Knight Capital exec leaves, sort of…

August 12, 2010

Just over two years ago, in May, 2008, Knight Capital Group, Inc. (KCG) acquired Libertas Holdings, LLC, described in this 8-K as —a leading boutique institutional fixed income brokerage firm.

In addition to acquiring a firm, Knight brought in Libertas— founder and CEO, Gary Katcher, as a new member of its management team. At the time, Katcher said, —Joining Knight presents a perfect fit and the next logical step for Libertas. Our shared strong client focus, combined with the deep resources of Knight Capital Group, will allow us to grow all aspects of our fixed income business much faster than if we had opted to remain independent.

But now the fit doesn’t seem to be so —perfect after all. Then again, it’s fairly common for the CEO of the acquired firm to exit after a reasonable period of time. In the 10-Q that Knight filed August 9, there was a —Separation from Employment letter, dated July 30, 2010, that it sent to Katcher, whose employment ended the next day.

It’s costing the company a lot of money to part ways with Katcher. First, Knight will pay a lump sum payment of $450,000 on or about August 31, 2010, as well as a lump sum payment of $4.55 million on February 1, 2011. Then, on February 1, Katcher will get a lump sum cash payment equal to the fair market value on that day for 114,426 unvested shares of Knight Capital Group’s common stock. And assuming Katcher makes a timely COBRA election, the company will pay his family’s insurance premiums for a year.

And then comes this interesting paragraph:

(iv) “The Company will directly or through one or more affiliated entities, invest up to $12,500,000 in a hedge fund that you create, subject to terms and conditions to be agreed by you and Knight, which will include (x) concurrently with Knight’s investment, your investment of at least $10,000,000 and the investment by one or more other investors of the difference between $12,500,000 and the amount invested by you; (y) the hedge fund is created within two (2) years of the Separation Date; and (z) Knight being provided with investment terms at least as favorable as all other similarly situated investors investing similar or lesser amounts—.”

So long as Katcher doesn—t act as a broker-dealer or engage in the origination and securitization of mortgages, he won—t be in violation of the non-compete clause in his Separation Agreement.

It seems odd — sort of like a couple that splits up but lives in different sides of a duplex and tries to share ownership of a dog. Under this arrangement, they—ll be in each other’s lives for a while longer.

Image source:Donald Kilgore via flickr

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