart thereof) to or for the benefit of such Participant, Beneficiary, or successor in interest in such manner as the Plan Administrator shall direct.13.3 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between thePlan Sponsor and the Participant. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Plan Sponsor as anemployee or otherwise or to interfere with the right of the Plan Sponsor to discipline or discharge the Participant at any time.13.4 Unclaimed Benefits. In the case of a benefit payable on behalf of such Participant, if the Plan Administrator is unable to locate the Participant orBeneficiary to whom such benefit is payable, such Plan benefit may be forfeited to the Plan Sponsor upon the Plan Administrator’s determination.Notwithstanding the foregoing, if, subsequent to any such forfeiture, the Participant or Beneficiary to whom such Plan benefit is payable makes a valid claimfor such Plan benefit, such forfeited Plan benefit shall be paid by the Plan Administrator to the Participant or Beneficiary, without interest, from the date itwould have otherwise been paid.13.5 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the Stateindicated in the Adoption Agreement, without regard to its conflicts of laws principles.13.6 Notice. Any notice, consent, or demand required or permitted to be given under the provisions of this Plan shall be in writing and shall be signedby the party giving or making the same. If such notice, consent, or demand is mailed, it shall be sent by United States certified mail, postage prepaid,addressed to the addressee’s last known address as shown on the records of the Plan Sponsor. The date of such mailing shall be deemed the date of noticeconsent, or demand. Any person may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.13.7 Coordination with Other Benefits. The benefits provided for a Participant and Participant’s Beneficiary under this Plan are in addition to anyother benefits available to such Participant under any other plan or program for employees of the Plan Sponsor. This Plan shall Page 28 of 29supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.13.8 Compliance. A Participant shall have no right to receive Payment with respect to the Participant’s Account balance until all legal and contractualobligations of the Plan Sponsor relating to establishment of the Plan and the making of such Payments shall have been complied with in full.13.9 Compliance with Section 409A and Authoritative Guidance. Notwithstanding anything in this Plan to the contrary, all provisions of thisPlan, including but not limited to the definitions of terms, elections to defer, and distributions, shall be made in accordance with and shall comply withSection 409A and any authoritative guidance. The Plan Sponsor will amend the terms of this Plan retroactively, if necessary, to the extent required to complywith Section 409A and any authoritative guidance. No provision of this Plan shall be followed to the extent that following such provision would result in aviolation of Section 409A or the authoritative guidance, and no election made by a Participant hereunder, and no change made by a Participant to a previouselection, shall be accepted by the Plan Sponsor if the Plan Sponsor determines that acceptance of such election or change could violate any of the requirementsof Section 409A or the authoritative guidance. This Plan and any accompanying forms shall be interpreted in accordance with, and incorporate the terms andconditions required by, Section 409A and the authoritative guidance, including, without limitation, any such Treasury Regulations or other guidance that maybe issued after the date hereof.SEE ADOPTION AGREEMENT ATTACHED HERETO Page 29 of 29Exhibit 10.23SEVENTH LOAN MODIFICATION AGREEMENTThis Seventh Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of March 29, 2011, by and among SILICONVALLEY BANK, a California corporation (“SVB”), as collateral agent (the “Collateral Agent”) for the Lenders and administrative agent (the “AdministrativeAgent”) for the Lenders (Collateral Agent and Administrative Agent are collectively the “Agent”), and the Lenders listed on Schedule 1.1 to the Loan Agreement(as defined below) and otherwise party hereto, including, without limitation, SVB and JPMORGAN CHASE BANK, N.A. (“JPMorgan”) (SVB andJPMorgan are, collectively, the “Joint Bookrunners”) and GAIN CAPITAL HOLDINGS, INC., a Delaware corporation (“Borrower”).1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrowerto the Lenders, Borrower is indebted to the Lenders pursuant to a loan arrangement dated as of March 29, 2006, evidenced by, among other documents, acertain Loan and Security Agreement dated as of March 29, 2006, among Borrower and the Lenders, as amended by a certain First Loan ModificationAgreement dated as of October 16, 2006, as further amended by a certain Second Loan Modification Agreement dated as of March 20, 2007, as furtheramended by a certain Third Loan Modification Agreement dated as of June 6, 2007, as further amended by a certain Fourth Loan Modification Agreementdated as of March 18, 2008, as further amended by a certain Fifth Loan Modification Agreement dated as of June 18, 2009, between Borrower and Lenders,and as further amended by a certain Sixth Loan Modification Agreement dated as of August 30, 2010, between Borrower and Lenders (as amended, the “LoanAgreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any othercollateral security granted to Agent, for the ratable benefit of the Lenders, the “Security Documents”). Hereinafter, the Security Documents, together with allother documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.3. DESCRIPTION OF CHANGE IN TERMS. A.Modifications to Loan Agreement. 1.The Loan Agreement shall be amended by deleting the following text appearing in Section 6.2(a) thereof:“(i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated andconsolidating balance sheet and income statement covering Borrower’s consolidated and consolidating operations during the periodcertified by a Responsible Officer and in a form acceptable to Agent;”and inserting in lieu thereof the following:“(i) as soon as available, but no later than forty-five (45) days after the last day of each month, a company prepared consolidatedand consolidating balance sheet and income statement covering Borrower’s consolidated and consolidating operations during theperiod certified by a Responsible Officer and in a form acceptable to Agent;” 2.The Loan Agreement shall be amended by deleting the following text appearing in Section 6.2 thereof:“(b) Within thirty (30) days after the last day of each month, deliver to Agent with the monthly financial statements, a dulycompleted Compliance Certificate signed by a Responsible Officer setting forth calculations showing compliance with the financialcovenants set forth in this Agreement.”and inserting in lieu thereof the following:“(b) Within forty-five (45) days after the last day of each month, deliver to Agent with the monthly financial statements, a dulycompleted Compliance Certificate signed by a Responsible Officer setting forth calculations showing compliance with the financialcovenants set forth in this Agreement.” 3.The Loan Agreement shall be amended by deleting the following text, appearing in Section 6.7 thereof:“(a) Debt Service Coverage Ratio. A ratio of EBITDA for the subject quarter to the aggregate amount of Borrower’s quarterlyprincipal payment and monthly interest payments for borrowed money (with respect to the three (3) months during such quarter), ineach case calculated as of the last day of each fiscal quarter, of at least (i) 2.0 to 1.0 as of the quarters ending March 31,2006, June 30, 2006, and September 30, 2006, (ii) 1.50 to 1.0 as of the quarters ending December 31, 2006, March 31, 2007 andJune 30, 2007, (iii) 1.75 to 1.0 as of the quarters ending September 30, 2007, December 31, 2007, March 31, 2008 and June 30,2008, and (iv) 2.0 to 1.0 as of the quarter ending September 30, 2008 and as of the last day of each subsequent fiscal quarter.”and inserting in lieu thereof the following:“(a) Debt Service Coverage Ratio.(i) Quarterly. A ratio of EBITDA for the subject quarter to the aggregate amount of Borrower’s quarterly principalpayment and monthly interest payments for borrowed money (with respect to the three (3) months during such quarter), ineach case calculated as of the last day of each fiscal quarter, of at least (i) 2.0 to 1.0 as of the quarters ending March 31,2006, June 30, 2006, and September 30, 2006, (ii) 1.50 to 1.0 as of the quarters ending December 31, 2006, March 31, 2007and June 30, 2007, (iii) 1.75 to 1.0 as of the quarters ending September 30, 2007, December 31, 2007, March 31, 2008 andJune 30, 2008, and (iv) 2.0 to 1.0 as of the quarter ending September 30, 2008 and as of the last day of each subsequentfiscal quarter through and including December 31, 2010.(ii) Twelve-Month. A ratio of EBITDA for the twelve-month period ending on the last day of such quarter to theaggregate amount of Borrower’s principal and interest payments for borrowed money during such twelve-month period of atleast 3.0 to 1.0 as of the quarter ending March 31, 2011 and as of the last day of each subsequent quarter.” 4.The Compliance Certificate appearing as Exhibit B to the Loan Agreement is hereby replaced with the Compliance Certificate attached asSchedule 1 hereto.4. FEES AND EXPENSES. Borrower shall reimburse Agent and Lenders for all legal fees and expenses incurred in connection with this amendment to theExisting Loan Documents.5. PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certainPerfection Certificate dated as of March 29, 2011, and acknowledges, confirms and agrees the disclosures and information Borrower provided to Lenders inthe Perfection Certificate have not changed, as of the date hereof. Borrower hereby acknowledges and agrees that all references in the Loan Agreement toPerfection Certificate shall mean and include the Perfection Certificate as described herein.6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.7. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateralgranted to the Agent, for the ratable benefit of the Lenders, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.8. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower now has no offsets, defenses, claims, or counterclaimsagainst Agent or Lenders with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, orcounterclaims against Agent or Lenders, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower herebyRELEASES Agent and Lenders from any liability thereunder.9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Agent and Lenders are relying upon Borrower’srepresentations, warranties, and agreements, as set forth in the Existing Loan Documents and as supplemented by the information contained in the PerfectionCertificate. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and infull force and effect. Lenders’ agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate anyLender to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. Itis the intention of Lenders and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Agent inwriting. No maker will be released by virtue of this Loan Modification Agreement.10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Lenders.[The remainder of this page is intentionally left blank]This Loan Modification Agreement is executed as of the date first written above. BORROWER: LENDERS:GAIN CAPITAL HOLDINGS, INC. SILICON VALLEY BANK, as Agent and LenderBy: /s/ Henry Lyons By: /s/ A. Bonnie RyanName: Henry Lyons Name: A. Bonnie RyanTitle: Chief Financial Officer Title: Vice President JPMORGAN CHASE BANK, N.A., as Lender By: /s/ Lawrence Normile Name: Lawrence Normile Title: Vice PresidentThe undersigned, GAIN HOLDINGS, LLC, ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain UnconditionalGuaranty dated as of March 29, 2006 (the “Guaranty”) and acknowledges, confirms and agrees that (i) the Guaranty shall remain in full force and effect andshall in no way be limited by the execution of this Loan Modification Agreement, or any other documents, instruments and/or agreements executed and/ordelivered in connection herewith, and (ii) the Guaranty shall continue to pertain to all Obligations. GAIN HOLDINGS, LLC By: /s/ Henry Lyons Name: Henry Lyons Title: Chief Financial OfficerSchedule 1EXHIBIT BCOMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK, AS AGENT Date: FROM: GAIN CAPITAL HOLDINGS, INC. The undersigned authorized officer of Gain Capital Holdings, Inc. (“Borrower”) certifies that under the terms and conditions of the Loan andSecurity Agreement between Borrower, Lenders and Agent (as amended, the “Agreement”), (1) Borrower is in complete compliance for the period ending with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement aretrue and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to anyrepresentations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations andwarranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of itsSubsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments,deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement, and (5) no Liens have beenlevied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previouslyprovided written notification to Agent. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared inaccordance with generally GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersignedacknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of theAgreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall havethe meanings given them in the Agreement.Please indicate compliance status by circling Yes/No under “Complies” column. Reporting Covenant Required CompliesMonthly financial statements with Compliance Certificate Monthly within 45 days Yes NoAnnual financial statement (CPA Audited) FYE within 150 days Yes No10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes NoRegulatory filings (including CFTC reports) As filed/submitted Yes NoNFA Audit Annually, as filed/submitted Yes No2008 Operating Plan By 1/31/2008 Yes No2009 Operating Plan By 1/31/2009 Yes No Financial Covenant Required Actual CompliesMaintain on a Quarterly Basis: Minimum Debt Service*  :1.0 :1.0 Yes NoMaximum Total Funded Debt/EBITDA** £ :1.0 :1.0 Yes No *As set forth in Section 6.7(a) of the Loan and Security Agreement – as of March 31, 2011, tested for the applicable twelve-month period.**As set forth in Section 6.7(b) of the Loan and Security Agreement.The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”) Gain Capital Holdings, Inc. BANK USE ONLYBy: Received by: Name: AUTHORIZED SIGNERTitle: Date: Verified: AUTHORIZED SIGNER Date: Compliance Status: Yes No Exhibit 10.59 January 10, 2010Diego RotsztainOn behalf of GAIN Capital Holdings, Inc. (the “Company”), I am pleased to offer you employment as Executive Vice President, General Counsel of theCompany on the terms and subject to the conditions set forth in this letter (the “Agreement”) between the Company and Diego Rotsztain (“Executive”).1. Employment Term. The Executive’s employment with the Company will commence on or before January 24, 2011 (such actual date, the “StartDate”). The Company hereby agrees to employ the Executive directly or through a subsidiary, and the Executive hereby agrees to continue such employment,as the Executive Vice President, General Counsel for the Company, through the second anniversary of the Start Date, unless terminated sooner pursuant toSection 8 hereof (the “Term”).2. Representations and Warranties. The Executive represents that Executive is entering into this Agreement voluntarily and that Executive’s employmenthereunder and his compliance with the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to whichExecutive is a party or by which Executive may be bound, or any legal duty that Executive owes or may owe to another.3. Duties and Extent of Services.(a) During the Term, the Executive shall serve as Executive Vice President, General Counsel of the Company and its primary domestic operatingsubsidiaries, with such duties, responsibilities and authority as are consistent with such position, subject to the oversight of the Company (the “Board”), andshall so serve faithfully and to the best of Executive’s ability under the direction and supervision of the Chief Executive Officer. As an executive officer of theCompany, the Executive shall be entitled to all of the benefits and protections to which all officers of the Company are entitled pursuant to the Company’sAmended and Restated Certificate of Incorporation, which shall include, but not be limited to, the rights of indemnification set forth in such Amended andRestated Certificate of Incorporation, and coverage under the Company’s directors’ and officers’ liability insurance as in effect from time to time.(b) During the Term, the Executive agrees to devote substantially his full business time, attention, and energies to the Company’s business and shall notbe engaged in any other business activity, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. Subject, however, toSection 11, 12 and 13 herein, the Executive may serve in charitable and civic positions and as a director of other companies with the prior consent of the ChiefExecutive Officer, which consent shall not be unreasonably withheld. The Executive covenants, warrants, and represents that he shall devote his full and bestefforts to the fulfillment of his employment obligations, and he shall exercise the highest degree of loyalty and the highest standards of conduct in theperformance of his duties.4. Compensation.(a) Base Salary. The Company shall pay the Executive a base annual salary (the “Base Salary”) of not less than $325,000, payable in monthlyinstallments. The Executive shall not receive any additional compensation from any subsidiary of the Company following the date hereof.(b) Bonus. During the Executive’s employment under this Agreement, the Company shall cause the Executive to be eligible to participate in each bonusor incentive compensation plan, program or policy maintained by the Company from time to time, in whole or in part, for the executive officers of theCompany (each, an “Incentive Compensation Plan” and payments thereunder, “Incentive Compensation”). The Executive’s target and maximumcompensation under, and his performance goals and other terms of participation in, each Incentive CompensationPlan shall be determined by the Company’s Compensation Committee in its sole discretion. Any such Incentive Compensation is not guaranteed and iscontingent upon the Executive and the Company achieving deliverables or goals agreed upon. Any such Incentive Compensation shall not be considered“earned” by the Executive until the Company has allocated payment to be made to the Executive for any performance period. Payment under any suchIncentive Compensation Plan shall be made, if at all, after the close of the relevant performance period and by no later than March 15th of the year after theyear in which the performance period ends. Notwithstanding anything herein to the contrary, to the extent permitted or required by governing law, theCompany’s Compensation Committee shall have discretion to require the Executive to repay to the Company the amount of any Incentive Compensation to theextent the Compensation Committee or Board determines that such bonus was not actually earned by the Executive due to (A) the amount of such payment wasbased on the achievement of financial results that were subsequently the subject of a material accounting restatement that occurs within three years of suchpayment (except in the case of a restatement due to a change in accounting policy or simple error); (B) the Executive has engaged in fraud, gross negligence orintentional misconduct; or (C) the Executive has deliberately misled the market or the Company’s stockholders regarding the Company’s financialperformance. Notwithstanding anything herein to the contrary, the Executive’s target annual bonus for 2011 will be $125,000.(c) Equity. During the Employment Period, the Executive will be eligible to participate in all long-term equity incentive programs made available to otherexecutive officers and that are established by the Company for its employees, including the 2006 Equity Compensation Plan (or a successor thereto), at levelsdetermined by the Compensation Committee in its sole discretion commensurate with the Executive’s position. In addition, on the earlier of (i) the Companygrant date that occurs during the first quarter of 2011 (if any) or (ii) the next scheduled grant date following the Start Date (as determined by the CompensationCommittee), the Executive will be granted an equity award pursuant to and subject to the terms and conditions of the 2006 Equity Compensation Plan (orsuccessor plan) consisting of a number of restricted stock units and non-qualified stock options with an aggregate value of $250,000. The number ofrestricted stock units and non-qualified stock options included in such equity award will be based, in the case of restricted stock units, on the fair value of ashare of the Company’s common stock at the close of the grant date if on public exchange or a valuation determined by the Company, subject to CompensationCommittee approval, and in the case of the non-qualified stock options, on a value calculated using the Black-Scholes method. For the foregoing equity grant,the proportion of such value consisting of restricted stock units and non-qualified stock options shall be approximately 75% and 25%, respectively. All equitygrants made to the Executive will vest in accordance with a vesting schedule that is consistent with other grants under the 2006 Equity Compensation Plan (orsuccessor plan) and will be subject in all respects to the terms of the 2006 Equity Compensation Plan (or successor plan) and the agreement evidencing suchgrant.(d) Signing Bonus. The Company shall pay the Executive, within fifteen (15) days of the Start Date, as a signing bonus (the “Signing Bonus”) a cashpayment of $100,000, less applicable tax withholdings. If the Company terminates the Executive’s employment for Cause or the Executive terminates hisemployment for any reason other than death, Disability, or Good Reason, in either case within 12 months after the Start Date, the Executive shall repay to theCompany the net (after tax) amount of the Signing Bonus by no later than 30 days after the date his employment terminates (the “Repayment Deadline”). Thisrepayment requirement shall not apply if the Company terminates the Executive’s employment without Cause, whether before, coincident with or after aChange in Control occurs or if the Executive terminates his employment as a result of his death, Disability, or resignation with Good Reason. The Companymay, to the extent permitted by applicable law, recoup any amount of the Signing Bonus required to be repaid pursuant to the foregoing by reducing oroffsetting any compensation owed by the Company to the Executive; provided, however, that any offset against an amount that constitutes deferredcompensation within the meaning of Code Section 409A shall not be made earlier than such date as it may be implemented without violating CodeSection 409A. Any amount that remains due and unpaid after the Repayment Deadline accrues interest at the prime rate of interest (published in the northeastedition of The Wall Street Journal) in effect as of the Repayment Deadline, compounded at the end of each calendar quarter, until paid. The Company’s rightto repayment under this Agreement is in addition to any other remedy available to the Company with respect to matters arising out of the Executive’semployment by the Company, or the termination thereof.(e) Reimbursable Moving and Related Transition Expenses. The Company shall reimburse the Executive up to $10,000 for moving and related transitionexpenses so long as (a) such expenses are consistent with the type andamount of expenses that customarily would be incurred by similarly situated corporate executives in the United States; and (b) the Executive timely providescopies of receipts for expenses in accordance with Company policy.(f) Miscellaneous. The Company shall pay on the Executive’s behalf, or reimburse the Executive for, all fees and expenses relating to (i) New JerseyState Bar licensing and other fees required to be paid in order to be permitted to practice law in the State of New Jersey; (ii) national, state and other barassociation and/or committee fees that relate to activities the Executive reasonably believes are necessary and appropriate to undertake relating to the practice oflaw and (iii) any fees and expenses required to be paid or incurred in connection with the Executive’s satisfaction of continuing legal education requirements inthe State of New York and the State of New Jersey. In addition, to the extent the Executive reasonably believes it becomes necessary for the Executive to becomea member of the Bar of the State of New Jersey, the Company will pay for any course or program the Executive reasonably believes is necessary for him toprepare for the New Jersey State bar exam, as well as any bar exam registration or other related fees and expenses.5. Benefits. During the Term, the Executive shall be entitled to participate in any and all benefit programs and arrangements generally made available bythe Company to executive officers, including, but not limited to, pension plans, contributory and noncontributory welfare and benefit plans, disability plansand medical, death benefit and life insurance plans for which the Executive may be eligible during the Term. Furthermore, the Executive shall be permittedfour (4) weeks of paid time off (“PTO”) during each calendar year. Accrued paid leave may be used for vacation, professional enrichment and education.Unused leave shall not accrue from one calendar year to another. In addition, if pursuant to Section 4(f), the Executive believes it is reasonably necessary forhim to prepare for and take the bar exam for the State of New Jersey, the Executive shall have up to four (4) weeks of PTO, taken in advance of any such barexam, during which he shall prepare for any such examination.6. Expenses. During the Executive’s employment, the Executive will be reimbursed for travel, entertainment and other out-of-pocket expenses reasonablyincurred by the Executive on behalf of the Company in the performance of the Executive’s duties hereunder, so long as (a) such expenses are consistent withthe type and amount of expenses that customarily would be incurred by similarly situated corporate executives in the United States; and (b) the Executivetimely provides copies of receipts for expenses in accordance with Company policy.7. Adherence to Company Policy. The Executive acknowledges that he is subject to insider information policies designed to preclude the Company’semployees from violating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of anyduty owed to the Company or any third party. The Executive shall promptly execute any agreements generally distributed by the Company or to its employeesrequiring employees to abide by the Company’s insider information policies.8. Termination.(a) Disability. In accordance with applicable law, the Company may terminate the Executive’s employment at any time after the Executive becomesDisabled. As used herein, “Disabled” means the incapacity of the Executive, on more than 75% of the standard business days (Monday through Friday) overany three (3) month period, due to injury, illness, disease, or bodily or mental infirmity, to engage in the performance of substantially all of the usual duties ofemployment with the Company.(b) Death. The Executive’s employment with the Company will terminate upon the death of the Executive.(c) Termination with Cause. The Company may terminate the Executive’s employment at any time for Cause by providing written notice of suchtermination to the Executive. As used herein, “Cause” means any of the following, as determined by the Board:(i) the Executive’s material breach of this Agreement;(ii) the Executive’s gross negligence (other than as a result of disability or occurring after the Executive’s provision of notice in connection with aresignation for Good Reason) or willful misconduct in carrying out his duties hereunder, resulting in harm to the Company;(iii) the Executive’s material breach of any of his fiduciary obligations as an officer of the Company;(iv) any conviction by a court of law of, or entry of a pleading of guilty or nolo contendere by the Executive with respect to, a felony or any othercrime for which fraud or dishonesty is a material element, excluding traffic violations;(v) the Executive willfully or recklessly engages in conduct which is materially injurious to the Company, monetarily or otherwise.For purposes of determining Cause, no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or withoutreasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (a) authority givenpursuant to a resolution duly adopted by the Board, or (b) advice of counsel for the Company, shall be conclusively presumed to be done or omitted to be doneby the Executive in good faith and in the best interests of the Company. In addition, as to subsections (i)-(iii) above, if the action or inaction in question issusceptible of a cure, then no finding of Cause shall occur prior to written notice to the Executive setting forth in reasonable detail the action or inaction atissue, and the Executive’s failure to cure such condition following a cure period of no less than sixty (60) days.(d) Termination Without Cause. The Company, at the direction of the Board, may terminate the Executive’s employment without Cause at any timeupon no less than ninety (90) days prior written notice, or ninety (90) days’ pay in lieu of notice.(e) Resignation for Good Reason. The Executive may resign from his employment with the Company for Good Reason by providing written notice to theChief Executive Officer that an event constituting Good Reason has occurred and the Executive desires to resign from his employment with the Company as aresult. Such notice must be provided to the Chief Executive Officer by the Executive within sixty (60) days following the initial occurrence of the eventconstituting Good Reason. After receipt of such written notice, the Chief Executive Officer shall have a period of sixty (60) days to cure such event; provided,however, the Chief Executive Officer, may, at its sole option, determine not to cure such event and accept the Executive’s resignation effective thirty (30) daysfollowing the Chief Executive Officer’s receipt of the Executive’s notice that an event constituting Good Reason has occurred. If, in the reasonable judgment ofthe Executive, the Chief Executive Officer does not cure the event constituting Good Reason within the requisite sixty (60) day period, the Executive’semployment with the Company shall terminate on account of Good Reason thirty (30) days following the expiration of the Chief Executive Officer’s cureperiod, unless the Chief Executive Officer determines to terminate the Executive’s employment prior to such date. As used herein, “Good Reason” means that,without the Executive’s consent, any of the following has occurred:(i) a material diminution in the Executive’s authority, duties, responsibilities or job title;(ii) a material diminution in the Executive’s Base Salary;(iii) a relocation of the Company’s principal offices in Bedminster, New Jersey, or of the Executive’s principal office (if different), to a locationthat is not within the New York metropolitan area, or(iv) any action or inaction by the Company that constitutes a material breach by the Company of its obligations under this Agreement.For the avoidance of doubt, in no event shall the expiration of this Agreement be construed as giving rise to Good Reason.(f) Resignation Without Good Reason. The Executive may resign from his employment with the Company without Good Reason (as that term is definedin Section 8(c)) at any time upon no less than thirty (30) days prior written notice to the Chief Executive Officer. Upon such notice of resignation, theCompany may, at its sole option, accept the Executive’s resignation effective as of a date prior to the resignation date specified in the notice, and in such event,the earlier date will be the effective date of termination of the Executive’s employment for all purposes hereunder.9. Compensation Upon Termination.(a) Disability. Upon termination of employment pursuant to Section 8(a), the Executive will receive any Base Salary accrued and unpaid as of such dateas well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive becomes disabled before the end of the fiscal year, the Executive will also receive Incentive Compensation for such fiscal year ona pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on thelast day of that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rataIncentive Compensation will be paid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligationsunder this Agreement to the Executive.(b) Death. In the event of the Executive’s death, the Executive’s estate will receive his Base Salary accrued and unpaid as of the date of his death as wellas any accrued but unused PTO and appropriate expensereimbursements. Such amounts will be paid as soon as practicable after the termination of employment. If the Executive dies before the end of the fiscal year,the Executive’s estate will receive Incentive Compensation for such fiscal year on a pro rata basis (1/12th of the aggregate Incentive Compensation payable tothe Executive for such fiscal year for each month in which he was employed on the last day of that month), but only to the extent that all prerequisites forreceiving the Incentive Compensation have otherwise been satisfied. Such pro rata bonus will be paid at the time that the Incentive Compensation is payable toother executives. The Company shall have no further obligations under this Agreement to the Executive.(c) Termination Without Cause or Resignation With Good Reason Other Than in Connection With a Change in Control. If, other than in connection witha Change in Control as defined in Section 9(d), the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if theExecutive resigns for Good Reason pursuant to Section 8(e), the Company will pay the Executive his Base Salary accrued and unpaid as of the date oftermination of employment as well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon aspracticable after the termination of employment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described inSection 9(f) below and compliance with the requirements of Section 20 below, as well as Executive’s compliance with the restrictive covenants set forth inSections 10 through 14 below, the Company will also pay and/or provide to the Executive the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Severance Amount”), minus applicabledeductions and withholdings, which shall be paid to the Executive in accordance with the Company’s normal payroll practices in equal installmentsover the twelve (12) month period following Executive’s last day of employment and which shall commence as soon as administratively practicablefollowing the expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day ofemployment with the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each monthin which he was employed on the last day of that month (but not in duplication of the amount paid pursuant to clause (ii) of this Section 9(c))), minusapplicable deductions and withholdings, but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise beensatisfied, with such pro rata Incentive Compensation being paid in a lump sum at the same time that the Incentive Compensation is payable to otherexecutives;(iv) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2006 Equity Compensation Plan (or asuccessor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) that vest solelyon the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his termination date thatwould have vested within the twelve month (12) month period following the Executive’s termination date if the vesting schedule for such grants werebased on a monthly vesting schedule, as opposed to the vesting schedule set forth in his grant agreement, shall immediately vest in full and/or becomeimmediately exercisable or payable on the Executive’s termination date, provided, however, that this provision (iv) shall be inoperative during theExecutive’s second year of employment hereunder; and(v) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan.Other than as provided herein, the Company has no further obligation under this Agreement to the Executive upon his termination without Cause,resignation for Good Reason, or the Company’s decision not to extend or renew the contract upon its scheduled expiration date. The obligations of theCompany set forth in thisSection 9(c) or Section 9(d) will be suspended and no longer enforceable if the Executive materially breaches the terms and conditions of Sections 9(f), 7, 10,11, 12, 13, 14 or 15, which material breach is not cured (if capable of cure) within ten (10) days written notice of such breach. For the avoidance of doubt, inno event shall the expiration of this Agreement be construed as a termination without Cause or resignation for Good Reason.(d) Termination Without Cause or Resignation With Good Reason in Connection With a Change in Control. If, on or within twelve (12) months after aChange in Control as defined below, the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if the Executive resignsfor Good Reason pursuant to Section 8(e), the Executive is entitled to his Base Salary accrued and unpaid as of the date of termination of employment as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described in Section 9(f) below and compliancewith the requirements of Section 20 below, the Executive shall be entitled to the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Change in Control Severance Amount”),minus applicable deductions and withholdings, which shall be paid to the Executive in a lump sum as soon as administratively practicable followingthe expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day of employmentwith the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment with theCompany;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for the fiscal year for each month inwhich he was employed on the last day of that month), minus applicable deductions and withholdings, based on the target Incentive Compensation forthe applicable period, with such pro rata bonus being paid in a lump sum as soon as administratively practicable following the expiration of therevocation period for the general release, but not later than sixty (60) days following the date of the Executive’s last day of employment with theCompany;(iv) an amount equal to one times the Executive’s aggregate target Incentive Compensation for the fiscal year of the Company in which thetermination of employment occurs, with such amount to be paid in a lump sum as soon as administratively practicable following the expiration of therevocation period for the general release, but not later than sixty (60) days following the date of the Executive’s last day of employment with theCompany;(v) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2006 Equity Compensation Plan (or asuccessor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) that vest solelyon the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his termination date shallimmediately vest in full and/or become immediately exercisable or payable on the Executive’s termination date, provided, however, that this provision(v) shall be inoperative during the Executive’s second year of employment hereunder; and(vi) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan. In the event that the Company modifies the performance periodsor frequency at which discretionary bonuses are to be earned or paid, the references to Incentive Compensation in this Section 9(d) and in Section 9(c) shall beconstrued accordingly to reflect such modified bonus periods or frequency.Other than as provided herein, the Company has no further obligation under this Agreement to the Executive upon his termination without Cause orresignation for Good Reason in connection with a Change in Control. The obligations of the Company set forth in this Section 9(d) will be suspended and nolonger enforceable if the Executive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14 or 15, which material breach is notcured (if capable of cure) within ten (10) days written notice of such breach. If benefits are due under this Section 9(d), no benefits are due under Section 9(c).For purposes of this Agreement, “Change in Control” means a (I) Change in Ownership of the Company, (II) Change in Effective Control of theCompany, or (III) Change in the Ownership of Assets of the Company, as described herein and construed in accordance with Section 409A of the InternalRevenue Code of 1986, as amended, and the regulations and Treasury guidance issued thereunder (the “Code”); except that no Change in Control shall bedeemed to occur as a result of a change of ownership resulting from the death of a stockholder or a transaction in which the Company becomes a subsidiary ofanother corporation and in which the stockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after thetransaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in theelection of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote).(I) A “Change in Ownership of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Group acquire, ownershipof the capital stock of the Company that, together with the stock previously held by such Person or Group, constitutes more than 50% of the total fair marketvalue or total voting power of the capital stock of the Company. However, if any one Person is, or Persons Acting as a Group are, considered to own more than50% of the total fair market value or total voting power of the capital stock of the Company, the acquisition of additional stock by the same Person or PersonsActing as a Group is not considered to cause a Change in Ownership of the Company or to cause a Change in Effective Control of the Company (as describedbelow). An increase in the percentage of capital stock owned by any one Person, or Persons Acting as a Group, as a result of a transaction in which theCompany acquires its stock in exchange for property will be treated as an acquisition of stock.(II) A “Change in Effective Control of the Company” shall occur on the first day on which a majority of the members of the Board are not ContinuingDirectors. “Continuing Directors” means, as of any date of determination, any member of the Board who (a) was a member of the Board on the Start Date or(b) was nominated for election, elected or appointed to the Board with the approval of a majority of the Continuing Directors who were members of the Board atthe time of such nomination, election or appointment (either by a specific vote or by approval of the Company’s proxy statement in which such member wasnamed as a nominee for election as a director, without objection to such nomination).(III) A “Change in the Ownership of Assets of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Groupacquire (or has or have acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons), assets from theCompany that have a total gross fair market value equal to or more than 75% of the total gross fair market value of all of the assets of the Companyimmediately before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the valueof the assets being disposed of, determined without regard to any liabilities associated with such assets.The following rules of construction apply in interpreting the definition of Change in Control:(A) A “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”), and the rules and regulations thereunder, other than employee benefit plans sponsored or maintained by the Company and byentities controlled by the Company or an underwriter of the capital stock of the Company in a registered public offering.(B) Persons will be considered to be “Persons Acting as a Group” (or “Group”) if (i) they are considered to be acting as a group within the meaning ofSections 13(d)(3) and 14(d)(2) of the Exchange Act and the rules and regulations thereunder or (ii) they are owners of a corporation or other entity that entersinto a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. If a Person owns stock in both corporationsthat enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a Group withother shareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownershipinterest in the other corporation. Persons will not be considered to be acting as a Group solely because they purchase assets of the same corporation at the sametime or purchase or own stock of the same corporation at the same time, or as a result of the same public offering.(C) For purposes of the definition of Change in Control, “fair market value” shall be determined by the Board.(D) A Change in Control shall not include a transfer to a related person as described in Code Section 409A or a public offering of capital stock of theCompany.(E) For purposes of the definition of Change in Control, Code Section 318(a) applies to determine stock ownership. Stock underlying a vested option isconsidered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual whoholds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (asdefined by Treas. Reg. § 1.83-3(b) and (j)), the stock underlying the option is not treated as owned by the individual who holds the option.(e) Termination With Cause, Resignation Without Good Reason, or Expiration of the Agreement. If, whether or not in connection with a Change inControl, the Company terminates the Executive’s employment with Cause pursuant to Section 8(c), if the Executive resigns without Good Reason pursuant toSection 8(f), or if the Executive is entitled to the severance benefits pursuant to Section 9(c) or Section 9(d) and either does not execute or revokes the generalrelease of claims required pursuant to Section 9(f), or is in material breach of any of the covenants set forth in Sections 10, 11, 12, 13 or 14 below, theCompany will pay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO andappropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination of employment and, following such payment, theCompany shall have no further obligations under this Agreement to the Executive.If this Agreement expires without any extension or renewal of its terms, the Executive will be an at-will employee of the Company thereafter unless theCompany elects to terminate the Executive’s employment coincident with such expiration and the Company shall have no further obligations under thisAgreement to the Executive. If the Company elects to terminate the Executive’s employment coincident with the expiration of this Agreement, the Company willpay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO and appropriateexpense reimbursements. For the avoidance of doubt, in no event shall the expiration of this Agreement, or the termination of Executive’s employmentcoincident with such expiration, be construed as a termination without Cause or resignation for Good Reason.(f) Release of Claims. As a condition for the payments of the Severance Amount or the Change in Control Severance and Incentive Compensationprovided in Section 9(c) or Section 9(d), the Executive must execute a general release of all claims (including claims under local, state and federal laws, butexcluding claims for payment due under Section 9(c) or Section 9(d)) that the Executive has or may have against the Company or any related individuals orentities (the “Release”). The Release shall be in a form reasonably acceptable to the Company, and shall include confidentiality, cooperation, and non-disparagement provisions, as well as other terms requested by the Company that are typical of an executive severance agreement. The Severance Amount,Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefits provided for in Section 9(c) orSection 9(d) are conditioned upon and will not be paid (or be provided) until the execution of the Release and the expiration of any revocation period; providedthat notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly orindirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in morethan one taxable year, payment shall be made in the later taxable year. The Company shall provide the Release to the Executive by no later than ten days afterthe Executive terminates employment with the Company, and the Executive shall execute the Release during the statutory time period specified by applicablelaw. If the Release is not executed during the statutory time period specified by applicable law, the Company’s obligation to pay any Severance Amount,Change in Control Severance Amount, or Incentive Compensation and to provide any acceleration of vesting and continued health benefits provided for inSection 9(c) or Section 9(d) pursuant to this Agreement shall terminate.(g) Section 280G Cutback. The Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respectto any payment received under this Agreement, including, without limitation, any excise tax imposed by Code Section 4999. Notwithstanding anything to thecontrary in this Agreement, in the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or inconnection with the Executive’s termination of employment or contingent upon a Change in Control pursuant to any plan or arrangement or other agreementwith the Company or any affiliate (collectively, the “Payments”) would be subject to the excise tax imposed by Code Section 4999, as determined by theCompany, then the Payments shall be reduced to the extent necessary to prevent any portion of the Payments from becoming nondeductible by the Companyunder Code Section 280G or subject to the excise tax imposedunder Code Section 4999, but only if, by reason of that reduction, the net after-tax benefit received by the Executive exceeds the net after-tax benefit theExecutive would receive if no reduction was made. For this purpose, “net after-tax benefit” means (i) the total of all Payments that would constitute “excessparachute payments” within the meaning of Code Section 280G, less (ii) the amount of all federal, state, and local income taxes payable with respect to thePayments calculated at the maximum marginal income tax rate for each year in which the Payments shall be paid to the Executive (based on the rate in effectfor that year as set forth in the Code as in effect at the time of the first payment of the Payments), less (iii) the amount of excise taxes imposed on the Paymentsdescribed in clause (i) above by Code Section 4999. If, pursuant to this Section 9(g), Payments are to be reduced, the Company shall determine whichPayments shall be reduced in a manner so as to avoid the imposition of additional taxes under Code Section 409A.10. Confidentiality; Return of Company Property.(a) The Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information ofthe Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs,ideas, trade secrets, proprietary information, business strategies, packaging, advertising, marketing, distribution and sales methods, sales and profit figures,employees, customers and clients, and relationships between the Company and its business partners, including dealers, traders, distributors, salesrepresentatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“Confidential Information”). The Executiveacknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Term,Executive will not disclose any Confidential Information to any person or entity, except as the Executive’s duties as an employee of the Company may require,without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 10 shall not apply to Confidential Informationthat otherwise becomes generally known to the public through no act of the Executive in breach of this Agreement or any other party in violation of an existingconfidentiality agreement with the Company, or which is required to be disclosed by court order or applicable law.(b) All records, designs, patents, business plans, financial statements, manuals, memoranda, lists, research and development plans and products, andother property delivered to or compiled by the Executive by or on behalf of the Company or its vendors or customers that pertain to the business of theCompany shall be and remain the property of the Company, and be subject at all times to its discretion and control. Likewise, all correspondence, reports,records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company (and all copies thereof) thatare collected by the Executive shall be delivered promptly to the Company without request by it upon termination of the Executive’s employment.11. Non-Competition. While the Executive is employed at the Company and for a period of twelve (12) months after the termination of his employmentwith the Company for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, own, maintain, finance, operate, engage in, assist,be employed by, contract with, license, or have any interest in, or association with a business or enterprise primarily engaged in or planning to be primarilyengaged in, the Internet retail trading of foreign exchange or any other business engaged in by the Company, or approved for the Company or its affiliates to beengaged in by the Board, during his employment with the Company.12. Solicitation of Clients. During the Restricted Period, the Executive, directly or indirectly, including through any other person or entity, shall not seekbusiness from any Client on behalf of any enterprise or business other than the Company, refer business generated from any Client to any enterprise orbusiness other than the Company, or receive commissions based on sales or otherwise relating to the business from any Client, enterprise or business otherthan the Company. For purposes of this Agreement, the term “Client” means any person, firm, corporation, limited liability company, partnership,association or other entity (i) to which the Company sold or provided services during the 12-month period prior to the time at which any determination isrequired to be made as to whether any such person, firm, corporation, partnership, association or other entity is a Client, or (ii) who or which has beenapproached by an employee of the Company for the purpose of soliciting business for the Company and which business was reasonably expected to generaterevenue in excess of $100,000 per annum.13. Solicitation of Employees. During the Restricted Period, the Executive, directly or indirectly, shall not contact or solicit any employee of theCompany for the purpose of hiring them or causing them to terminate their employment relationship with the Company.14. Inventions, Ideas, Processes, and Designs. All inventions, ideas, processes, programs, software, and designs (including all improvements)conceived or made by the Executive during his employment with the Company (whether or not actually conceived during regular business hours) and related tothe business of the Company, or the business approved by the Board to be engaged in by the Company, shall be disclosed in writing promptly to theCompany and shall be the sole and exclusive property of the Company. An invention, idea, process, program, software, or design (including an improvement)shall be deemed related to the actual or approved business of the Company if (x) it was made with the Company’s equipment, supplies, facilities, orConfidential Information, (y) results from work performed by the Executive for the Company, or (z) pertains to the current business or demonstrablyanticipated research or development work of the Company. The Executive shall cooperate with the Company and its attorneys in the preparation of patent andcopyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to the Company.The decision to file for patent or copyright protection or to maintain such development as a trade secret shall be in the sole discretion of the Company, and theExecutive shall be bound by such decision.15. Specific Performance/Remedies. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique andextraordinary character and, in connection with such services, the Executive will have access to Confidential Information vital to the Company’s business.Executive further agrees that the covenants contained in Sections 11, 12, 13 and 14 are reasonable and necessary to protect the legitimate business interests ofthe Company. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Section 11, 12, 13, and 14 hereof,the Company would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company. The Executive hereby agreesthat the Company shall be entitled to have Section 11, 12, 13, or 14 hereof specifically enforced (including, without limitation, by injunctions and restrainingorders) by any court in the State of New Jersey having equity jurisdiction and agrees to be subject to the jurisdiction of said court. As a further and non-exclusive remedy, Executive understands that a breach of the covenants contained in Sections 11, 12, 13, or 14 above that causes material harm to theCompany as reasonably determined by the Board (which determination shall be binding and final) shall eliminate Executive’s entitlement to any furtherpayment of the Severance Amount, Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefitsprovided for in Section 9(c) or Section 9(d), and Executive shall be required to return any such amounts in the event of such a breach. Nothing containedherein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including therecovery of damages from the Executive.16. Complete Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive’s employment, compensation,benefits and related items and supersedes any other prior oral or written agreements, arrangements or understandings between the Executive and the Company,other than the award agreements reflecting outstanding equity awards held by the Executive as of the date of this Agreement which shall continue to controlsuch equity awards except as expressly modified by Sections 9(c) and 9(d) of this Agreement. This Agreement may not be changed or terminated orally butonly by an agreement in writing signed by the parties hereto.17. Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver ofany subsequent breach by such party.18. Governing Law; Assignability.(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without reference to the choice of lawprovisions thereof.(b) The Executive may not, without the Company’s prior written consent, delegate, assign, transfer, convey, pledge, encumber or otherwise dispose ofthis Agreement or any interest herein. Any such attempt shall be nulland void and without effect. The Company and the Executive agree that this Agreement and all of the Company’s rights and obligations hereunder may beassigned or transferred by the Company and shall be assumed by and be binding upon any successor to the Company.19. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 11, 12, 13, or 14, as applied to eitherparty or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any otherprovision of this Agreement or remaining parts thereof, which shall be given full effect without regard to the invalid or unenforceable part thereof, or thevalidity or enforceability of this Agreement. In the event an arbitrator or court of competent jurisdiction deems the restrictive covenants unreasonably lengthy intime or overly broad in scope, it is the intention and agreement of the parties that those provisions which are not fully enforceable be deemed as having beenmodified to the extent necessary to render them reasonable and enforceable and that they be enforced to such extent.20. Notices. All notices to the Company or the Executive, permitted or required hereunder, shall be in writing and shall be delivered personally, bytelecopier or by courier service providing for next-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses:If to the Company:GAIN Capital Holdings, Inc.Bedminster One135 Route 202/206Bedminster, New Jersey 07921Attention: Chief Executive OfficerIf to the Executive, to the address set forth on the first page hereof.Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any suchnotice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day delivery, thenext business day following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with theU.S. mail service.21. Section 409A.(a) This Agreement shall be interpreted to avoid the imposition of any additional taxes under Code Section 409A. If any payment or benefit cannot beprovided or made at the time specified herein without incurring additional taxes under Code Section 409A, then such benefit or payment shall be provided infull at the earliest time thereafter when such sanctions will not be imposed. The preceding provisions, however, shall not be construed as a guarantee by theCompany of any particular tax effect to the Executive under this Agreement. For purposes of Code Section 409A, each payment under this Agreement shall betreated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.In no event may the Executive, directly or indirectly, designate the calendar year of payment.(b) To the maximum extent permitted under Code Section 409A, the cash severance payments payable under this Agreement are intended to comply withthe ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’under Treas. Reg. §1.409A-1(b)(9)(iii) or any successor provision; provided, however, any amount payable to the Executive during the six-month periodfollowing the Executive’s termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to therequirements of Code Section 409A, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If the Executive is a “key employee” of apublicly traded corporation under Section 409A at the time of his separation from service and if payment of the Excess Amount under this Agreement isrequired to be delayed for a period of six (6) months after separation from service pursuant to Code Section 409A, then notwithstanding anything in thisAgreement to the contrary, payment of suchamount shall be delayed as required by Code Section 409A, and the accumulated postponed amount shall be paid in a lump sum payment within ten(10) days after the end of the six (6) month period. If the Executive dies during the postponement period prior to the payment of the postponed amount, theamounts withheld on account of Section 409A shall be paid to the personal representative of the Executive’s estate within sixty (60) days after the date of theExecutive’s death. A “key employee” shall mean an employee who, at any time during the 12-month period ending on the identification date, is a “specifiedemployee” under Code Section 409A, as determined by the Board, in its sole discretion. The determination of key employees, including the number andidentity of persons considered key employees and the identification date, shall be made by the Board in accordance with the provisions of Code Sections416(i) and 409A.(c) To the extent the Executive is, at the time of his termination of employment under this Agreement, participating in one or more deferred compensationarrangements subject to Code Section 409A, the payments and benefits provided under those arrangements shall continue to be governed by, and to becomedue and payable in accordance with, the specific terms and conditions of those arrangements, and nothing in this Agreement shall be deemed to modify or alterthose terms and conditions.(d) “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments underthis Agreement that are payments of deferred compensation subject to Code Section 409A, the Executive’s “separation from service” as defined in CodeSection 409A.(e) Nothing herein shall be construed as having modified the time and form of payment of any amounts or payments of “deferred compensation” (asdefined under Treas. Reg. § 1.409A-1(b)(1), after giving effect to the exemptions in Treas. Reg. §§ 1.409A-1(b)(3) through (b)(12)) that were otherwisepayable pursuant to the terms of any agreement between Company and the Executive in effect on or after January 1, 2005 and prior to the date of thisAgreement.(f) All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Code Section 409A, including,where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of timespecified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible forreimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following theyear in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which takentogether shall constitute one and the same instrument.23. Separation. All covenants that, by their terms, naturally would survive the termination or expiration of this Agreement, including but not limited toSections 11, 12, 13, 14 and 15 hereof, shall survive the termination or expiration of this Agreement.IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the date first above written. GAIN CAPITAL HOLDINGS, INC.By: /s/ Glenn H. StevensName: Glenn H. StevensTitle: President and Chief Executive Officer /s/ Diego RotsztainDiego RotsztainExhibit 10.60AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENTTHIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of March 25, 2011 and is by andbetween GAIN Capital Holdings, Inc., a corporation organized under the laws of Delaware, including its subsidiaries and affiliates (the “Company”) andDiego Rotsztain (“Executive”).RecitalsWHEREAS, the Executive is presently employed by the Company in the capacity of Executive Vice President and General Counsel, pursuant to that certainEmployment Agreement between the Company and Executive (the “Prior Agreement”), dated January 10, 2011 and effective as of January 24, 2011 (the “StartDate”);WHEREAS, the Company and the Executive desire to amend and restate the terms and conditions of the Prior Agreement in order to reflect certain desiredclarifications in the terms and continue Executive’s employment with the Company upon the amended and restated terms and conditions of this Agreement;andWHEREAS, the Company and the Executive have agreed that this Agreement will supersede and replace the Prior Agreement as of the Start Date.NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations set forth herein, the parties hereto, intending to be legallybound, hereby agree as follows:1. Employment Term. The Executive’s employment with the Company commenced on the Start Date. The Company hereby agrees to employ theExecutive directly or through a subsidiary, and the Executive hereby agrees to continue such employment, as the Executive Vice President, General Counsel forthe Company, through the second anniversary of the Start Date, unless terminated sooner pursuant to Section 8 hereof (the “Term”).2. Representations and Warranties. The Executive represents that Executive is entering into this Agreement voluntarily and that Executive’s employmenthereunder and his compliance with the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to whichExecutive is a party or by which Executive may be bound, or any legal duty that Executive owes or may owe to another.3. Duties and Extent of Services.(a) During the Term, the Executive shall serve as Executive Vice President, General Counsel of the Company and its primary domestic operatingsubsidiaries, with such duties, responsibilities and authority as are consistent with such position, subject to the oversight of the Company (the “Board”), andshall so serve faithfully and to the best of Executive’s ability under the direction and supervision of the Chief Executive Officer. As an executive officer of theCompany, the Executive shall be entitled to all of the benefits and protections to which all officers of the Company are entitled pursuant to the Company’sAmended and Restated Certificate of Incorporation, which shall include, but not be limited to, the rights of indemnification set forth in such Amended andRestated Certificate of Incorporation, and coverage under the Company’s directors’ and officers’ liability insurance as in effect from time to time.(b) During the Term, the Executive agrees to devote substantially his full business time, attention, and energies to the Company’s business and shall notbe engaged in any other business activity, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. Subject, however, toSection 11, 12 and 13 herein, the Executive may serve in charitable and civic positions and as a director of other companies with the prior consent of the ChiefExecutive Officer, which consent shall not be unreasonably withheld. The Executive covenants, warrants, and represents that he shall devote his full and bestefforts to the fulfillment of his employment obligations, and he shall exercise the highest degree of loyalty and the highest standards of conduct in theperformance of his duties.4. Compensation.(a) Base Salary. The Company shall pay the Executive a base annual salary (the “Base Salary”) of not less than $325,000, payable in monthlyinstallments. The Executive shall not receive any additional compensation from any subsidiary of the Company following the date hereof.(b) Bonus. During the Executive’s employment under this Agreement, the Company shall cause the Executive to be eligible to participate in each bonusor incentive compensation plan, program or policy maintained by the Company from time to time, in whole or in part, for the executive officers of theCompany (each, an “Incentive Compensation Plan” and payments thereunder, “Incentive Compensation”). The Executive’s target and maximumcompensation under, and his performance goals and other terms of participation in, each Incentive Compensation Plan shall be determined by the Company’sCompensation Committee in its sole discretion. Any such Incentive Compensation is not guaranteed and is contingent upon the Executive and the Companyachieving deliverables or goals agreed upon. Any such Incentive Compensation shall not be considered “earned” by the Executive until the Company hasallocated payment to be made to the Executive for any performance period. Payment under any such Incentive Compensation Plan shall be made, if at all, afterthe close of the relevant performance period and by no later than March 15th of the year after the year in which the performance period ends. Notwithstandinganything herein to the contrary, to the extent permitted or required by governing law, the Company’s Compensation Committee shall have discretion to requirethe Executive to repay to the Company the amount of any Incentive Compensation to the extent the Compensation Committee or Board determines that suchbonus was not actually earned by the Executive due to (A) the amount of such payment was based on the achievement of financial results that weresubsequently the subject of a material accounting restatement that occurs within three years of such payment (except in the case of a restatement due to achange in accounting policy or simple error); (B) the Executive has engaged in fraud, gross negligence or intentional misconduct; or (C) the Executive hasdeliberately misled the market or the Company’s stockholders regarding the Company’s financial performance. Notwithstanding anything herein to thecontrary, the Executive’s target annual bonus for 2011 will be $125,000.(c) Equity. During the Employment Period, the Executive will be eligible to participate in all long-term equity incentive programs made available to otherexecutive officers and that are established by the Company for its employees, including the 2010 Omnibus Incentive Compensation Plan (or a successorthereto), at levels determined by the Compensation Committee in its sole discretion commensurate with the Executive’s position. In addition, on the earlier of(i) the Company grant date that occurs during the first quarter of 2011 (if any) or (ii) the next scheduled grant date following the Start Date (as determined bythe Compensation Committee), the Executive will be granted an equity award pursuant to and subject to the terms and conditions of the 2010 OmnibusIncentive Compensation Plan (or successor plan) consisting of a number of shares of restricted stock and non-qualified stock options with an aggregate valueof $250,000. The number of shares of restricted stock and non-qualified stock options included in such equity award will be based, in the case of restrictedstock, on the fair value of a share of the Company’s common stock at the close of the grant date if on public exchange or a valuation determined by theCompany, subject to Compensation Committee approval, and in the case of the non-qualified stock options, on a value calculated using the Black-Scholesmethod. For the foregoing equity grant, the proportion of such value consisting of shares of restricted stock and non-qualified stock options shall beapproximately 75% and 25%, respectively. All equity grants made to the Executive will vest in accordance with a vesting schedule that is consistent with othergrants under the 2010 Omnibus Incentive Compensation Plan (or successor plan) and will be subject in all respects to the terms of the 2010 Omnibus IncentiveCompensation Plan (or successor plan) and the agreement evidencing such grant.(d) Signing Bonus. The Company shall pay the Executive, within fifteen (15) days of the Start Date, as a signing bonus (the “Signing Bonus”) a cashpayment of $100,000, less applicable tax withholdings. If the Company terminates the Executive’s employment for Cause or the Executive terminates hisemployment for any reason other than death, Disability, or Good Reason, in either case within 12 months after the Start Date, the Executive shall repay to theCompany the net (after tax) amount of the Signing Bonus by no later than 30 days after the date his employment terminates (the “Repayment Deadline”). Thisrepayment requirement shall not apply if the Company terminates the Executive’s employment without Cause, whether before, coincident with or after aChange in Control occurs or if the Executive terminates his employment as a result of his death, Disability, or resignation with Good Reason. The Companymay, to the extent permitted by applicable law, recoup any amount of the Signing Bonus required to be repaid pursuant to the foregoing by reducing oroffsetting any compensation owed by the Company to the Executive; provided, however, that any offset against an amount that constitutesdeferred compensation within the meaning of Code Section 409A shall not be made earlier than such date as it may be implemented without violating CodeSection 409A. Any amount that remains due and unpaid after the Repayment Deadline accrues interest at the prime rate of interest (published in the northeastedition of The Wall Street Journal) in effect as of the Repayment Deadline, compounded at the end of each calendar quarter, until paid. The Company’s rightto repayment under this Agreement is in addition to any other remedy available to the Company with respect to matters arising out of the Executive’semployment by the Company, or the termination thereof.(e) Reimbursable Moving and Related Transition Expenses. The Company shall reimburse the Executive up to $10,000 for moving and related transitionexpenses incurred in calendar year 2011 so long as (a) such expenses are consistent with the type and amount of expenses that customarily would be incurredby similarly situated corporate executives in the United States; and (b) the Executive timely provides copies of receipts for expenses in accordance withCompany policy.(f) Miscellaneous. The Company shall pay on the Executive’s behalf, or reimburse the Executive for, all fees and expenses relating to (i) New JerseyState Bar licensing and other fees required to be paid in order to be permitted to practice law in the State of New Jersey; (ii) national, state and other barassociation and/or committee fees that relate to activities the Executive reasonably believes are necessary and appropriate to undertake relating to the practice oflaw and (iii) any fees and expenses required to be paid or incurred in connection with the Executive’s satisfaction of continuing legal education requirements inthe State of New York and the State of New Jersey. In addition, to the extent the Executive reasonably believes it becomes necessary for the Executive to becomea member of the Bar of the State of New Jersey, the Company will pay for any course or program the Executive reasonably believes is necessary for him toprepare for the New Jersey State bar exam, as well as any bar exam registration or other related fees and expenses.5. Benefits. During the Term, the Executive shall be entitled to participate in any and all benefit programs and arrangements generally made available bythe Company to executive officers, including, but not limited to, pension plans, contributory and noncontributory welfare and benefit plans, disability plansand medical, death benefit and life insurance plans for which the Executive may be eligible during the Term. Furthermore, the Executive shall be permittedfour (4) weeks of paid time off (“PTO”) during each calendar year. Accrued paid leave may be used for vacation, professional enrichment and education.Unused leave shall not accrue from one calendar year to another. In addition, if pursuant to Section 4(f), the Executive believes it is reasonably necessary forhim to prepare for and take the bar exam for the State of New Jersey, the Executive shall have up to four (4) weeks of PTO, taken in advance of any such barexam, during which he shall prepare for any such examination.6. Expenses. During the Executive’s employment, the Executive will be reimbursed for travel, entertainment and other out-of-pocket expenses reasonablyincurred by the Executive on behalf of the Company in the performance of the Executive’s duties hereunder, so long as (a) such expenses are consistent withthe type and amount of expenses that customarily would be incurred by similarly situated corporate executives in the United States; and (b) the Executivetimely provides copies of receipts for expenses in accordance with Company policy.7. Adherence to Company Policy. The Executive acknowledges that he is subject to insider information policies designed to preclude the Company’semployees from violating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of anyduty owed to the Company or any third party. The Executive shall promptly execute any agreements generally distributed by the Company or to its employeesrequiring employees to abide by the Company’s insider information policies.8. Termination.(a) Disability. In accordance with applicable law, the Company may terminate the Executive’s employment at any time after the Executive becomesDisabled. As used herein, “Disabled” means the incapacity of the Executive, on more than 75% of the standard business days (Monday through Friday) overany three (3) month period, due to injury, illness, disease, or bodily or mental infirmity, to engage in the performance of substantially all of the usual duties ofemployment with the Company.(b) Death. The Executive’s employment with the Company will terminate upon the death of the Executive.(c) Termination with Cause. The Company may terminate the Executive’s employment at any time for Cause by providing written notice of suchtermination to the Executive. As used herein, “Cause” means any of the following, as determined by the Board:(i) the Executive’s material breach of this Agreement;(ii) the Executive’s gross negligence (other than as a result of disability or occurring after the Executive’s provision of notice in connection with aresignation for Good Reason) or willful misconduct in carrying out his duties hereunder, resulting in harm to the Company;(iii) the Executive’s material breach of any of his fiduciary obligations as an officer of the Company;(iv) any conviction by a court of law of, or entry of a pleading of guilty or nolo contendere by the Executive with respect to, a felony or any othercrime for which fraud or dishonesty is a material element, excluding traffic violations;(v) the Executive willfully or recklessly engages in conduct which is materially injurious to the Company, monetarily or otherwise.For purposes of determining Cause, no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or withoutreasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (a) authority givenpursuant to a resolution duly adopted by the Board, or (b) advice of counsel for the Company, shall be conclusively presumed to be done or omitted to be doneby the Executive in good faith and in the best interests of the Company. In addition, as to subsections (i)-(iii) above, if the action or inaction in question issusceptible of a cure, then no finding of Cause shall occur prior to written notice to the Executive setting forth in reasonable detail the action or inaction atissue, and the Executive’s failure to cure such condition following a cure period of no less than sixty (60) days.(d) Termination Without Cause. The Company, at the direction of the Board, may terminate the Executive’s employment without Cause at any timeupon no less than ninety (90) days prior written notice, or ninety (90) days’ pay in lieu of notice.(e) Resignation for Good Reason. The Executive may resign from his employment with the Company for Good Reason by providing written notice to theChief Executive Officer that an event constituting Good Reason has occurred and the Executive desires to resign from his employment with the Company as aresult. Such notice must be provided to the Chief Executive Officer by the Executive within sixty (60) days following the initial occurrence of the eventconstituting Good Reason. After receipt of such written notice, the Chief Executive Officer shall have a period of sixty (60) days to cure such event; provided,however, the Chief Executive Officer, may, at its sole option, determine not to cure such event and accept the Executive’s resignation effective thirty (30) daysfollowing the Chief Executive Officer’s receipt of the Executive’s notice that an event constituting Good Reason has occurred. If, in the reasonable judgment ofthe Executive, the Chief Executive Officer does not cure the event constituting Good Reason within the requisite sixty (60) day period, the Executive’semployment with the Company shall terminate on account of Good Reason thirty (30) days following the expiration of the Chief Executive Officer’s cureperiod, unless the Chief Executive Officer determines to terminate the Executive’s employment prior to such date. As used herein, “Good Reason” means that,without the Executive’s consent, any of the following has occurred:(i) a material diminution in the Executive’s authority, duties, responsibilities or job title;(ii) a material diminution in the Executive’s Base Salary;(iii) a relocation of the Company’s principal offices in Bedminster, New Jersey, or of the Executive’s principal office (if different), to a locationthat is not within the New York metropolitan area, or(iv) any action or inaction by the Company that constitutes a material breach by the Company of its obligations under this Agreement.For the avoidance of doubt, in no event shall the expiration of this Agreement be construed as giving rise to Good Reason.(f) Resignation Without Good Reason. The Executive may resign from his employment with the Company without Good Reason (as that term is definedin Section 8(c)) at any time upon no less than thirty (30) days prior written notice to the Chief Executive Officer. Upon such notice of resignation, theCompany may, at its sole option, accept the Executive’s resignation effective as of a date prior to the resignation date specified in the notice, and in such event,the earlier date will be the effective date of termination of the Executive’s employment for all purposes hereunder.9. Compensation Upon Termination.(a) Disability. Upon termination of employment pursuant to Section 8(a), the Executive will receive any Base Salary accrued and unpaid as of such dateas well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive becomes disabled before the end of the fiscal year, the Executive will also receive Incentive Compensation for such fiscal year ona pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on thelast day of that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rataIncentive Compensation will be paid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligationsunder this Agreement to the Executive.(b) Death. In the event of the Executive’s death, the Executive’s estate will receive his Base Salary accrued and unpaid as of the date of his death as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive dies before the end of the fiscal year, the Executive’s estate will receive Incentive Compensation for such fiscal year on a pro ratabasis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on the last dayof that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rata bonus will bepaid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligations under this Agreement to theExecutive.(c) Termination Without Cause or Resignation With Good Reason Other Than in Connection With a Change in Control. If, other than in connection witha Change in Control as defined in Section 9(d), the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if theExecutive resigns for Good Reason pursuant to Section 8(e), the Company will pay the Executive his Base Salary accrued and unpaid as of the date oftermination of employment as well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon aspracticable after the termination of employment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described inSection 9(f) below and compliance with the requirements of Section 20 below, as well as Executive’s compliance with the restrictive covenants set forth inSections 10 through 14 below, the Company will also pay and/or provide to the Executive the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Severance Amount”), minus applicabledeductions and withholdings, which shall be paid to the Executive in accordance with the Company’s normal payroll practices in equal installmentsover the twelve (12) month period following Executive’s last day of employment and which shall commence as soon as administratively practicablefollowing the expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day ofemployment with the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each monthin which he was employed on the last day of that month (but not in duplication of the amount paid pursuant to clause (ii) of this Section 9(c))), minusapplicable deductions and withholdings, but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise beensatisfied, with such pro rata Incentive Compensation being paid in a lump sum at the same time that the Incentive Compensation is payable to otherexecutives;(iv) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2010 Omnibus Incentive CompensationPlan (or a successor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) thatvest solely on the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his terminationdate that would have vested within the twelve month (12) month period following the Executive’s termination date if the vesting schedule for such grantswere based on a monthly vesting schedule, as opposed to the vestingschedule set forth in his grant agreement, shall immediately vest in full and/or become immediately exercisable or payable on the Executive’s terminationdate, provided, however, that this provision (iv) shall be inoperative during the Executive’s second year of employment hereunder; and(v) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan.Other than as provided herein, the Company has no further obligation under this Agreement to the Executive upon his termination without Cause,resignation for Good Reason, or the Company’s decision not to extend or renew the contract upon its scheduled expiration date. The obligations of theCompany set forth in this Section 9(c) or Section 9(d) will be suspended and no longer enforceable if the Executive materially breaches the terms andconditions of Sections 9(f), 7, 10, 11, 12, 13, 14 or 15, which material breach is not cured (if capable of cure) within ten (10) days written notice of suchbreach. For the avoidance of doubt, in no event shall the expiration of this Agreement be construed as a termination without Cause or resignation for GoodReason.(d) Termination Without Cause or Resignation With Good Reason in Connection With a Change in Control. If, on or within twelve (12) months after aChange in Control as defined below, the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if the Executive resignsfor Good Reason pursuant to Section 8(e), the Executive is entitled to his Base Salary accrued and unpaid as of the date of termination of employment as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described in Section 9(f) below and compliancewith the requirements of Section 20 below, the Executive shall be entitled to the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Change in Control Severance Amount”),minus applicable deductions and withholdings, which shall be paid to the Executive in a lump sum as soon as administratively practicable followingthe expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day of employmentwith the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment with theCompany;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for the fiscal year for each month inwhich he was employed on the last day of that month), minus applicable deductions and withholdings, based on the target Incentive Compensation forthe applicable period, with such pro rata bonus being paid in a lump sum as soon as administratively practicable following the expiration of therevocation period for the general release, but not later than sixty (60) days following the date of the Executive’s last day of employment with theCompany;(iv) an amount equal to one times the Executive’s aggregate target Incentive Compensation for the fiscal year of the Company in which thetermination of employment occurs, with such amount to be paid in a lump sum as soon as administratively practicable following the expiration of therevocation period for the general release, but not later than sixty (60) days following the date of the Executive’s last day of employment with theCompany;(v) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2010 Omnibus Incentive CompensationPlan (or a successor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) thatvest solely on the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his terminationdate shall immediately vest in full and/or become immediately exercisable or payable on the Executive’s termination date, provided, however, that thisprovision (v) shall be inoperative during the Executive’s second year of employment hereunder; and(vi) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan. In the event that the Company modifies the performance periodsor frequency at which discretionary bonuses are to be earned or paid, the references to Incentive Compensation in this Section 9(d) and in Section 9(c) shall beconstrued accordingly to reflect such modified bonus periods or frequency.Other than as provided herein, the Company has no further obligation under this Agreement to the Executive upon his termination without Cause orresignation for Good Reason in connection with a Change in Control. The obligations of the Company set forth in this Section 9(d) will be suspended and nolonger enforceable if the Executive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14 or 15, which material breach is notcured (if capable of cure) within ten (10) days written notice of such breach. If benefits are due under this Section 9(d), no benefits are due under Section 9(c).For purposes of this Agreement, “Change in Control” means a (I) Change in Ownership of the Company, (II) Change in Effective Control of theCompany, or (III) Change in the Ownership of Assets of the Company, as described herein and construed in accordance with Section 409A of the InternalRevenue Code of 1986, as amended, and the regulations and Treasury guidance issued thereunder (the “Code”); except that no Change in Control shall bedeemed to occur as a result of a change of ownership resulting from the death of a stockholder or a transaction in which the Company becomes a subsidiary ofanother corporation and in which the stockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after thetransaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in theelection of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote).(I) A “Change in Ownership of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Group acquire, ownershipof the capital stock of the Company that, together with the stock previously held by such Person or Group, constitutes more than 50% of the total fair marketvalue or total voting power of the capital stock of the Company. However, if any one Person is, or Persons Acting as a Group are, considered to own more than50% of the total fair market value or total voting power of the capital stock of the Company, the acquisition of additional stock by the same Person or PersonsActing as a Group is not considered to cause a Change in Ownership of the Company or to cause a Change in Effective Control of the Company (as describedbelow). An increase in the percentage of capital stock owned by any one Person, or Persons Acting as a Group, as a result of a transaction in which theCompany acquires its stock in exchange for property will be treated as an acquisition of stock.(II) A “Change in Effective Control of the Company” shall occur if, in any 12-month period, a majority of the members of the Board are notContinuing Directors. “Continuing Directors” means, as of any date of determination, any member of the Board who (a) was a member of the Board on theStart Date or (b) was nominated for election, elected or appointed to the Board with the approval of a majority of the Continuing Directors who were membersof the Board at the time of such nomination, election or appointment (either by a specific vote or by approval of the Company’s proxy statement in which suchmember was named as a nominee for election as a director, without objection to such nomination).(III) A “Change in the Ownership of Assets of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Groupacquire (or has or have acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons), assets from theCompany that have a total gross fair market value equal to or more than 75% of the total gross fair market value of all of the assets of the Companyimmediately before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the valueof the assets being disposed of, determined without regard to any liabilities associated with such assets.The following rules of construction apply in interpreting the definition of Change in Control:(A) A “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, asamended (the “Exchange Act”), and the rules and regulations thereunder, other than employee benefit plans sponsored or maintained by the Company and byentities controlled by the Company or an underwriter of the capital stock of the Company in a registered public offering.(B) Persons will be considered to be “Persons Acting as a Group” (or “Group”) if (i) they are considered to be acting as a group within the meaning ofSections 13(d)(3) and 14(d)(2) of the Exchange Act and the rules and regulations thereunder or (ii) they are owners of a corporation or other entity that entersinto a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. If a Person owns stock in both corporationsthat enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a Group withother shareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownershipinterest in the other corporation. Persons will not be considered to be acting as a Group solely because they purchase assets of the same corporation at the sametime or purchase or own stock of the same corporation at the same time, or as a result of the same public offering.(C) For purposes of the definition of Change in Control, “fair market value” shall be determined by the Board.(D) A Change in Control shall not include a transfer to a related person as described in Code Section 409A or a public offering of capital stock of theCompany.(E) For purposes of the definition of Change in Control, Code Section 318(a) applies to determine stock ownership. Stock underlying a vested option isconsidered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual whoholds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (asdefined by Treas. Reg. § 1.83-3(b) and (j)), the stock underlying the option is not treated as owned by the individual who holds the option.(e) Termination With Cause, Resignation Without Good Reason, or Expiration of the Agreement. If, whether or not in connection with a Change inControl, the Company terminates the Executive’s employment with Cause pursuant to Section 8(c), if the Executive resigns without Good Reason pursuant toSection 8(f), or if the Executive is entitled to the severance benefits pursuant to Section 9(c) or Section 9(d) and either does not execute or revokes the generalrelease of claims required pursuant to Section 9(f), or is in material breach of any of the covenants set forth in Sections 10, 11, 12, 13 or 14 below, theCompany will pay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO andappropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination of employment and, following such payment, theCompany shall have no further obligations under this Agreement to the Executive.If this Agreement expires without any extension or renewal of its terms, the Executive will be an at-will employee of the Company thereafter unless theCompany elects to terminate the Executive’s employment coincident with such expiration and the Company shall have no further obligations under thisAgreement to the Executive. If the Company elects to terminate the Executive’s employment coincident with the expiration of this Agreement, the Company willpay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO and appropriateexpense reimbursements. For the avoidance of doubt, in no event shall the expiration of this Agreement, or the termination of Executive’s employmentcoincident with such expiration, be construed as a termination without Cause or resignation for Good Reason.(f) Release of Claims. As a condition for the payments of the Severance Amount or the Change in Control Severance and Incentive Compensationprovided in Section 9(c) or Section 9(d), the Executive must execute a general release of all claims (including claims under local, state and federal laws, butexcluding claims for payment due under Section 9(c) or Section 9(d)) that the Executive has or may have against the Company or any related individuals orentities (the “Release”). The Release shall be in a form reasonably acceptable to the Company, and shall include confidentiality, cooperation, and non-disparagement provisions, as well as other terms requested by the Company that are typical of an executive severance agreement. The Severance Amount,Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefits provided for in Section 9(c) orSection 9(d) are conditioned upon and will not be paid (or be provided) until the execution of the Release and the expiration of any revocation period; providedthat notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly orindirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in morethan one taxable year, payment shall be made in the later taxable year. The Company shall provide the Release to the Executive by no later than ten days afterthe Executive terminates employment with the Company, and the Executive shall execute the Release during the statutory time period specified by applicablelaw. If the Release is not executed during the statutory timeperiod specified by applicable law, the Company’s obligation to pay any Severance Amount, Change in Control Severance Amount, or IncentiveCompensation and to provide any acceleration of vesting and continued health benefits provided for in Section 9(c) or Section 9(d) pursuant to this Agreementshall terminate.(g) Section 280G Cutback. The Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respectto any payment received under this Agreement, including, without limitation, any excise tax imposed by Code Section 4999. Notwithstanding anything to thecontrary in this Agreement, in the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or inconnection with the Executive’s termination of employment or contingent upon a Change in Control pursuant to any plan or arrangement or other agreementwith the Company or any affiliate (collectively, the “Payments”) would be subject to the excise tax imposed by Code Section 4999, as determined by theCompany, then the Payments shall be reduced to the extent necessary to prevent any portion of the Payments from becoming nondeductible by the Companyunder Code Section 280G or subject to the excise tax imposed under Code Section 4999, but only if, by reason of that reduction, the net after-tax benefitreceived by the Executive exceeds the net after-tax benefit the Executive would receive if no reduction was made. For this purpose, “net after-tax benefit” means(i) the total of all Payments that would constitute “excess parachute payments” within the meaning of Code Section 280G, less (ii) the amount of all federal,state, and local income taxes payable with respect to the Payments calculated at the maximum marginal income tax rate for each year in which the Paymentsshall be paid to the Executive (based on the rate in effect for that year as set forth in the Code as in effect at the time of the first payment of the Payments), less(iii) the amount of excise taxes imposed on the Payments described in clause (i) above by Code Section 4999. If, pursuant to this Section 9(g), Payments areto be reduced, the Company shall determine which Payments shall be reduced in a manner so as to avoid the imposition of additional taxes under CodeSection 409A.10. Confidentiality; Return of Company Property.(a) The Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information ofthe Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs,ideas, trade secrets, proprietary information, business strategies, packaging, advertising, marketing, distribution and sales methods, sales and profit figures,employees, customers and clients, and relationships between the Company and its business partners, including dealers, traders, distributors, salesrepresentatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“Confidential Information”). The Executiveacknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Term,Executive will not disclose any Confidential Information to any person or entity, except as the Executive’s duties as an employee of the Company may require,without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 10 shall not apply to Confidential Informationthat otherwise becomes generally known to the public through no act of the Executive in breach of this Agreement or any other party in violation of an existingconfidentiality agreement with the Company, or which is required to be disclosed by court order or applicable law.(b) All records, designs, patents, business plans, financial statements, manuals, memoranda, lists, research and development plans and products, andother property delivered to or compiled by the Executive by or on behalf of the Company or its vendors or customers that pertain to the business of theCompany shall be and remain the property of the Company, and be subject at all times to its discretion and control. Likewise, all correspondence, reports,records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company (and all copies thereof) thatare collected by the Executive shall be delivered promptly to the Company without request by it upon termination of the Executive’s employment.11. Non-Competition. While the Executive is employed at the Company and for a period of twelve (12) months after the termination of his employmentwith the Company for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, own, maintain, finance, operate, engage in, assist,be employed by, contract with, license, or have any interest in, or association with a business or enterprise primarily engaged in or planning to be primarilyengaged in, the Internet retail trading of foreign exchange or any other business engaged in by theCompany, or approved for the Company or its affiliates to be engaged in by the Board, during his employment with the Company.12. Solicitation of Clients. During the Restricted Period, the Executive, directly or indirectly, including through any other person or entity, shall not seekbusiness from any Client on behalf of any enterprise or business other than the Company, refer business generated from any Client to any enterprise orbusiness other than the Company, or receive commissions based on sales or otherwise relating to the business from any Client, enterprise or business otherthan the Company. For purposes of this Agreement, the term “Client” means any person, firm, corporation, limited liability company, partnership,association or other entity (i) to which the Company sold or provided services during the 12-month period prior to the time at which any determination isrequired to be made as to whether any such person, firm, corporation, partnership, association or other entity is a Client, or (ii) who or which has beenapproached by an employee of the Company for the purpose of soliciting business for the Company and which business was reasonably expected to generaterevenue in excess of $100,000 per annum.13. Solicitation of Employees. During the Restricted Period, the Executive, directly or indirectly, shall not contact or solicit any employee of theCompany for the purpose of hiring them or causing them to terminate their employment relationship with the Company.14. Inventions, Ideas, Processes, and Designs. All inventions, ideas, processes, programs, software, and designs (including all improvements)conceived or made by the Executive during his employment with the Company (whether or not actually conceived during regular business hours) and related tothe business of the Company, or the business approved by the Board to be engaged in by the Company, shall be disclosed in writing promptly to theCompany and shall be the sole and exclusive property of the Company. An invention, idea, process, program, software, or design (including an improvement)shall be deemed related to the actual or approved business of the Company if (x) it was made with the Company’s equipment, supplies, facilities, orConfidential Information, (y) results from work performed by the Executive for the Company, or (z) pertains to the current business or demonstrablyanticipated research or development work of the Company. The Executive shall cooperate with the Company and its attorneys in the preparation of patent andcopyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to the Company.The decision to file for patent or copyright protection or to maintain such development as a trade secret shall be in the sole discretion of the Company, and theExecutive shall be bound by such decision.15. Specific Performance/Remedies. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique andextraordinary character and, in connection with such services, the Executive will have access to Confidential Information vital to the Company’s business.Executive further agrees that the covenants contained in Sections 11, 12, 13 and 14 are reasonable and necessary to protect the legitimate business interests ofthe Company. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Section 11, 12, 13, and 14 hereof,the Company would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company. The Executive hereby agreesthat the Company shall be entitled to have Section 11, 12, 13, or 14 hereof specifically enforced (including, without limitation, by injunctions and restrainingorders) by any court in the State of New Jersey having equity jurisdiction and agrees to be subject to the jurisdiction of said court. As a further and non-exclusive remedy, Executive understands that a breach of the covenants contained in Sections 11, 12, 13, or 14 above that causes material harm to theCompany as reasonably determined by the Board (which determination shall be binding and final) shall eliminate Executive’s entitlement to any furtherpayment of the Severance Amount, Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefitsprovided for in Section 9(c) or Section 9(d), and Executive shall be required to return any such amounts in the event of such a breach. Nothing containedherein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including therecovery of damages from the Executive.16. Complete Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive’s employment, compensation,benefits and related items and supersedes any other prior oral or writtenagreements, arrangements or understandings between the Executive and the Company, other than the award agreements reflecting outstanding equity awardsheld by the Executive as of the date of this Agreement which shall continue to control such equity awards except as expressly modified by Sections 9(c) and9(d) of this Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto.17. Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver ofany subsequent breach by such party.18. Governing Law; Assignability.(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without reference to the choice of lawprovisions thereof.(b) The Executive may not, without the Company’s prior written consent, delegate, assign, transfer, convey, pledge, encumber or otherwise dispose ofthis Agreement or any interest herein. Any such attempt shall be null and void and without effect. The Company and the Executive agree that this Agreementand all of the Company’s rights and obligations hereunder may be assigned or transferred by the Company and shall be assumed by and be binding upon anysuccessor to the Company.19. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 11, 12, 13, or 14, as applied to eitherparty or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any otherprovision of this Agreement or remaining parts thereof, which shall be given full effect without regard to the invalid or unenforceable part thereof, or thevalidity or enforceability of this Agreement. In the event an arbitrator or court of competent jurisdiction deems the restrictive covenants unreasonably lengthy intime or overly broad in scope, it is the intention and agreement of the parties that those provisions which are not fully enforceable be deemed as having beenmodified to the extent necessary to render them reasonable and enforceable and that they be enforced to such extent.20. Notices. All notices to the Company or the Executive, permitted or required hereunder, shall be in writing and shall be delivered personally, bytelecopier or by courier service providing for next-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses:If to the Company:GAIN Capital Holdings, Inc.Bedminster One135 Route 202/206Bedminster, New Jersey 07921Attention: Chief Executive OfficerIf to the Executive, to the address set forth on the first page hereof.Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any suchnotice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day delivery, thenext business day following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with theU.S. mail service.21. Section 409A.(a) This Agreement shall be interpreted to avoid the imposition of any additional taxes under Code Section 409A. If any payment or benefit cannot beprovided or made at the time specified herein without incurring additional taxes under Code Section 409A, then such benefit or payment shall be provided infull at the earliest time thereafter when such sanctions will not be imposed. The preceding provisions, however, shall not be construed as a guarantee by theCompany of any particular tax effect to the Executive under this Agreement. Forpurposes of Code Section 409A, each payment under this Agreement shall be treated as a separate payment and the right to a series of installment paymentsunder this Agreement shall be treated as a right to a series of separate payments. In no event may the Executive, directly or indirectly, designate the calendaryear of payment.(b) To the maximum extent permitted under Code Section 409A, the cash severance payments payable under this Agreement are intended to comply withthe ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’under Treas. Reg. §1.409A-1(b)(9)(iii) or any successor provision; provided, however, any amount payable to the Executive during the six-month periodfollowing the Executive’s termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to therequirements of Code Section 409A, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If the Executive is a “key employee” of apublicly traded corporation under Section 409A at the time of his separation from service and if payment of the Excess Amount under this Agreement isrequired to be delayed for a period of six (6) months after separation from service pursuant to Code Section 409A, then notwithstanding anything in thisAgreement to the contrary, payment of such amount shall be delayed as required by Code Section 409A, and the accumulated postponed amount shall be paidin a lump sum payment within ten (10) days after the end of the six (6) month period. If the Executive dies during the postponement period prior to thepayment of the postponed amount, the amounts withheld on account of Section 409A shall be paid to the personal representative of the Executive’s estatewithin sixty (60) days after the date of the Executive’s death. A “key employee” shall mean an employee who, at any time during the 12-month period endingon the identification date, is a “specified employee” under Code Section 409A, as determined by the Board, in its sole discretion. The determination of keyemployees, including the number and identity of persons considered key employees and the identification date, shall be made by the Board in accordance withthe provisions of Code Sections 416(i) and 409A.(c) To the extent the Executive is, at the time of his termination of employment under this Agreement, participating in one or more deferred compensationarrangements subject to Code Section 409A, the payments and benefits provided under those arrangements shall continue to be governed by, and to becomedue and payable in accordance with, the specific terms and conditions of those arrangements, and nothing in this Agreement shall be deemed to modify or alterthose terms and conditions.(d) “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments underthis Agreement that are payments of deferred compensation subject to Code Section 409A, the Executive’s “separation from service” as defined in CodeSection 409A.(e) Nothing herein shall be construed as having modified the time and form of payment of any amounts or payments of “deferred compensation” (asdefined under Treas. Reg. § 1.409A-1(b)(1), after giving effect to the exemptions in Treas. Reg. §§ 1.409A-1(b)(3) through (b)(12)) that were otherwisepayable pursuant to the terms of any agreement between Company and the Executive in effect on or after January 1, 2005 and prior to the date of thisAgreement.(f) All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Code Section 409A, including,where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of timespecified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible forreimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following theyear in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which takentogether shall constitute one and the same instrument.23. Separation. All covenants that, by their terms, naturally would survive the termination or expiration of this Agreement, including but not limited toSections 11, 12, 13, 14 and 15 hereof, shall survive the termination or expiration of this Agreement.IN WITNESS WHEREOF, the parties hereto have duly executed this Amended and Restated Executive Employment Agreement as of the date first abovewritten. GAIN CAPITAL HOLDINGS, INC.By: /s/ Glenn H. StevensName: Glenn H. StevensTitle: President and Chief Executive Officer /s/ Diego RotsztainDiego RotsztainExhibit 10.61EXECUTIVE EMPLOYMENT AGREEMENTTHIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of March 4th, 2011 (the “Effective Date”) and is by and between GAINCapital Holdings, Inc., a corporation organized under the laws of Delaware, including its subsidiaries and affiliates (the “Company”) and Jeffrey Scott (“Executive”).RecitalsWHEREAS, the Company desires to secure for itself the services of Executive, and the Executive wishes to furnish such services to the Company, pursuantto the terms and subject to the conditions hereinafter set forth;NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations set forth herein, the parties hereto, intending to be legallybound, hereby agree as follows:1. Employment Term. The Company hereby agrees to employ the Executive directly or through a subsidiary, and the Executive hereby agrees to continuesuch employment, as the Chief Commercial Officer of the Company, through the anniversary of the Effective Date, unless terminated sooner pursuant toSection 8 hereof (the “Term”).2. Representations and Warranties. The Executive represents that Executive is entering into this Agreement voluntarily and that Executive’s employmenthereunder and his compliance with the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to whichExecutive is a party or by which Executive may be bound, or any legal duty that Executive owes or may owe to another.3. Duties and Extent of Services.(a) During the Term, the Executive shall serve as Chief Commercial Officer of the Company and its primary operating subsidiaries, with such duties,responsibilities and authority as are consistent with such position, subject to the oversight of the Company (the “Board”), and shall so serve faithfully and tothe best of Executive’s ability under the direction and supervision of the Chief Executive Officer. As an executive officer of the Company, the Executive shall beentitled to all of the benefits and protections to which all officers of the Company are entitled pursuant to the Company’s Amended and Restated Certificate ofIncorporation, which shall include, but not be limited to, the rights of indemnification set forth in such Amended and Restated Certificate of Incorporation,and coverage under the Company’s directors’ and officers’ liability insurance as in effect from time to time.(b) During the Term, the Executive agrees to devote substantially his full business time, attention, and energies to the Company’s business and shall notbe engaged in any other business activity, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. Subject, however, toSection 11, 12 and 13 herein, the Executive may serve in charitable and civic positions and as a director of other companies with the prior consent of the ChiefExecutive Officer, which consent shall not be unreasonably withheld. The Executive covenants, warrants, and represents that he shall devote his full and bestefforts to the fulfillment of his employment obligations, and he shall exercise the highest degree of loyalty and the highest standards of conduct in theperformance of his duties. 14. Compensation.(a) Base Salary. The Company shall pay the Executive a base salary (the “Base Salary”) of not less than $325,000 , payable in bi-monthlyinstallments. The Base Salary shall be reviewed by the Board annually and may be increased in the Board’s sole discretion. The Executive shall not receiveany additional compensation from any subsidiary of the Company following the date hereof.(b) Equity. During the Employment Period, the Executive will be eligible to participate in all long-term equity incentive programs established by theCompany for its employees, including the 2006 Equity Compensation Plan (or a successor thereto), at levels determined by the Compensation Committee inits sole discretion commensurate with the Executive’s position. In addition, on the earlier of (i) the Company grant date that occurs during the first quarter of2011 (if any) or (ii) the next scheduled grant date following the Start Date (as determined by the Compensation Committee), the Executive will be granted anequity award pursuant to and subject to the terms and conditions of the 2006 Equity Compensation Plan (or successor plan) consisting of a number ofrestricted stock units and non-qualified stock options The approved Grant will consist of 20,000 Restricted Stock Units and 60,000 non-qualified stockoptions. All equity grants made to the Executive will vest in accordance with a vesting schedule that is consistent with other grants under the 2006 EquityCompensation Plan (or successor plan) and will be subject in all respects to the terms of the 2006 Equity Compensation Plan (or successor plan) and theagreement evidencing such grant(c) Bonus. During the Executive’s employment under this Agreement, the Company shall cause the Executive to be eligible to participate in each bonus orincentive compensation plan, program or policy maintained by the Company from time to time, in whole or in part, for the executive officers of the Company(each, an “Incentive Compensation Plan” and payments thereunder, “Incentive Compensation”). The Executive’s target and maximum compensation under,and his performance goals and other terms of participation in, each Incentive Compensation Plan shall be determined by the Company’s CompensationCommittee in its sole discretion. The Executive’s target variable incentive cash bonus for 2011 is 75% of base salary for 2011. Any such IncentiveCompensation is not guaranteed and is contingent upon the Executive and the Company achieving deliverables or goals agreed upon. Any such IncentiveCompensation shall not be considered “earned” by the Executive until the Company has allocated payment to be made to the Executive for any performanceperiod. Payment under any such Incentive Compensation Plan shall be made, if at all, after the close of the relevant performance period and by no later thanMarch 15th of the year after the year in which the performance period ends. Notwithstanding anything herein to the contrary, to the extent permitted or requiredby governing law, the Company’s Compensation Committee shall have discretion to require the Executive to repay to the Company the amount of any IncentiveCompensation to the extent the Compensation Committee or Board determines that such bonus was not actually earned by the Executive due to (A) the amountof such payment was based on the achievement of financial results that were subsequently the subject of a material accounting restatement that occurs withinthree years of such payment (except in the case of a restatement due to a change in accounting policy or simple error); (B) the Executive has engaged in fraud,gross negligence or intentional misconduct; or (C) the Executive has deliberately misled the market or the Company’s stockholders regarding the Company’sfinancial performance.5. Benefits. During the Term, the Executive shall be entitled to participate in any and all benefit programs and arrangements generally made available bythe Company to executive officers, including, but not limited to, pension plans, contributory and noncontributory welfare and benefit plans, disability plansand medical, death benefit and life insurance plans for which the Executive may be eligible during the Term. Furthermore, the Executive shall be permittedfour weeks of paid time off 2(“PTO”) during each calendar year. Accrued paid leave may be used for vacation, professional enrichment and education, sickness and disability. Unusedleave shall not accrue from one calendar year to another.6. Expenses. During the Executive’s employment, the Executive will be reimbursed for travel, entertainment and other out-of-pocket expenses reasonablyincurred by Executive on behalf of the Company in the performance of Executive’s duties hereunder, so long as (a) such expenses are consistent with the typeand amount of expenses that customarily would be incurred by similarly situated corporate executives in the United States; and (b) the Executive timelyprovides copies of receipts for expenses in accordance with Company policy.7. Adherence to Company Policy. The Executive acknowledges that he is subject to insider information policies designed to preclude its employees fromviolating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of any duty owed to theCompany or any third party. The Executive shall promptly execute any agreements generally distributed by the Company or to its employees requiring suchemployees to abide by its insider information policies.8. Termination.(a) Disability. In accordance with applicable law, the Company may terminate the Executive’s employment at any time after the Executive becomesDisabled. As used herein, “Disabled” means the incapacity of the Executive, due to injury, illness, disease, or bodily or mental infirmity, to engage in theperformance of substantially all of the usual duties of employment with the Company.(b) Death. The Executive’s employment with the Company will terminate upon the death of the Executive.(c) Termination with Cause. The Company may terminate the Executive’s employment at any time for Cause by providing written notice of suchtermination to the Executive. As used herein, “Cause” means any of the following, as determined by the Board:(i) the Executive’s material breach of this Agreement;(ii) the Executive’s gross negligence (other than as a result of disability or occurring after the Executive’s provision of notice in connection with aresignation for Good Reason) or willful misconduct in carrying out his duties hereunder, resulting in harm to the Company;(iii) the Executive’s material breach of any of his fiduciary obligations as an officer of the Company;(iv) any conviction by a court of law of, or entry of a pleading of guilty or nolo contendere by the Executive with respect to, a felony or any othercrime for which fraud or dishonesty is a material element, excluding traffic violations;(v) the Executive willfully or recklessly engages in conduct which either is materially or demonstrably injurious to the Company, monetarily orotherwise.For purposes of determining Cause, no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or withoutreasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (a) authority givenpursuant to a resolution duly adopted by the Board, or (b) advice of counsel for the Company, shall 3be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. In addition, as tosubsections (i)-(iii) above, if the action or inaction in question is susceptible of a cure, then no finding of Cause shall occur prior to written notice to theExecutive setting forth in reasonable detail the action or inaction at issue, and the Executive’s failure to cure such condition following a cure period of no lessthan sixty (60) days.(d) Termination Without Cause. The Company, at the direction of the Board, may terminate the Executive’s employment without Cause at any timeupon no less than ninety (90) days prior written notice, or ninety (90) days’ pay in lieu of notice.(e) Resignation for Good Reason. The Executive may resign from his employment with the Company for Good Reason by providing written notice to theChief Executive Officer that an event constituting Good Reason has occurred and the Executive desires to resign from his employment with the Company as aresult. Such notice must be provided to the Chief Executive Officer by the Executive within sixty (60) days following the initial occurrence of the eventconstituting Good Reason. After receipt of such written notice, the Chief Executive Officer shall have a period of sixty (60) days to cure such event; provided,however, the Chief Executive Officer, may, at its sole option, determine not to cure such event and accept the Executive’s resignation effective thirty (30) daysfollowing the Chief Executive Officer’s receipt of the Executive’s notice that an event constituting Good Reason has occurred. If the Chief Executive Officerdoes not cure the event constituting Good Reason within the requisite sixty (60) day period, the Executive’s employment with the Company shall terminate onaccount of Good Reason thirty (30) days following the expiration of the Chief Executive Officer’s cure period, unless the Chief Executive Officer determines toterminate the Executive’s employment prior to such date. As used herein, “Good Reason” means that, without the Executive’s consent, any of the followinghas occurred:(i) a material diminution in the Executive’s authority, duties or responsibilities;(ii) a material diminution in the Executive’s Base Salary; or(iii) any action or inaction by the Company that constitutes a material breach by the Company of its obligations under this Agreement.For the avoidance of doubt, in no event shall the expiration of this Agreement be construed as giving rise to Good Reason.(f) Resignation Without Good Reason. The Executive may resign from his employment with the Company without Good Reason (as that term is definedin Section 8(c)) at any time upon no less than ninety (90) days prior written notice to the Chief Executive Officer. Upon such notice of resignation, theCompany may, at its sole option, accept the Executive’s resignation effective as of a date prior to the resignation date specified in the notice, and in such event,the earlier date will be the effective date of termination of the Executive’s employment for all purposes hereunder.9. Compensation Upon Termination.(a) Disability. Upon termination of employment pursuant to Section 8(a), the Executive will receive any Base Salary accrued and unpaid as of such dateas well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive becomes disabled before the end of the fiscal year, the Executive will also receive Incentive Compensation for such fiscal year ona pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on thelast day of that month), but only to the extent that all prerequisites for receiving 4the Incentive Compensation have otherwise been satisfied. Such pro rata Incentive Compensation will be paid at the time that the Incentive Compensation ispayable to other executives. The Company shall have no further obligations under this Agreement to the Executive.(b) Death. In the event of the Executive’s death, the Executive’s estate will receive his Base Salary accrued and unpaid as of the date of his death as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive dies before the end of the fiscal year, the Executive’s estate will receive Incentive Compensation for such fiscal year on a pro ratabasis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on the last dayof that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rata bonus will bepaid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligations under this Agreement to theExecutive.(c) Termination Without Cause or Resignation With Good Reason Other Than in Connection With a Change in Control. If, other than in connection witha Change in Control as defined in Section 9(d), the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if theExecutive resigns for Good Reason pursuant to Section 8(e), the Company will pay the Executive his Base Salary accrued and unpaid as of the date oftermination of employment as well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon aspracticable after the termination of employment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described inSection 9(f) below and compliance with the requirements of Section 20 below, as well as Executive’s compliance with the restrictive covenants set forth inSections 10 through 14 below, the Company will also pay and/or provide to the Executive the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Severance Amount”), minus applicabledeductions and withholdings, which shall be paid to the Executive in accordance with the Company’s normal payroll practices in equal installmentsover the twelve (12) month period following Executive’s last day of employment and which shall commence as soon as administratively practicablefollowing the expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day ofemployment with the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each monthin which he was employed on the last day of that month (but not in duplication of the amount paid pursuant to clause (ii) of this Section 9(c))), minusapplicable deductions and withholdings, but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise beensatisfied, with such pro rata Incentive Compensation being paid in a lump sum at the same time that the Incentive Compensation is payable to otherexecutives;(iv) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2006 Equity Compensation Plan (or asuccessor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) that vest solelyon 5the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his termination date thatwould have vested within the twelve month (12) month period following the Executive’s termination date if the vesting schedule for such grants werebased on a monthly vesting schedule, as opposed to the vesting schedule set forth in his grant agreement, shall become vested on the Executive’stermination date; and(v) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan.The Company has no further obligation under this Agreement to the Executive upon his termination without Cause, resignation for Good Reason, or theCompany’s decision not to extend or renew the contract upon its scheduled expiration date. The obligations of the Company set forth in this Section 9(c) orSection 9(d) will be suspended and no longer enforceable if the Executive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14or 15, which material breach is not cured (if capable of cure) within ten (10) days written notice of such breach. For the avoidance of doubt, in no event shallthe expiration of this Agreement be construed as a termination without Cause or resignation for Good Reason.(d) Termination Without Cause or Resignation With Good Reason in Connection With a Change in Control. If, on or within twelve (12) months after aChange in Control as defined below, the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if the Executive resignsfor Good Reason pursuant to Section 8(e), the Executive is entitled to his Base Salary accrued and unpaid as of the date of termination of employment as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described in Section 9(f) below and compliancewith the requirements of Section 20 below, the Executive shall be entitled to the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Change in Control Severance Amount”),minus applicable deductions and withholdings, which shall be paid to the Executive in a lump sum as soon as administratively practicable followingthe expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day of employmentwith the Company;(ii) in accordance with Section 4(b), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for the fiscal year for each month inwhich he was employed on the last day of that month), minus applicable deductions and withholdings, based on the target Incentive Compensation forthe applicable period, with such pro rata bonus being paid in a lump sum as soon as administratively 6practicable following the expiration of the revocation period for the general release, but not later than sixty (60) days following the date of the Executive’slast day of employment with the Company;(iv) an amount equal to one times the Executive’s aggregate target Incentive Compensation for the fiscal year of the Company in which thetermination of employment occurs, determined without regard to any reduction thereof that constitutes Good Reason, with such amount to be paid in alump sum as soon as administratively practicable following the expiration of the revocation period for the general release, but not later than sixty(60) days following the date of the Executive’s last day of employment with the Company;(v) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2006 Equity Compensation Plan (or asuccessor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) that vest solelyon the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his termination date shallimmediately vest in full and/or become immediately exercisable or payable on the Executive’s termination date; and(vi) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan. In the event that the Company modifies the performance periodsor frequency at which discretionary bonuses are to be earned or paid, the references to Incentive Compensation and Quarterly Bonus in this Section 9(d) shallbe construed accordingly to reflect such modified bonus periods or frequency.The Company has no further obligation under this Agreement to the Executive upon his termination without Cause or resignation for Good Reason inconnection with a Change in Control. The obligations of the Company set forth in this Section 9(d) will be suspended and no longer enforceable if theExecutive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14 or 15, which material breach is not cured (if capable of cure)within ten (10) days written notice of such breach. If benefits are due under this Section 9(d), no benefits are due under Section 9(c).For purposes of this Agreement, “Change in Control” means a (I) Change in Ownership of the Company, (II) Change in Effective Control of theCompany, or (III) Change in the Ownership of Assets of the Company, as described herein and construed in accordance with section 409A of the InternalRevenue Code of 1986, as amended, and the regulations and Treasury guidance issued thereunder (the “Code”); except that no Change in Control shall bedeemed to occur as a result of a change of ownership resulting from the death of a stockholder or a transaction in which the Company becomes a subsidiary ofanother corporation and in which the stockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after thetransaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in theelection of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote).(I) A “Change in Ownership of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Group acquire, ownershipof the capital stock of the Company that, together with the stock held by such Person or Group, constitutes more than 50% of the total fair market 7value or total voting power of the capital stock of the Company. However, if any one Person is, or Persons Acting as a Group are, considered to own more than50% of the total fair market value or total voting power of the capital stock of the Company, the acquisition of additional stock by the same Person or PersonsActing as a Group is not considered to cause a Change in Ownership of the Company or to cause a Change in Effective Control of the Company (as describedbelow). An increase in the percentage of capital stock owned by any one Person, or Persons Acting as a Group, as a result of a transaction in which theCompany acquires its stock in exchange for property will be treated as an acquisition of stock.(II) A “Change in Effective Control of the Company” shall occur on the date a majority of members of the Board is replaced during any 12-monthperiod by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election.(III) A “Change in the Ownership of Assets of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Groupacquire (or has or have acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons), assets from theCompany that have a total gross fair market value equal to or more than 75% of the total gross fair market value of all of the assets of the Companyimmediately before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the valueof the assets being disposed of, determined without regard to any liabilities associated with such assets.The following rules of construction apply in interpreting the definition of Change in Control:(A) A “Person” means any individual, entity or group within the meaning of section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, asamended, other than employee benefit plans sponsored or maintained by the Company and by entities controlled by the Company or an underwriter of thecapital stock of the Company in a registered public offering.(B) Persons will be considered to be “Persons Acting as a Group” (or “Group”) if they are owners of a corporation that enters into a merger,consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a Person owns stock in both corporations that enterinto a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a Group with othershareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interestin the other corporation. Persons will not be considered to be acting as a Group solely because they purchase assets of the same corporation at the same time orpurchase or own stock of the same corporation at the same time, or as a result of the same public offering.(C) For purposes of the definition of Change in Control, “fair market value” shall be determined by the Board.(D) A Change in Control shall not include a transfer to a related person as described in Code section 409A or a public offering of capital stock of theCompany.(E) For purposes of the definition of Change in Control, Code section 318(a) applies to determine stock ownership. Stock underlying a vested option isconsidered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual whoholds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (asdefined by Treas. Reg. § 1.83-3(b) and (j)), the stock underlying the option is not treated as owned by the individual who holds the option. 8(e) Termination With Cause, Resignation Without Good Reason, or Expiration of the Agreement. If, whether or not in connection with a Change inControl, the Company terminates the Executive’s employment with Cause pursuant to Section 8(c), if the Executive resigns without Good Reason pursuant toSection 8(f), or if the Executive is entitled to the severance benefits pursuant to Section 9(c) or Section 9(d) and either does not execute or revokes the generalrelease of claims required pursuant to Section 9(f), or is in breach of any of the covenants set forth in Sections 10, 11, 12, 13 or 14 below, the Company willpay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO and appropriateexpense reimbursements. Such amounts will be paid as soon as practicable after the termination of employment. The Company shall have no furtherobligations under this Agreement to the Executive. If this Agreement expires without any extension or renewal of its terms, the Executive will be an at-willemployee of the Company thereafter unless the Company elects to terminate the Executive’s employment coincident with such expiration and the Companyshall have no further obligations under this Agreement to the Executive. If the Company elects to terminate the Executive’s employment coincident with theexpiration of this Agreement, the Company will pay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well asany accrued but unused PTO and appropriate expense reimbursements. For the avoidance of doubt, in no event shall the expiration of this Agreement, or thetermination of Executive’s employment coincident with such expiration, be construed as a termination without Cause or resignation for Good Reason.(f) Release of Claims. As a condition for the payments of the Severance Amount or the Change in Control Severance and Incentive Compensationprovided in Section 9(c) or Section 9(d), the Executive must execute a general release of all claims (including claims under local, state and federal laws, butexcluding claims for payment due under Section 9(c) or Section 9(d) that the Executive has or may have against the Company or any related individuals orentities (the “Release”). The Release shall be in a form reasonably acceptable to the Company, and shall include confidentiality, cooperation, and non-disparagement provisions, as well as other terms requested by the Company that are typical of an executive severance agreement. The Severance Amount,Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefits provided for in Section 9(c) orSection 9(d) are conditioned upon and will not be paid (or be provided) until the execution of the Release and the expiration of any revocation period; providedthat notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly orindirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in morethan one taxable year, payment shall be made in the later taxable year. The Company shall provide the Release to the Executive by no later than ten days afterthe Executive terminates employment with the Company, and the Executive shall execute the Release during the statutory time period specified by applicablelaw. If the Release is not executed during the statutory time period specified by applicable law, the Company’s obligation to pay any Severance Amount,Change in Control Severance Amount, or Incentive Compensation and to provide any acceleration of vesting and continued health benefits provided for inSection 9(c) or Section 9(d) pursuant to this Agreement shall terminate.(g) Section 280G Cutback. The Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respectto any payment received under this Agreement, including, without limitation, any excise tax imposed by Code section 4999. Notwithstanding anything to thecontrary in this Agreement, in the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or inconnection with the Executive’s termination of employment or contingent upon a Change in Control pursuant to any plan or arrangement or other agreementwith the Company or any affiliate (collectively, the “Payments”) would be subject to the excise tax imposed by Code section 4999, as determined by theCompany, then the Payments shall be reduced to the extent necessary to prevent any portion of the Payments from becoming 9nondeductible by the Company under Code section 280G or subject to the excise tax imposed under Code section 4999, but only if, by reason of thatreduction, the net after-tax benefit received by the Executive exceeds the net after-tax benefit the Executive would receive if no reduction was made. For thispurpose, “net after-tax benefit” means (i) the total of all Payments that would constitute “excess parachute payments” within the meaning of Code section280G, less (ii) the amount of all federal, state, and local income taxes payable with respect to the Payments calculated at the maximum marginal income taxrate for each year in which the Payments shall be paid to the Executive (based on the rate in effect for that year as set forth in the Code as in effect at the time ofthe first payment of the Payments), less (iii) the amount of excise taxes imposed on the Payments described in clause (i) above by Code section 4999. If,pursuant to this Section 9(g), Payments are to be reduced, the Company shall determine which Payments shall be reduced in a manner so as to avoid theimposition of additional taxes under Code section 409A.10. Confidentiality; Return of Company Property.(a) The Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information ofthe Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs,ideas, trade secrets, proprietary information, business strategies, packaging, advertising, marketing, distribution and sales methods, sales and profit figures,employees, customers and clients, and relationships between the Company and its business partners, including dealers, traders, distributors, salesrepresentatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“Confidential Information”). The Executiveacknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Term,Executive will not disclose any Confidential Information to any person or entity, except as Executive’s duties as an employee of the Company may require,without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 10 shall not apply to Confidential Informationthat otherwise becomes generally known to the public through no act of the Executive in breach of this Agreement or any other party in violation of an existingconfidentiality agreement with the Company, or which is required to be disclosed by court order or applicable law.(b) All records, designs, patents, business plans, financial statements, manuals, memoranda, lists, research and development plans and products, andother property delivered to or compiled by the Executive by or on behalf of the Company or its vendors or customers that pertain to the business of theCompany shall be and remain the property of the Company, and be subject at all times to its discretion and control. Likewise, all correspondence, reports,records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company (and all copies thereof) thatare collected by the Executive shall be delivered promptly to the Company without request by it upon termination of the Executive’s employment.11. Non-Competition. While the Executive is employed at the Company and for a period of twelve (12) months after the termination of his employmentwith the Company for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, own, maintain, finance, operate, engage in, assist,be employed by, contract with, license, or have any interest in, or association with a business or enterprise engaged in or planning to be engaged in, the Internetretail trading of foreign exchange, or any business engaged in by the Company, or approved for the Company or its affiliates to be engaged in by the Board ofDirectors of the Company, during his employment with the Company.12. Solicitation of Clients. During the Restricted Period, the Executive, directly or indirectly, including through any other person or entity, shall not seekbusiness from any Client on behalf of any enterprise or business other than the Company, refer business generated from any Client to any enterprise orbusiness other than the Company, or receive commissions based on sales or otherwise relating to the 10business from any Client, enterprise or business other than the Company. For purposes of this Agreement, the term “Client” means any person, firm,corporation, limited liability company, partnership, association or other entity (i) to which the Company sold or provided services during the 12-month periodprior to the time at which any determination is required to be made as to whether any such person, firm, corporation, partnership, association or other entity isa Client, or (ii) who or which has been approached by an employee of the Company for the purpose of soliciting business for the Company and whichbusiness was reasonably expected to generate revenue in excess of $100,000 per annum.13. Solicitation of Employees. During the Restricted Period, the Executive, directly or indirectly, shall not contact or solicit any employee of theCompany for the purpose of hiring them or causing them to terminate their employment relationship with the Company.14. Inventions, Ideas, Processes, and Designs. All inventions, ideas, processes, programs, software, and designs (including all improvements)conceived or made by the Executive during his employment with the Company (whether or not actually conceived during regular business hours) and related tothe business of the Company, or the business approved by the Board of Directors to be engaged in by the Company, shall be disclosed in writing promptly tothe Company and shall be the sole and exclusive property of the Company. An invention, idea, process, program, software, or design (including animprovement) shall be deemed related to the actual or approved business of the Company if (x) it was made with the Company’s equipment, supplies,facilities, or Confidential Information, (y) results from work performed by the Executive for the Company, or (z) pertains to the current business ordemonstrably anticipated research or development work of the Company. The Executive shall cooperate with the Company and its attorneys in the preparationof patent and copyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to theCompany. The decision to file for patent or copyright protection or to maintain such development as a trade secret shall be in the sole discretion of theCompany, and the Executive shall be bound by such decision.15. Specific Performance/Remedies. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique andextraordinary character and, in connection with such services, the Executive will have access to Confidential Information vital to the Company’s business.Executive further agrees that the covenants contained in Sections 11, 12, 13 and 14 are reasonable and necessary to protect the legitimate business interests ofthe Company. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Section 11, 12, 13, and 14 hereof,the Company would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company. The Executive hereby agreesthat the Company shall be entitled to have Section 11, 12, 13, or 14 hereof specifically enforced (including, without limitation, by injunctions and restrainingorders) by any court in the State of New Jersey having equity jurisdiction and agrees to be subject to the jurisdiction of said court. As a further and non-exclusive remedy, Executive understands that a breach of the covenants contained in Sections 11, 12, 13, or 14 above that causes material harm to theCompany as reasonably determined by the Board (which determination shall be binding and final) shall eliminate Executive’s entitlement to any furtherpayment of the Severance Amount, Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefitsprovided for in Section 9(c) or Section 9(d), and Executive shall be required to return any such amounts in the event of such a breach. Nothing containedherein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including therecovery of damages from the Executive.16. Complete Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive’s employment, compensation,benefits and related items and supersedes any other prior oral or written agreements, arrangements or understandings between the Executive and the 11Company, other than the award agreements reflecting outstanding equity awards held by the Executive as of the date of this Agreement which shall continue tocontrol such equity awards except as expressly modified by Sections 9(c) and 9(d) of this Agreement. This Agreement may not be changed or terminated orallybut only by an agreement in writing signed by the parties hereto.17. Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver ofany subsequent breach by such party.18. Governing Law; Assignability.(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without reference to the choice of lawprovisions thereof.(b) The Executive may not, without the Company’s prior written consent, delegate, assign, transfer, convey, pledge, encumber or otherwise dispose ofthis Agreement or any interest herein. Any such attempt shall be null and void and without effect. The Company and the Executive agree that this Agreementand all of the Company’s rights and obligations hereunder may be assigned or transferred by the Company and shall be assumed by and be binding upon anysuccessor to the Company.19. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 11, 12, 13, or 14, as applied to eitherparty or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any otherprovision of this Agreement or remaining parts thereof, which shall be given full effect without regard to the invalid or unenforceable part thereof, or thevalidity or enforceability of this Agreement. In the event an arbitrator or court of competent jurisdiction deems the restrictive covenants unreasonably lengthy intime or overly broad in scope, it is the intention and agreement of the parties that those provisions which are not fully enforceable be deemed as having beenmodified to the extent necessary to render them reasonable and enforceable and that they be enforced to such extent.20. Notices. All notices to the Company or the Executive, permitted or required hereunder, shall be in writing and shall be delivered personally, bytelecopier or by courier service providing for next-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses:If to the Company:GAIN Capital Holdings, Inc.Bedminster One135 Route 202/206Bedminster, New Jersey 07921Attention: Chief Executive OfficerIf to the Executive, to the address set forth on the first page hereof.Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any suchnotice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day delivery, thenext business day following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with theU.S. mail service. 1221. Section 409A.(a) This Agreement shall be interpreted to avoid the imposition of any additional taxes under Code section 409A. If any payment or benefit cannot beprovided or made at the time specified herein without incurring additional taxes under Code section 409A, then such benefit or payment shall be provided infull at the earliest time thereafter when such sanctions will not be imposed. The preceding provisions, however, shall not be construed as a guarantee by theCompany of any particular tax effect to Executive under this Agreement. For purposes of Code section 409A, each payment under this Agreement shall betreated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.In no event may the Executive, directly or indirectly, designate the calendar year of payment.(b) To the maximum extent permitted under Code section 409A, the cash severance payments payable under this Agreement are intended to comply withthe ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’under Treas. Reg. §1.409A-1(b)(9)(iii) or any successor provision; provided, however, any amount payable to the Executive during the six-month periodfollowing the Executive’s termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to therequirements of Code section 409A, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If the Executive is a “key employee” of apublicly traded corporation under section 409A at the time of his separation from service and if payment of the Excess Amount under this Agreement isrequired to be delayed for a period of six (6) months after separation from service pursuant to Code section 409A, then notwithstanding anything in thisAgreement to the contrary, payment of such amount shall be delayed as required by Code section 409A, and the accumulated postponed amount shall be paidin a lump sum payment within ten (10) days after the end of the six (6) month period. If the Executive dies during the postponement period prior to thepayment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of the Executive’s estate withinsixty (60) days after the date of the Executive’s death. A “key employee” shall mean an employee who, at any time during the 12-month period ending on theidentification date, is a “specified employee” under Code section 409A, as determined by the Board, in its sole discretion. The determination of keyemployees, including the number and identity of persons considered key employees and the identification date, shall be made by the Board in accordance withthe provisions of Code sections 416(i) and 409A.(c) To the extent the Executive is, at the time of his termination of employment under this Agreement, participating in one or more deferred compensationarrangements subject to Code section 409A, the payments and benefits provided under those arrangements shall continue to be governed by, and to become dueand payable in accordance with, the specific terms and conditions of those arrangements, and nothing in this Agreement shall be deemed to modify or alterthose terms and conditions.(d) “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments underthis Agreement that are payments of deferred compensation subject to Code section 409A, the Executive's “separation from service” as defined in Code section409A.(e) Nothing herein shall be construed as having modified the time and form of payment of any amounts or payments of “deferred compensation” (asdefined under Treas. Reg. § 1.409A-1(b)(1), after giving effect to the exemptions in Treas. Reg. §§ 1.409A-1(b)(3) through (b)(12)) that were otherwisepayable pursuant to the terms of any agreement between Company and the Executive in effect on or after January 1, 2005 and prior to the date of thisAgreement. 13(f) All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Code section 409A, including,where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of timespecified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible forreimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following theyear in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which takentogether shall constitute one and the same instrument.23. Separation. All covenants that, by their terms, naturally would survive the termination or expiration of this Agreement, including but not limited toSections 11, 12, 13, 14 and 15 hereof, shall survive the termination or expiration of this Agreement. 14IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the date first above written.GAIN CAPITAL HOLDINGS, INC. By: /s/ Glenn StevensName: Glenn StevensTitle: President and Chief Executive Officer /s/ Jeffrey Scott EXECUTIVE 15Exhibit 10.62AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENTTHIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of March 25, 2011 and is byand between GAIN Capital Holdings, Inc., a corporation organized under the laws of Delaware, including its subsidiaries and affiliates (the “Company”) andJeffrey Scott (“Executive”).RecitalsWHEREAS, the Executive is presently employed by the Company in the capacity of Chief Commercial Officer, pursuant to that certain ExecutiveEmployment Agreement between the Company and Executive (the “Prior Agreement”), dated February 23, 2011 (the “Effective Date”);WHEREAS, the Company and the Executive desire to amend and restate the terms and conditions of the Prior Agreement in order to reflect certain desiredclarifications in the terms and continue Executive’s employment with the Company upon the amended and restated terms and conditions of this Agreement;andWHEREAS, the Company and the Executive have agreed that this Agreement will supersede and replace the Prior Agreement as of the Effective Date.NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations set forth herein, the parties hereto, intending to be legallybound, hereby agree as follows:1. Employment Term. The Company hereby agrees to employ the Executive directly or through a subsidiary, and the Executive hereby agrees to continuesuch employment, as the Chief Commercial Officer of the Company, through the anniversary of the Effective Date, unless terminated sooner pursuant toSection 8 hereof (the “Term”).2. Representations and Warranties. The Executive represents that Executive is entering into this Agreement voluntarily and that Executive’s employmenthereunder and his compliance with the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to whichExecutive is a party or by which Executive may be bound, or any legal duty that Executive owes or may owe to another.3. Duties and Extent of Services.(a) During the Term, the Executive shall serve as Chief Commercial Officer of the Company and its primary operating subsidiaries, with such duties,responsibilities and authority as are consistent with such position, subject to the oversight of the Company (the “Board”), and shall so serve faithfully and tothe best of Executive’s ability under the direction and supervision of the Chief Executive Officer. As an executive officer of the Company, the Executive shall beentitled to all of the benefits and protections to which all officers of the Company are entitled pursuant to the Company’s Amended and Restated Certificate ofIncorporation, which shall include, but not be limited to, the rights of indemnification set forth in such Amended and Restated Certificate of Incorporation,and coverage under the Company’s directors’ and officers’ liability insurance as in effect from time to time.(b) During the Term, the Executive agrees to devote substantially his full business time, attention, and energies to the Company’s business and shall notbe engaged in any other business activity, whether or not such business activity is pursued for gain, profit, or other pecuniary advantage. Subject, however, toSection 11, 12 and 13 herein, the Executive may serve in charitable and civic positions and as 1a director of other companies with the prior consent of the Chief Executive Officer, which consent shall not be unreasonably withheld. The Executivecovenants, warrants, and represents that he shall devote his full and best efforts to the fulfillment of his employment obligations, and he shall exercise thehighest degree of loyalty and the highest standards of conduct in the performance of his duties.4. Compensation.(a) Base Salary. The Company shall pay the Executive a base salary (the “Base Salary”) of not less than $325,000 , payable in bi-monthlyinstallments. The Base Salary shall be reviewed by the Board annually and may be increased in the Board’s sole discretion. The Executive shall not receiveany additional compensation from any subsidiary of the Company following the date hereof.(b) Equity. During the Employment Period, the Executive will be eligible to participate in all long-term equity incentive programs established by theCompany for its employees, including the 2010 Omnibus Incentive Compensation Plan (or a successor thereto), at levels determined by the CompensationCommittee in its sole discretion commensurate with the Executive’s position. In addition, on the earlier of (i) the Company grant date that occurs during thefirst quarter of 2011 (if any) or (ii) the next scheduled grant date following the Start Date (as determined by the Compensation Committee), the Executive willbe granted an equity award pursuant to and subject to the terms and conditions of the 2010 Omnibus Incentive Compensation Plan (or successor plan)consisting of a number of shares of restricted stock and non-qualified stock options. The approved grant will consist of 20,000 shares of restricted stock and60,000 non-qualified stock options. All equity grants made to the Executive will vest in accordance with a vesting schedule that is consistent with other grantsunder the 2010 Omnibus Incentive Compensation Plan (or successor plan) and will be subject in all respects to the terms of the 2010 Omnibus IncentiveCompensation Plan (or successor plan) and the agreement evidencing such grant.(c) Bonus. During the Executive’s employment under this Agreement, the Company shall cause the Executive to be eligible to participate in each bonus orincentive compensation plan, program or policy maintained by the Company from time to time, in whole or in part, for the executive officers of the Company(each, an “Incentive Compensation Plan” and payments thereunder, “Incentive Compensation”). The Executive’s target and maximum compensation under,and his performance goals and other terms of participation in, each Incentive Compensation Plan shall be determined by the Company’s CompensationCommittee in its sole discretion. The Executive’s target variable incentive cash bonus for 2011 is 75% of base salary for 2011. Any such IncentiveCompensation is not guaranteed and is contingent upon the Executive and the Company achieving deliverables or goals agreed upon. Any such IncentiveCompensation shall not be considered “earned” by the Executive until the Company has allocated payment to be made to the Executive for any performanceperiod. Payment under any such Incentive Compensation Plan shall be made, if at all, after the close of the relevant performance period and by no later thanMarch 15th of the year after the year in which the performance period ends. Notwithstanding anything herein to the contrary, to the extent permitted or requiredby governing law, the Company’s Compensation Committee shall have discretion to require the Executive to repay to the Company the amount of any IncentiveCompensation to the extent the Compensation Committee or Board determines that such bonus was not actually earned by the Executive due to (A) the amountof such payment was based on the achievement of financial results that were subsequently the subject of a material accounting restatement that occurs withinthree years of such payment (except in the case of a restatement due to a change in accounting policy or simple error); (B) the Executive has engaged in fraud,gross negligence or intentional misconduct; or (C) the Executive has deliberately misled the market or the Company’s stockholders regarding the Company’sfinancial performance. 25. Benefits. During the Term, the Executive shall be entitled to participate in any and all benefit programs and arrangements generally made available bythe Company to executive officers, including, but not limited to, pension plans, contributory and noncontributory welfare and benefit plans, disability plansand medical, death benefit and life insurance plans for which the Executive may be eligible during the Term. Furthermore, the Executive shall be permittedfour weeks of paid time off (“PTO”) during each calendar year. Accrued paid leave may be used for vacation, professional enrichment and education,sickness and disability. Unused leave shall not accrue from one calendar year to another.6. Expenses. During the Executive’s employment, the Executive will be reimbursed for travel, entertainment and other out-of-pocket expenses reasonablyincurred by Executive on behalf of the Company in the performance of Executive’s duties hereunder, so long as (a) such expenses are consistent with the typeand amount of expenses that customarily would be incurred by similarly situated corporate executives in the United States; and (b) the Executive timelyprovides copies of receipts for expenses in accordance with Company policy.7. Adherence to Company Policy. The Executive acknowledges that he is subject to insider information policies designed to preclude its employees fromviolating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of any duty owed to theCompany or any third party. The Executive shall promptly execute any agreements generally distributed by the Company or to its employees requiring suchemployees to abide by its insider information policies.8. Termination.(a) Disability. In accordance with applicable law, the Company may terminate the Executive’s employment at any time after the Executive becomesDisabled. As used herein, “Disabled” means the incapacity of the Executive, due to injury, illness, disease, or bodily or mental infirmity, to engage in theperformance of substantially all of the usual duties of employment with the Company.(b) Death. The Executive’s employment with the Company will terminate upon the death of the Executive.(c) Termination with Cause. The Company may terminate the Executive’s employment at any time for Cause by providing written notice of suchtermination to the Executive. As used herein, “Cause” means any of the following, as determined by the Board:(i) the Executive’s material breach of this Agreement;(ii) the Executive’s gross negligence (other than as a result of disability or occurring after the Executive’s provision of notice in connection with aresignation for Good Reason) or willful misconduct in carrying out his duties hereunder, resulting in harm to the Company;(iii) the Executive’s material breach of any of his fiduciary obligations as an officer of the Company;(iv) any conviction by a court of law of, or entry of a pleading of guilty or nolo contendere by the Executive with respect to, a felony or any othercrime for which fraud or dishonesty is a material element, excluding traffic violations; 3(v) the Executive willfully or recklessly engages in conduct which either is materially or demonstrably injurious to the Company, monetarily orotherwise.For purposes of determining Cause, no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or withoutreasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon: (a) authority givenpursuant to a resolution duly adopted by the Board, or (b) advice of counsel for the Company, shall be conclusively presumed to be done or omitted to be doneby the Executive in good faith and in the best interests of the Company. In addition, as to subsections (i)-(iii) above, if the action or inaction in question issusceptible of a cure, then no finding of Cause shall occur prior to written notice to the Executive setting forth in reasonable detail the action or inaction atissue, and the Executive’s failure to cure such condition following a cure period of no less than sixty (60) days.(d) Termination Without Cause. The Company, at the direction of the Board, may terminate the Executive’s employment without Cause at any timeupon no less than ninety (90) days prior written notice, or ninety (90) days’ pay in lieu of notice.(e) Resignation for Good Reason. The Executive may resign from his employment with the Company for Good Reason by providing written notice to theChief Executive Officer that an event constituting Good Reason has occurred and the Executive desires to resign from his employment with the Company as aresult. Such notice must be provided to the Chief Executive Officer by the Executive within sixty (60) days following the initial occurrence of the eventconstituting Good Reason. After receipt of such written notice, the Chief Executive Officer shall have a period of sixty (60) days to cure such event; provided,however, the Chief Executive Officer, may, at its sole option, determine not to cure such event and accept the Executive’s resignation effective thirty (30) daysfollowing the Chief Executive Officer’s receipt of the Executive’s notice that an event constituting Good Reason has occurred. If the Chief Executive Officerdoes not cure the event constituting Good Reason within the requisite sixty (60) day period, the Executive’s employment with the Company shall terminate onaccount of Good Reason thirty (30) days following the expiration of the Chief Executive Officer’s cure period, unless the Chief Executive Officer determines toterminate the Executive’s employment prior to such date. As used herein, “Good Reason” means that, without the Executive’s consent, any of the followinghas occurred:(i) a material diminution in the Executive’s authority, duties or responsibilities;(ii) a material diminution in the Executive’s Base Salary; or(iii) any action or inaction by the Company that constitutes a material breach by the Company of its obligations under this Agreement.For the avoidance of doubt, in no event shall the expiration of this Agreement be construed as giving rise to Good Reason.(f) Resignation Without Good Reason. The Executive may resign from his employment with the Company without Good Reason (as that term is definedin Section 8(c)) at any time upon no less than ninety (90) days prior written notice to the Chief Executive Officer. Upon such notice of resignation, theCompany may, at its sole option, accept the Executive’s resignation effective as of a date prior to the resignation date specified in the notice, and in such event,the earlier date will be the effective date of termination of the Executive’s employment for all purposes hereunder. 49. Compensation Upon Termination.(a) Disability. Upon termination of employment pursuant to Section 8(a), the Executive will receive any Base Salary accrued and unpaid as of such dateas well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive becomes disabled before the end of the fiscal year, the Executive will also receive Incentive Compensation for such fiscal year ona pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on thelast day of that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rataIncentive Compensation will be paid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligationsunder this Agreement to the Executive.(b) Death. In the event of the Executive’s death, the Executive’s estate will receive his Base Salary accrued and unpaid as of the date of his death as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. If the Executive dies before the end of the fiscal year, the Executive’s estate will receive Incentive Compensation for such fiscal year on a pro ratabasis (1/12th of the aggregate Incentive Compensation payable to the Executive for such fiscal year for each month in which he was employed on the last dayof that month), but only to the extent that all prerequisites for receiving the Incentive Compensation have otherwise been satisfied. Such pro rata bonus will bepaid at the time that the Incentive Compensation is payable to other executives. The Company shall have no further obligations under this Agreement to theExecutive.(c) Termination Without Cause or Resignation With Good Reason Other Than in Connection With a Change in Control. If, other than in connection witha Change in Control as defined in Section 9(d), the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if theExecutive resigns for Good Reason pursuant to Section 8(e), the Company will pay the Executive his Base Salary accrued and unpaid as of the date oftermination of employment as well as any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon aspracticable after the termination of employment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described inSection 9(f) below and compliance with the requirements of Section 20 below, as well as Executive’s compliance with the restrictive covenants set forth inSections 10 through 14 below, the Company will also pay and/or provide to the Executive the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Severance Amount”), minus applicabledeductions and withholdings, which shall be paid to the Executive in accordance with the Company’s normal payroll practices in equal installmentsover the twelve (12) month period following Executive’s last day of employment and which shall commence as soon as administratively practicablefollowing the expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day ofemployment with the Company;(ii) in accordance with Section 4(c), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation 5payable to the Executive for such fiscal year for each month in which he was employed on the last day of that month (but not in duplication of theamount paid pursuant to clause (ii) of this Section 9(c))), minus applicable deductions and withholdings, but only to the extent that all prerequisites forreceiving the Incentive Compensation have otherwise been satisfied, with such pro rata Incentive Compensation being paid in a lump sum at the sametime that the Incentive Compensation is payable to other executives;(iv) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2010 Omnibus Incentive CompensationPlan (or a successor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) thatvest solely on the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his terminationdate that would have vested within the twelve month (12) month period following the Executive’s termination date if the vesting schedule for such grantswere based on a monthly vesting schedule, as opposed to the vesting schedule set forth in his grant agreement, shall become vested on the Executive’stermination date; and(v) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan.The Company has no further obligation under this Agreement to the Executive upon his termination without Cause, resignation for Good Reason, or theCompany’s decision not to extend or renew the contract upon its scheduled expiration date. The obligations of the Company set forth in this Section 9(c) orSection 9(d) will be suspended and no longer enforceable if the Executive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14or 15, which material breach is not cured (if capable of cure) within ten (10) days written notice of such breach. For the avoidance of doubt, in no event shallthe expiration of this Agreement be construed as a termination without Cause or resignation for Good Reason.(d) Termination Without Cause or Resignation With Good Reason in Connection With a Change in Control. If, on or within twelve (12) months after aChange in Control as defined below, the Company terminates the Executive’s employment without Cause pursuant to Section 8(d) or if the Executive resignsfor Good Reason pursuant to Section 8(e), the Executive is entitled to his Base Salary accrued and unpaid as of the date of termination of employment as wellas any accrued but unused PTO and appropriate expense reimbursements. Such amounts will be paid as soon as practicable after the termination ofemployment. In addition, subject to the Executive’s execution and nonrevocation of the general release of claims described in Section 9(f) below and compliancewith the requirements of Section 20 below, the Executive shall be entitled to the following:(i) severance in an amount equal to twelve (12) months of the Executive’s monthly Base Salary (the “Change in Control Severance Amount”),minus applicable deductions and withholdings, which shall be paid to the Executive in a lump sum as soon as administratively practicable followingthe expiration of the revocation period for the general release, but not later than sixty (60) days following the date of Executive’s last day of employmentwith the Company; 6(ii) in accordance with Section 4(c), the Executive will receive any accrued and unpaid Incentive Compensation, minus applicable deductions andwithholdings, for which he is eligible, with such amount to be paid in a lump sum as soon as practicable after the termination of employment;(iii) notwithstanding any eligibility requirement that the Executive must be employed by the Company as of the date on which the IncentiveCompensation is paid, if the Executive’s employment is terminated before such date in accordance with Section 8(d) or 8(e), he will be eligible to receiveIncentive Compensation on a pro rata basis (1/12th of the aggregate Incentive Compensation payable to the Executive for the fiscal year for each month inwhich he was employed on the last day of that month), minus applicable deductions and withholdings, based on the target Incentive Compensation forthe applicable period, with such pro rata bonus being paid in a lump sum as soon as administratively practicable following the expiration of therevocation period for the general release, but not later than sixty (60) days following the date of the Executive’s last day of employment with theCompany;(iv) an amount equal to one times the Executive’s aggregate target Incentive Compensation for the fiscal year of the Company in which thetermination of employment occurs, determined without regard to any reduction thereof that constitutes Good Reason, with such amount to be paid in alump sum as soon as administratively practicable following the expiration of the revocation period for the general release, but not later than sixty(60) days following the date of the Executive’s last day of employment with the Company;(v) notwithstanding any provision to the contrary in any applicable grant agreement or the Company’s 2010 Omnibus Incentive CompensationPlan (or a successor plan), all shares subject to Company equity grants (including without limitation stock options, stock units and stock awards) thatvest solely on the Executive’s continued employment with the Company for a specified period of time held by the Executive at the time of his terminationdate shall immediately vest in full and/or become immediately exercisable or payable on the Executive’s termination date; and(vi) the Company will provide continued health benefits to the Executive at the same premium rates charged to other then current employees of theCompany for the twelve (12) month period following his termination of employment, unless the Executive is otherwise covered by health insuranceprovided by a future employer.For the avoidance of doubt, acceleration, if any, of equity grants that vest in whole or in part based on the satisfaction of performance-based or market-based conditions will be governed by the terms of the applicable award agreement and/or plan. In the event that the Company modifies the performance periodsor frequency at which discretionary bonuses are to be earned or paid, the references to Incentive Compensation and Quarterly Bonus in this Section 9(d) shallbe construed accordingly to reflect such modified bonus periods or frequency.The Company has no further obligation under this Agreement to the Executive upon his termination without Cause or resignation for Good Reason inconnection with a Change in Control. The obligations of the Company set forth in this Section 9(d) will be suspended and no longer enforceable if theExecutive materially breaches the terms and conditions of Sections 9(f), 7, 10, 11, 12, 13, 14 or 15, which material breach is not cured (if capable of cure)within ten (10) days written notice of such breach. If benefits are due under this Section 9(d), no benefits are due under Section 9(c).For purposes of this Agreement, “Change in Control” means a (I) Change in Ownership of the Company, (II) Change in Effective Control of theCompany, or (III) Change in the Ownership of Assets of the Company, as described herein and construed in accordance with section 409A of the InternalRevenue Code of 1986, as amended, and the regulations and Treasury guidance issued thereunder (the 7“Code”); except that no Change in Control shall be deemed to occur as a result of a change of ownership resulting from the death of a stockholder or atransaction in which the Company becomes a subsidiary of another corporation and in which the stockholders of the Company, immediately prior to thetransaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which allstockholders of the parent corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors bya separate class vote).(I) A “Change in Ownership of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Group acquire, ownershipof the capital stock of the Company that, together with the stock held by such Person or Group, constitutes more than 50% of the total fair market value ortotal voting power of the capital stock of the Company. However, if any one Person is, or Persons Acting as a Group are, considered to own more than 50% ofthe total fair market value or total voting power of the capital stock of the Company, the acquisition of additional stock by the same Person or Persons Actingas a Group is not considered to cause a Change in Ownership of the Company or to cause a Change in Effective Control of the Company (as described below).An increase in the percentage of capital stock owned by any one Person, or Persons Acting as a Group, as a result of a transaction in which the Companyacquires its stock in exchange for property will be treated as an acquisition of stock.(II) A “Change in Effective Control of the Company” shall occur on the date a majority of members of the Board is replaced during any 12-monthperiod by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election.(III) A “Change in the Ownership of Assets of the Company” shall occur on the date that any one Person acquires, or Persons Acting as a Groupacquire (or has or have acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons), assets from theCompany that have a total gross fair market value equal to or more than 75% of the total gross fair market value of all of the assets of the Companyimmediately before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the valueof the assets being disposed of, determined without regard to any liabilities associated with such assets.The following rules of construction apply in interpreting the definition of Change in Control:(A) A “Person” means any individual, entity or group within the meaning of section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, asamended, other than employee benefit plans sponsored or maintained by the Company and by entities controlled by the Company or an underwriter of thecapital stock of the Company in a registered public offering.(B) Persons will be considered to be “Persons Acting as a Group” (or “Group”) if they are owners of a corporation that enters into a merger,consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a Person owns stock in both corporations that enterinto a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a Group with othershareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interestin the other corporation. Persons will not be considered to be acting as a Group solely because they purchase assets of the same corporation at the same time orpurchase or own stock of the same corporation at the same time, or as a result of the same public offering.(C) For purposes of the definition of Change in Control, “fair market value” shall be determined by the Board. 8(D) A Change in Control shall not include a transfer to a related person as described in Code section 409A or a public offering of capital stock of theCompany.(E) For purposes of the definition of Change in Control, Code section 318(a) applies to determine stock ownership. Stock underlying a vested option isconsidered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual whoholds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (asdefined by Treas. Reg. § 1.83-3(b) and (j)), the stock underlying the option is not treated as owned by the individual who holds the option.(e) Termination With Cause, Resignation Without Good Reason, or Expiration of the Agreement. If, whether or not in connection with a Change inControl, the Company terminates the Executive’s employment with Cause pursuant to Section 8(c), if the Executive resigns without Good Reason pursuant toSection 8(f), or if the Executive is entitled to the severance benefits pursuant to Section 9(c) or Section 9(d) and either does not execute or revokes the generalrelease of claims required pursuant to Section 9(f), or is in breach of any of the covenants set forth in Sections 10, 11, 12, 13 or 14 below, the Company willpay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well as any accrued but unused PTO and appropriateexpense reimbursements. Such amounts will be paid as soon as practicable after the termination of employment. The Company shall have no furtherobligations under this Agreement to the Executive. If this Agreement expires without any extension or renewal of its terms, the Executive will be an at-willemployee of the Company thereafter unless the Company elects to terminate the Executive’s employment coincident with such expiration and the Companyshall have no further obligations under this Agreement to the Executive. If the Company elects to terminate the Executive’s employment coincident with theexpiration of this Agreement, the Company will pay the Executive his Base Salary accrued and unpaid as of the date of termination of employment as well asany accrued but unused PTO and appropriate expense reimbursements. For the avoidance of doubt, in no event shall the expiration of this Agreement, or thetermination of Executive’s employment coincident with such expiration, be construed as a termination without Cause or resignation for Good Reason.(f) Release of Claims. As a condition for the payments of the Severance Amount or the Change in Control Severance and Incentive Compensationprovided in Section 9(c) or Section 9(d), the Executive must execute a general release of all claims (including claims under local, state and federal laws, butexcluding claims for payment due under Section 9(c) or Section 9(d) that the Executive has or may have against the Company or any related individuals orentities (the “Release”). The Release shall be in a form reasonably acceptable to the Company, and shall include confidentiality, cooperation, and non-disparagement provisions, as well as other terms requested by the Company that are typical of an executive severance agreement. The Severance Amount,Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefits provided for in Section 9(c) orSection 9(d) are conditioned upon and will not be paid (or be provided) until the execution of the Release and the expiration of any revocation period; providedthat notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly orindirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Release could be made in morethan one taxable year, payment shall be made in the later taxable year. The Company shall provide the Release to the Executive by no later than ten days afterthe Executive terminates employment with the Company, and the Executive shall execute the Release during the statutory time period specified by applicablelaw. If the Release is not executed during the statutory time period specified by applicable law, the Company’s obligation to pay any Severance Amount,Change in Control Severance Amount, or Incentive Compensation and to provide any acceleration of vesting and continued health benefits provided for inSection 9(c) or Section 9(d) pursuant to this Agreement shall terminate. 9(g) Section 280G Cutback. The Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respectto any payment received under this Agreement, including, without limitation, any excise tax imposed by Code section 4999. Notwithstanding anything to thecontrary in this Agreement, in the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or inconnection with the Executive’s termination of employment or contingent upon a Change in Control pursuant to any plan or arrangement or other agreementwith the Company or any affiliate (collectively, the “Payments”) would be subject to the excise tax imposed by Code section 4999, as determined by theCompany, then the Payments shall be reduced to the extent necessary to prevent any portion of the Payments from becoming nondeductible by the Companyunder Code section 280G or subject to the excise tax imposed under Code section 4999, but only if, by reason of that reduction, the net after-tax benefitreceived by the Executive exceeds the net after-tax benefit the Executive would receive if no reduction was made. For this purpose, “net after-tax benefit” means(i) the total of all Payments that would constitute “excess parachute payments” within the meaning of Code section 280G, less (ii) the amount of all federal,state, and local income taxes payable with respect to the Payments calculated at the maximum marginal income tax rate for each year in which the Paymentsshall be paid to the Executive (based on the rate in effect for that year as set forth in the Code as in effect at the time of the first payment of the Payments), less(iii) the amount of excise taxes imposed on the Payments described in clause (i) above by Code section 4999. If, pursuant to this Section 9(g), Payments are tobe reduced, the Company shall determine which Payments shall be reduced in a manner so as to avoid the imposition of additional taxes under Code section409A.10. Confidentiality; Return of Company Property.(a) The Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information ofthe Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs,ideas, trade secrets, proprietary information, business strategies, packaging, advertising, marketing, distribution and sales methods, sales and profit figures,employees, customers and clients, and relationships between the Company and its business partners, including dealers, traders, distributors, salesrepresentatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“Confidential Information”). The Executiveacknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Term,Executive will not disclose any Confidential Information to any person or entity, except as Executive’s duties as an employee of the Company may require,without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 10 shall not apply to Confidential Informationthat otherwise becomes generally known to the public through no act of the Executive in breach of this Agreement or any other party in violation of an existingconfidentiality agreement with the Company, or which is required to be disclosed by court order or applicable law.(b) All records, designs, patents, business plans, financial statements, manuals, memoranda, lists, research and development plans and products, andother property delivered to or compiled by the Executive by or on behalf of the Company or its vendors or customers that pertain to the business of theCompany shall be and remain the property of the Company, and be subject at all times to its discretion and control. Likewise, all correspondence, reports,records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company (and all copies thereof) thatare collected by the Executive shall be delivered promptly to the Company without request by it upon termination of the Executive’s employment.11. Non-Competition. While the Executive is employed at the Company and for a period of twelve (12) months after the termination of his employmentwith the Company for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, own, maintain, finance, operate, 10engage in, assist, be employed by, contract with, license, or have any interest in, or association with a business or enterprise engaged in or planning to beengaged in, the Internet retail trading of foreign exchange, or any business engaged in by the Company, or approved for the Company or its affiliates to beengaged in by the Board of Directors of the Company, during his employment with the Company.12. Solicitation of Clients. During the Restricted Period, the Executive, directly or indirectly, including through any other person or entity, shall not seekbusiness from any Client on behalf of any enterprise or business other than the Company, refer business generated from any Client to any enterprise orbusiness other than the Company, or receive commissions based on sales or otherwise relating to the business from any Client, enterprise or business otherthan the Company. For purposes of this Agreement, the term “Client” means any person, firm, corporation, limited liability company, partnership,association or other entity (i) to which the Company sold or provided services during the 12-month period prior to the time at which any determination isrequired to be made as to whether any such person, firm, corporation, partnership, association or other entity is a Client, or (ii) who or which has beenapproached by an employee of the Company for the purpose of soliciting business for the Company and which business was reasonably expected to generaterevenue in excess of $100,000 per annum.13. Solicitation of Employees. During the Restricted Period, the Executive, directly or indirectly, shall not contact or solicit any employee of theCompany for the purpose of hiring them or causing them to terminate their employment relationship with the Company.14. Inventions, Ideas, Processes, and Designs. All inventions, ideas, processes, programs, software, and designs (including all improvements)conceived or made by the Executive during his employment with the Company (whether or not actually conceived during regular business hours) and related tothe business of the Company, or the business approved by the Board of Directors to be engaged in by the Company, shall be disclosed in writing promptly tothe Company and shall be the sole and exclusive property of the Company. An invention, idea, process, program, software, or design (including animprovement) shall be deemed related to the actual or approved business of the Company if (x) it was made with the Company’s equipment, supplies,facilities, or Confidential Information, (y) results from work performed by the Executive for the Company, or (z) pertains to the current business ordemonstrably anticipated research or development work of the Company. The Executive shall cooperate with the Company and its attorneys in the preparationof patent and copyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to theCompany. The decision to file for patent or copyright protection or to maintain such development as a trade secret shall be in the sole discretion of theCompany, and the Executive shall be bound by such decision.15. Specific Performance/Remedies. The Executive acknowledges that the services to be rendered by the Executive are of a special, unique andextraordinary character and, in connection with such services, the Executive will have access to Confidential Information vital to the Company’s business.Executive further agrees that the covenants contained in Sections 11, 12, 13 and 14 are reasonable and necessary to protect the legitimate business interests ofthe Company. By reason of this, the Executive consents and agrees that if the Executive violates any of the provisions of Section 11, 12, 13, and 14 hereof,the Company would sustain irreparable injury and that monetary damages would not provide adequate remedy to the Company. The Executive hereby agreesthat the Company shall be entitled to have Section 11, 12, 13, or 14 hereof specifically enforced (including, without limitation, by injunctions and restrainingorders) by any court in the State of New Jersey having equity jurisdiction and agrees to be subject to the jurisdiction of said court. As a further and non-exclusive remedy, Executive understands that a breach of the covenants contained in Sections 11, 12, 13, or 14 above that causes material harm to theCompany as reasonably determined by the Board (which determination shall be binding and final) shall eliminate Executive’s entitlement to any furtherpayment of the Severance 11Amount, Change in Control Severance Amount, Incentive Compensation, acceleration of vesting and continued health benefits provided for in Section 9(c) orSection 9(d), and Executive shall be required to return any such amounts in the event of such a breach. Nothing contained herein shall be construed asprohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from theExecutive.16. Complete Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive’s employment, compensation,benefits and related items and supersedes any other prior oral or written agreements, arrangements or understandings between the Executive and the Company,other than the award agreements reflecting outstanding equity awards held by the Executive as of the date of this Agreement which shall continue to controlsuch equity awards except as expressly modified by Sections 9(c) and 9(d) of this Agreement. This Agreement may not be changed or terminated orally butonly by an agreement in writing signed by the parties hereto.17. Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver ofany subsequent breach by such party.18. Governing Law; Assignability.(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey without reference to the choice of lawprovisions thereof.(b) The Executive may not, without the Company’s prior written consent, delegate, assign, transfer, convey, pledge, encumber or otherwise dispose ofthis Agreement or any interest herein. Any such attempt shall be null and void and without effect. The Company and the Executive agree that this Agreementand all of the Company’s rights and obligations hereunder may be assigned or transferred by the Company and shall be assumed by and be binding upon anysuccessor to the Company.19. Severability. If any provision of this Agreement or any part thereof, including, without limitation, Sections 11, 12, 13, or 14, as applied to eitherparty or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any otherprovision of this Agreement or remaining parts thereof, which shall be given full effect without regard to the invalid or unenforceable part thereof, or thevalidity or enforceability of this Agreement. In the event an arbitrator or court of competent jurisdiction deems the restrictive covenants unreasonably lengthy intime or overly broad in scope, it is the intention and agreement of the parties that those provisions which are not fully enforceable be deemed as having beenmodified to the extent necessary to render them reasonable and enforceable and that they be enforced to such extent.20. Notices. All notices to the Company or the Executive, permitted or required hereunder, shall be in writing and shall be delivered personally, bytelecopier or by courier service providing for next-day delivery or sent by registered or certified mail, return receipt requested, to the following addresses:If to the Company:GAIN Capital Holdings, Inc.Bedminster One135 Route 202/206Bedminster, New Jersey 07921Attention: Chief Executive Officer 12If to the Executive, to the address set forth on the first page hereof.Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. Any suchnotice shall be deemed given, if delivered personally, upon receipt; if telecopied, when telecopied; if sent by courier service providing for next-day delivery, thenext business day following deposit with such courier service; and if sent by certified or registered mail, three days after deposit (postage prepaid) with theU.S. mail service.21. Section 409A.(a) This Agreement shall be interpreted to avoid the imposition of any additional taxes under Code section 409A. If any payment or benefit cannot beprovided or made at the time specified herein without incurring additional taxes under Code section 409A, then such benefit or payment shall be provided infull at the earliest time thereafter when such sanctions will not be imposed. The preceding provisions, however, shall not be construed as a guarantee by theCompany of any particular tax effect to Executive under this Agreement. For purposes of Code section 409A, each payment under this Agreement shall betreated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.In no event may the Executive, directly or indirectly, designate the calendar year of payment.(b) To the maximum extent permitted under Code section 409A, the cash severance payments payable under this Agreement are intended to comply withthe ‘short-term deferral exception’ under Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the ‘separation pay exception’under Treas. Reg. §1.409A-1(b)(9)(iii) or any successor provision; provided, however, any amount payable to the Executive during the six-month periodfollowing the Executive’s termination date that does not qualify within either of the foregoing exceptions and is deemed as deferred compensation subject to therequirements of Code section 409A, then such amount shall hereinafter be referred to as the ‘Excess Amount.’ If the Executive is a “key employee” of apublicly traded corporation under section 409A at the time of his separation from service and if payment of the Excess Amount under this Agreement isrequired to be delayed for a period of six (6) months after separation from service pursuant to Code section 409A, then notwithstanding anything in thisAgreement to the contrary, payment of such amount shall be delayed as required by Code section 409A, and the accumulated postponed amount shall be paidin a lump sum payment within ten (10) days after the end of the six (6) month period. If the Executive dies during the postponement period prior to thepayment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of the Executive’s estate withinsixty (60) days after the date of the Executive’s death. A “key employee” shall mean an employee who, at any time during the 12-month period ending on theidentification date, is a “specified employee” under Code section 409A, as determined by the Board, in its sole discretion. The determination of keyemployees, including the number and identity of persons considered key employees and the identification date, shall be made by the Board in accordance withthe provisions of Code sections 416(i) and 409A.(c) To the extent the Executive is, at the time of his termination of employment under this Agreement, participating in one or more deferred compensationarrangements subject to Code section 409A, the payments and benefits provided under those arrangements shall continue to be governed by, and to become dueand payable in accordance with, the specific terms and conditions of those arrangements, and nothing in this Agreement shall be deemed to modify or alterthose terms and conditions.(d) “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments underthis Agreement that are payments of deferred 13compensation subject to Code section 409A, the Executive’s “separation from service” as defined in Code section 409A.(e) Nothing herein shall be construed as having modified the time and form of payment of any amounts or payments of “deferred compensation” (asdefined under Treas. Reg. § 1.409A-1(b)(1), after giving effect to the exemptions in Treas. Reg. §§ 1.409A-1(b)(3) through (b)(12)) that were otherwisepayable pursuant to the terms of any agreement between Company and the Executive in effect on or after January 1, 2005 and prior to the date of thisAgreement.(f) All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Code section 409A, including,where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of timespecified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible forreimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following theyear in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which takentogether shall constitute one and the same instrument.23. Separation. All covenants that, by their terms, naturally would survive the termination or expiration of this Agreement, including but not limited toSections 11, 12, 13, 14 and 15 hereof, shall survive the termination or expiration of this Agreement. 14IN WITNESS WHEREOF, the parties hereto have duly executed this Amended and Restated Executive Employment Agreement as of the date first abovewritten. GAIN CAPITAL HOLDINGS, INC.By: /s/ Glenn StevensName: Glenn StevensTitle: President and Chief Executive Officer /s/ Jeffrey ScottEXECUTIVE 15Exhibit 21.1List of Subsidiaries Entity Name Jurisdiction of IncorporationGCAM, LLC DelawareGAIN Holdings, LLC DelawareGAIN Capital Group, LLC DelawareS.L. Bruce Financial Corporation OhioGAIN Capital Securities, Inc. DelawareJiaShen Forex Technology, LLC ChinaGAIN Capital Holdings International, LLC DelawareGAIN Global Markets, Inc. Cayman IslandsIsland Traders (Cayman), Limited Cayman IslandsGAIN Capital-Forex.com Hong Kong, Ltd. Hong KongForex.com Japan Co., Ltd. JapanGAIN Capital Forex.com Australia Pty. Ltd. AustraliaGAIN Capital-Forex.com Singapore, Ltd. SingaporeGAIN Capital-Forex.com U.K., Ltd. England and WalesGAIN GTX, LLC DelawareGAIN Capital Service Company, LLC DelawareExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statement (No. 333-171841) on Form S-8 of our report dated March 30, 2011, relating to theconsolidated financial statements and financial statement schedule of Gain Capital Holdings, Inc. and subsidiaries, appearing in this Annual Report on Form10-K of Gain Capital Holdings, Inc. and subsidiaries for the fiscal year ended December 31, 2010./s/ Deloitte & Touche LLPNew York, New YorkMarch 30, 2011Exhibit 23.2CONSENT OF AITE GROUP, LLCWe consent to the use of information derived from articles titled “High Frequency Trading in FX: Open for Business,” dated April 2010, “The Next Challengein FX: Creating a New Post-Trade Paradigm in an Electronic Reality,” dated January 2009, “Retail FX: Taking Center in Overall Market Growth,” dated July2007, and any extracts or information from Aite Group, LLC, appearing in the periodic reports filed with the Securities and Exchange Commission by GAINCapital Holdings, Inc. (the “Company”), including, but not limited to, the Company’s current and future (i) Annual Reports on Form 10-K, and (ii) QuarterlyReports on Form 10-Q. We also consent to the references to Aite Group, LLC by the Company in such periodic reports. Aite Group, LLC/s/ Frank RizzaFrank RizzaHead of OperationsAite Group, LLCMarch 21, 2011Exhibit 31.1CERTIFICATION PURSUANT TORULES 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Glenn H. Stevens, certify that: 1.I have reviewed this annual report on Form 10-K of GAIN Capital Holdings, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annualreport; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this annual report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 30, 2011 /s/ GLENN H. STEVENS Glenn H. Stevens President and Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATION PURSUANT TORULES 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Henry C. Lyons, certify that: 1.I have reviewed this annual report on Form 10-K of GAIN Capital Holdings, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annualreport; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this annual report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: March 30, 2011 /s/ HENRY C. LYONS Henry C. Lyons Executive Vice President andChief Financial Officer and Treasurer(Principal Financial Officer)Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER,AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Glenn H. Stevens, the undersigned Chief Executive Officer and President of GAIN Capital Holdings, Inc., a Delaware corporation (the “Company”) herebycertifies pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge: 1.The accompanying annual report on Form 10-K for the fiscal year ended December 31, 2010 (the “Report”) fully complies with the requirementsof Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 30, 2011 /s/ Glenn H. StevensGlenn H. StevensChief Executive Officer and President(Principal Executive Officer)A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature thatappears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retainedby the Company and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICER,AS REQUIRED BY SECTION 906 THE SARBANES-OXLEY ACT OF 2002I, Henry C. Lyons, the undersigned Chief Financial Officer and Treasurer of GAIN Capital Holdings, Inc. (“the Company”) hereby certifies pursuant to18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge: 1.The accompanying annual report on Form 10-K for the fiscal year ended December 31, 2010 (the “Report”) fully complies with the requirementsof Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 30, 2011 /s/ Henry C. LyonsHenry C. LyonsExecutive Vice President,Chief Financial Officer and Treasurer(Principal Financial Officer)A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature thatappears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retainedby the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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