Related Party Transactions and Outside Related Director Information

GFI Group Inc. (GFIG)

4/13/2006 Proxy Information


In connection with our reorganization that took place in November 2001, our subsidiary, GFI Group LLC, paid a dividend to its then-parent Jersey Partners consisting of $30.0 million in cash and certain accounts receivable. Simultaneously, Jersey Partners loaned the cash and accounts receivable back to GFI Group LLC in exchange for (i) two notes in the original principal amounts of $5.0 million and $20.0 million, respectively and (ii) a collection agency note in the original principal amount of $5.0 million. The collection agency note was repaid in full in 2002.

The notes were guaranteed by the material non-regulated subsidiaries of GFI Group LLC, and were secured by, among other things, liens on and security interests in substantially all of the assets of GFI Group LLC and its material subsidiaries. However, the notes were, by their terms, subordinated in right of payment to our senior indebtedness, including the indebtedness under our credit agreement. The $5.0 million note was repaid by us in two installments of $2.5 million on November 30, 2002 and November 30, 2003. In connection with the issuance of our Series C Preferred Stock, we repaid $10.75 million of the principal amount of the $20.0 million note in June 2002.

Pursuant to the terms of the $20 million note, Jersey Partners required us to use up to 20% of the aggregate net proceeds we received from our IPO to repay the note. On January 31, 2005, we used a portion of the net proceeds received by us in our IPO to prepay in full the $9.25 million outstanding principal amount as of such date, plus accrued interest of approximately $400,000.


In April 2001, we acquired approximately 90% of the outstanding capital stock of Fenics. The purchase price of approximately $40.7 million consisted of an exchange of 1,656,189 shares of common stock of GFInet inc, our subsidiary, and assumption of debt of Fenics of approximately $9.0 million. This debt bore interest at rates between 9% and 11% and was fully repaid by February 2003.

Within 120 days after the completion of our IPO, we were obligated to provide notice to the remaining holders of the outstanding capital stock of Fenics that a "liquidity event" has occurred and to attempt to purchase the remaining approximately 10% of the capital stock of Fenics at a per share price equal to the fair market value, as of the date of such notice, of 0.3274 shares of our Common Stock. On March 9, 2005, we made a written offer to purchase all of the ordinary shares in Fenics Limited not held by us for an amount equal to $8.37 per Fenics Limited share (the "Purchase Price"). The Purchase Price represents 0.3274 multiplied by $25.58, which was the average closing price of the Common Stock over the immediately preceding four calendar weeks. This offer was made to all minority shareholders of Fenics Limited and, in the aggregate, was an offer to purchase 532,098 ordinary shares of Fenics Limited for a total purchase price of $4.5 million.

In April 2005, the Company legally became the sole shareholder of Fenics Limited. As of December 31, 2005, Fenics minority shareholders were paid approximately $4.2 million for 505,869 shares tendered to the Company, or approximately 95% of the outstanding minority shares. The remaining minority shares will be paid for when they are tendered to the Company.

Certain of these remaining shares of Fenics were held by John W. Ward, one of our directors, and certain of our officers and employees. These persons received cash for those shares in connection with our purchase of these remaining Fenics shares.


On June 3, 2002, we entered into an Amended and Restated Stockholders Agreement with all of our then existing common and preferred stockholders. Most of the provisions of the Stockholders Agreement terminated immediately before the closing of our IPO. The following terms of the Stockholders Agreement, however, remain in effect:

certain of our stockholders who acquired their shares of Common Stock as part of our acquisition of Fenics will, for a limited period of time, continue to be subject to agreements contained in the Stockholders Agreement which limit their ability to compete against or interfere with our business; and

for a period of 18 months following the consummation of the IPO, we will retain the ability to repurchase any shares of Common Stock held by a former Fenics stockholder or certain holders of our Series A Preferred Stock, if we reasonably and in good faith determine that such stockholder has violated the terms of any confidentiality provision or restriction on competition applicable to it and that such violation has or could have an adverse effect on us that is greater than a de minimis impact.


We entered into Registration Rights Agreements with certain of the holders of each series of our preferred stock, all of which converted into shares of our Common Stock upon the consummation of our IPO. Such registration rights apply to the Common Stock into which the preferred stock converted. The terms of the Registration Rights Agreements we entered into with the former holders of each series of our preferred stock are substantially similar (other than with respect to Series B preferred stockholders who do not hold demand registration rights).

Demand Registration Rights. At any time after the 180th day following the effective date of our IPO, the holders of (i) at least a majority of the Series C Preferred Stock having registration rights and (ii) at least 662/3% of the Series A Preferred Stock having registration rights have the right to demand that we file a registration statement for the offer and sale of their securities if the aggregate market price of the shares to be registered is at least $5.0 million with respect to the Series C preferred shares or $12.5 million with respect to the Series A preferred shares at the time of the demand. We are required to inform the other stockholders of that series holding registration rights that a demand has been made and the other holders are entitled to include their shares in that demand registration. With respect to Series C preferred shares having registration rights, we are not obligated to file a registration statement on Form S-1 on more than one occasion so long as, when that registration statement becomes effective, it covers not less than 66% of the holders demanding registration and with respect to Series A preferred shares having registration rights, we are only required to file one registration statement on Form S-1. If we are eligible to file a registration statement on Form S-3, the holders of 20% of the Series C preferred shares having registration rights and the holders of 25% of the Series A preferred shares having registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement is at least $3.0 million. With respect to Series C preferred shares having registration rights, we are not obligated to file a registration statement on Form S-3 on more than two occasions and with respect to each series we are generally not obligated to file a registration statement on Form S-3 more than once in any twelve month period. In each case, we have the ability to delay the filing of a registration statement under specified conditions, such as for a period of time following the effective date of a prior registration statement or if we are in possession of material nonpublic information that it would not be in our best interests to disclose.

Piggyback Registration Rights. If we register any securities for public sale (subject to customary exceptions), stockholders with registration rights will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement.

Expenses of Registration. Except as provided in the Registration Rights Agreements, we will pay all expenses relating to any demand or piggyback registration other than underwriting discounts and commissions, stock transfer taxes and attorneys' fees of the selling stockholders (except for attorneys' fees of a single counsel for the Series C Preferred Stock selling stockholders up to $50,000).

Indemnification. The Registration Rights Agreements contain customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions attributable to us in a registration statement, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

Transfer and Expiration of Registration Rights. Stockholders may transfer their registration rights in connection with the transfer of their shares if specified requirements are satisfied. The registration rights described above will generally terminate with respect to a particular stockholder's securities upon the earlier to occur of (i) the close of business on the third anniversary of the consummation of our IPO (fifth anniversary with respect to Series C Preferred Stock selling stockholders) and (ii) the date that the securities (x) have been transferred pursuant to an effective registration statement or (y) have been sold under Rule 144 of the Securities Act or can be freely sold under Rule 144(k) under the Securities Act of 1933, as amended (the "Securities Act") and after such sale can be resold by the transferee without registration under the Securities Act.


During 2005, we were party to a lease for our offices at 9 Hewett Street in London with GFI Brokers (Channel Islands) Limited, which is a wholly-owned subsidiary of Jersey Partners, which was due to expire in 2016. Annual rent payments under the lease agreement were 0.5 million. In December 2004, we agreed to terminate our lease with GFI Brokers (Channel Islands) Limited effective September 2005 and to make certain termination and other payments to it payable upon such termination. We accrued approximately $2.9 million for the estimated costs to terminate the lease. In April 2005, we amended the termination agreement. The amendment accelerated the termination of the lease to April 2005 and reduced the termination charge to approximately $0.4 million. Pursuant to the amended agreement, we became party to a sub-lease with GFI Brokers (Channel Islands) Limited for an eighteen-month term with annual rent of 0.5 million. We ceased using these premises in November of 2005.

We also lease a corporate apartment in London from GFI Brokers (Channel Islands) Limited. We are currently paying a monthly lease payment of approximately 2,000 for this apartment.