Acquisition of KCG

As of the Closing Date of the Acquisition of KCG, each of KCG’s issued and outstanding shares of Class A common stock, par value $0.01 per share was cancelled and extinguished and converted into the right to receive $20.00 in cash, without interest, less any applicable withholding taxes.

On the Closing Date, and in connection with the financing of the Acquisition of KCG, as described in Note 10 "Borrowings", the Company issued to Aranda Investments Pte. Ltd. (“Aranda”), an affiliate of Temasek Holdings (Private) Limited (“Temasek”), 6,346,155 shares of the Company’s Class A Common Stock, pursuant to the investment agreement with Aranda (as amended, the “Aranda Investment Agreement”) for an aggregate purchase price of approximately $99.0 million. On August 10, 2017, the Company issued an additional 1,666,666 shares of its Class A Common Stock for an aggregate purchase price of $26.0 million (collectively, the “Temasek Investment”).

On the Closing Date, and in connection with the financing of the Acquisition of KCG, the Company issued to North Island Holdings I, LP (the “North Island Stockholder”) 39,725,979 shares of the Company’s Class A Common Stock for an aggregate purchase price of approximately $613.5 million. On August 10, 2017 the Company issued an additional 338,124 shares of its Class A Common Stock for an aggregate purchase price of $5.2 million (collectively, the “North Island Investment”). In connection with the Temasek Investment and North Island Investment, the Company incurred approximately $7.8 million in fees which were recorded as a reduction to additional paid-in capital.

On July 21, 2017, the outstanding 6.875% Senior Secured Notes due 2020 issued by KCG (the "KCG Notes") were redeemed at a redemption price equal to 103.438% of the $465.0 million principal amount, plus accrued and unpaid interest. The redemption was pursuant to the indenture, dated as of March 13, 2015 (as amended, restated, supplemented or otherwise modified), by and among KCG, the subsidiary guarantors party thereto and The Bank of New York Mellon, as trustee and collateral agent. See "Fourth Amended and Restated Credit Agreement" and "Senior Secured Second Lien Notes" in Note 10 "Borrowings".

Accounting treatment of the Acquisition of KCG

The Acquisition of KCG has been accounted for as a purchase of KCG by the Company, pursuant to provisions of ASC 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities of KCG, as of the Closing Date, were recorded at their respective fair values and added to the carrying value of the Company's existing assets and liabilities. These fair values were determined with the assistance of third party valuation professionals. The reported financial condition, results of operations and cash flows of the Company for the periods following the Acquisition of KCG reflect KCG’s and the Company's balances and reflect the impact of purchase accounting adjustments.

Certain former KCG management employees were terminated upon the Acquisition of KCG, and as a result were paid an aggregate of $6.4 million pursuant to their existing employment contracts. This amount was recognized as an expense by the Company and was included in Employee compensation and payroll taxes in the consolidated statements of comprehensive income for the year ending December 31, 2017. The Company also made annual incentive compensation payments in 2018 to former KCG employees who became employees of the Company following the Acquisition of KCG, and accrued related compensation expense of approximately $35.3 million during the year ended December 31, 2017, which was included in Employee compensation and payroll taxes in the consolidated statements of comprehensive income for the year ended December 31, 2017.

Purchase price and goodwill

The aggregate cash purchase price of $1.4 billion was determined as the sum of the fair value, at $20.00 per share, of KCG shares and warrants outstanding to former KCG stockholders at closing and the fair value of KCG employee stock based awards that were outstanding, and which vested at the Closing Date.

The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at the Closing Date of the Acquisition of KCG. Adjustments to the provisional values during the measurement period were recorded in the reporting period in which the adjustment amounts were determined. No further adjustments to the provisional values remain. The Company engaged third party specialists for the purchase price allocation.

Amounts allocated to intangible assets, the amortization period and goodwill were as follows:



(in thousands)	Amount		Amortization Years
Technology	$	67,700	1-6 years
Customer relationships	94,000		13 - 17 years
Trade names	1,000		10 years
Favorable leases	5,895		2-15 years
Exchange memberships	6,400		Indefinite
Intangible assets	$	174,995
Goodwill	128,286
Total	$	303,281

Of the total Goodwill of $128.3 million, $96.2 million has been assigned to the Market Making segment and $32.1 million has been assigned to the Execution Services segment. Such goodwill is attributable to the expansion of products offerings and expected synergies of the combined workforce, products and technologies of the Company and KCG.

Tax treatment of the Acquisition of KCG

The Company believes that the Acquisition of KCG will be treated as a tax-free transaction to the Company that does not result in a step up in tax basis in the acquired assets and, therefore, KCG’s tax basis in its assets and liabilities generally carries over to the Company following the Acquisition of KCG. None of the goodwill is expected to be deductible for tax purposes.

The Company recorded net deferred tax assets of $23.9 million with respect to recording KCG’s assets and liabilities under the purchase method of accounting as described above as well as recording the value of other tax attributes acquired as a result of the Acquisition of KCG, as described in Note 14 "Income Taxes".