Exhibit 99.2
EXECUTION COPY
MEMORANDUM OF UNDERSTANDING
October 17, 2005
CONFIDENTIAL
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Refco, Inc.
Refco Global Futures, LLC
One World Financial Center
000 Xxxxxxx Xxxxxx, Xxxxx X
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx
Dear Xxxxx:
This memorandum of understanding ("MOU") sets forth the
principal terms and conditions upon which FGS Refco Acquisition Co., LLC, a
Delaware limited liability company, or one or more of its affiliates ("Buyer")
organized by X.X. Xxxxxxx & Co. LLC, X. Xxxxxxxxx & Co., LLC, Silver Point
Finance, LLC, MatlinPatterson Global Advisers LLC and TPG Partners IV, LP
and/or certain of their associates and affiliates (collectively, the
"Sponsors") proposes to acquire (the "Acquisition") all of the capital stock
and operations of Refco, LLC (the "Company") and certain of its affiliates
(including those affiliates commonly known as Refco Overseas Limited, and Refco
Singapore, together with the Company, the "Subsidiaries") engaged in the
regulated futures and commodities trading activities (collectively, the
"Acquired Business") from Refco, Inc. and Refco Global Futures LLC (which,
together with certain of their other affiliates to be identified (but not
including the Subsidiaries) are hereinafter collectively referred to as the
"Debtors") for an amount equal to 103% of the net regulatory capital of the
Acquired Business as of closing plus, any amounts payable in respect of
additional assets purchased pursuant to paragraph 2 below (the "Purchase
Price"). We understand that the net regulatory capital (to be defined in the
Acquisition Agreement) of the Acquired Business is currently $746 million, so
if the capital remains unchanged, the purchase price at closing will be $768
million. The Debtors will have the right (exercisable at any time prior to the
Closing) to retain up to 20% of the equity of the Subsidiaries, in which case
the Buyer will purchase such lesser percentage (but in any event not less than
80%) of the Subsidiaries' shares for such lesser percentage (but in any event
not less than 80%) of the Purchase Price as described above. The Purchase Price
shall be payable in cash, provided, that to the extent that the Purchase Price
exceeds $900 million, the excess Purchase Price will be in the form of an
unsecured note on commercially reasonable terms and in form and substance
reasonably acceptable to the Buyer and Seller.
1. Structure of Acquisition; Acquisition Agreement. Legal obligations
to consummate the Acquisition would be created only pursuant to a definitive
agreement to be negotiated and entered into between Buyer and Debtors (the
"Acquisition Agreement"), in a form and substance satisfactory to Buyer (in its
sole discretion) and containing the terms and conditions contemplated hereby
and such other customary terms in chapter 11 sales transactions, including
representations, warranties, covenants, indemnities, termination events and
conditions precedent (including those set forth herein). Except for certain
performance obligations under executory contracts related to the Acquired
Business and the Assumed Liabilities (as defined below), Buyer will not assume
any liabilities or obligations of the Debtors, the Subsidiaries or their
affiliates and the Debtors will indemnify the Buyer and the Acquired Business
from any and all such liabilities, including all pre-closing liabilities of the
Acquired Business other than the Assumed Liabilities. The willingness of Buyer
and its financing sources to pursue the Acquisition is contingent upon the
Bankruptcy Court finding that Xxxxx has not assumed any such liabilities or
obligations of the Debtors or the Acquired Business other than the Assumed
Liabilities and the Bankruptcy Court entering into an order requiring that all
claims against the Acquired Business (other than Assumed Liabilities) be
brought against the proceeds of the Acquisition as provided herein. Any
requirement to cure obligations with respect to contracts identified to be
assumed and assigned will be paid by Xxxxxxx. "Assumed Liabilities" means the
operating liabilities (including but not limited to liabilities to customers in
respect of return of their deposits) of the Subsidiaries incurred in the
ordinary course of business, in each case of the type and in the amounts set
forth on the face of (and not in the notes thereto) the closing balance sheet
of the Subsidiaries. For avoidance of doubt, the Assumed Liabilities do not
include any unliquidated or contingent liabilities or any liabilities related
to the employees of Debtors or the Subsidiaries, including without limitation
employment agreements, and retirement or pension plans of Debtors or the
Subsidiaries and post-retirement benefits of any type or nature, whether funded
or unfunded.
2. Purchase Agreement
Upon your acceptance of the terms of this MOU we will authorize
Sponsor's attorneys at Xxxxxxxx & Xxxxx LLP to prepare and submit to the
Debtors an Acquisition Agreement that will set out the definitive terms of the
Sponsors' proposal, including the conditions described herein and on Appendix A
hereto. The parties thereafter will negotiate in good faith the terms and
conditions of the Acquisition Agreement with the objective of completing
negotiations, executing the Acquisition Agreement as quickly as practicable
after obtaining all necessary or appropriate approvals, including the approval
of the Bankruptcy Court, and promptly thereafter consummating the Acquisition.
The Acquisition Agreement will provide that the Buyers will have the
option to purchase (for their GAAP net book value) such other assets owned by
Debtors or their affiliates (but not by the Subsidiaries) that pertain to or
are used in connection with the operation of the Acquired Business (other than
Debtors' interest in FXCM) that Buyer designates prior to the consummation of
the Auction (as defined below). Any such assets will constitute part of the
Acquired Business, the breakup fee will be increased accordingly and the
Debtors will take into consideration, in valuing any alternative bidder's
proposal at the Auction, whether such alternative bidder proposes to acquire
the additional assets proposed to be acquired by the Buyer. With respect to any
such assets not so purchased, the Buyer will have the right to have such assets
or services provided by the Debtors on a transition basis on commercially
reasonable terms mutually acceptable to both parties.
It is agreed and understood that Xxxxx has the right to offer
employment to any current or former employees of Debtors and Subsidiaries,
whether part of the FCM business or otherwise. With a view toward preserving
the operating integrity of the Acquired Business, Xxxxx intends to determine
prior to the Closing which of Debtors' employees Xxxxx may employ after the
Closing. Nevertheless, Debtors shall be responsible for providing all notices
required by applicable law and shall be solely liable for any severance
(whether statutory or otherwise) or other liabilities associated with the
termination of any employees. Buyer will provide Debtors notice of any such
employees of Debtors not to be employed by Buyer after the Closing, as soon as
reasonably practicable.
3. Affirmative Covenants.
(a) On or before the beginning of the business day on October 18,
2005 (the "Petition Date") the Debtors will file for
bankruptcy under Chapter 11 of the US Bankruptcy Code in the
Southern District of New York (the "Bankruptcy Court"). None
of the Subsidiaries will file for bankruptcy protection
without the prior written consent of the Buyer.
(b) On or before October 21, 2005, Debtors will file a motion
(the "Sale Motion") for entry of an Order or Orders by the
Bankruptcy Court in form and substance reasonably
satisfactory to the Buyer (i) approving the buyer protections
outlined below, including the timing and payment of the
break-up fee and expense reimbursement and establishing
procedures for submission of competing bids (the "Bid
Procedures Order") and (ii) authorizing and approving the
Acquisition Agreement and the sale of the Acquired Business
(the "Sale Order"). The Debtors shall use their best efforts
to schedule hearings to consider the Bid Procedures Order and
Sale Order as soon as possible so as to obtain the entry by
the Bankruptcy Court of the Bid Procedures Order no later
than October 31, 2005, and entry by the Bankruptcy Court of
the Sale Order no later than November 10, 2005.
(c) The Debtors shall take all steps necessary under the
Bankruptcy Code to assume and assign to the Buyer any and all
executory contracts designated by the Buyer (the "Assumed
Contracts") pursuant to an order entered at the same time as
the Sale Order (the "Assumption Order"). The Buyer shall
designate the Assumed Contracts no later than the beginning
of the Auction. After such time, the Buyer may amend such
designation to add additional assets as contemplated by
paragraph 2 above or to remove any previously designated
Assumed Contracts not yet assumed by Debtors within 30 days
following the Closing. The Debtors shall pay any amounts
required by Section 365(b)(1) of the Bankruptcy Code to cure
defaults for the assumption of the Assumed Contracts.
(d) The Debtors shall cooperate with Buyer to submit all
necessary filings, if required, under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended.
(e) The Debtors shall notify, as required by the Bankruptcy Code
and all rules promulgated thereunder, all parties entitled to
notice of all motions, notices and orders referenced in the
Acquisition Agreement, as modified by any orders issued by
the Bankruptcy Court. The Debtors shall timely notify all
parties to the Assumed Contracts of the cure amounts for each
such contract, so as to enable any such party to object to
the proposed cure amounts and the Bankruptcy Court to
determine such amounts prior to the Closing.
(f) Prior to the Closing, Debtors shall cause the Subsidiaries to
carry on their respective businesses diligently and in the
ordinary course only (taking into account that the Debtors
are involved in a bankruptcy proceeding), and shall use their
best efforts to preserve the current business organization
intact, to keep available the services of their current
officers, agents or employees unless Buyer consents
otherwise, and to preserve its current relationships with
customers and other persons having business dealings with the
Acquired Business.
(g) Except as otherwise contemplated herein, Xxxxxxx will neither
take, agree to take nor permit to be taken, directly or
indirectly, any action that would adversely affect Debtors'
ability to transfer the Acquired Business to Buyer under the
Acquisition Agreement as contemplated hereby. Furthermore,
Debtors shall use commercially reasonable efforts to maintain
the safety, confidentiality, integrity and use of Acquired
Assets, including technology-related property, contained in
computer files, and the availability of appropriate "back-up"
copies thereof.
(h) Buyer represents and warrants that (i) the Buyer, together
with the Sponsors, is a sophisticated investor that has
experience in transactions of the type contemplated by this
MOU and is able to evaluate the merits and risks hereof, (ii)
the Buyer is purchasing the shares of the Subsidiaries for
investment purposes and not with a present view to the resale
thereof, (iii) the Buyer is financially able to bear the risk
of holding such investment for an indefinite period of time
and (iv) Buyer is not relying on any representation or
inducement by any person (including without limitation any
affiliate of the Company) other than as provided in the
definitive documents, in determining whether to enter into
this MOU.
4. Access. Debtors will allow Sponsors, Buyer and their
representatives and financing sources full and complete access during normal
business hours, or such other hours as Debtors and Sponsors may agree, to the
books, records, documents and facilities of the Company and the Acquired
Business, and shall make the officers, brokers, customers, employees,
attorneys, agents and independent accountants of the Company and the Acquired
Business available to discuss the business, financial condition or prospects of
the Company and the Acquired Business and to cooperate with Sponsors and Buyer,
including in respect of any communications with regulators, customers, brokers
and others.
5. Conditions. In addition to other customary closing conditions for
transactions of this nature and size to be set forth in the Acquisition
Agreement, the obligations of the Buyer to consummate the Acquisition will be
subject to the following conditions: (a) the Bid Procedures Order, the Sale
Order and the Assumption Order, all in form and substance reasonably
satisfactory to Buyer and Buyer's counsel in all material respects, shall have
become final, non-appealable orders, (b) there shall have been no material
adverse change in the Acquired Business, (c) the receipt of all governmental,
regulatory and third-party consents and approvals, in a form acceptable to
Buyer, which are necessary for the consummation of the Acquisition and the
operation of the Acquired Business and (d) other customary closing conditions.
6. Expenses and Bid Protections. Except as set forth in the next
sentence, each party shall bear its own expenses in connection with the
Acquisition. The Sale Motion will seek the following buyer protections: (a)
reimbursement of Sponsors' reasonably documented expenses up to $5 million in
the aggregate (provided that such cap shall be increased to $7 million in the
event of a termination of the Acquisition Agreement under circumstances, other
than Buyer's default, in which Buyer is not entitled to the break-up fee
described in clause (b) below), (b) a break-up fee equal to 2.8% of the
Purchase Price (inclusive of any increase as the result of the acquisition of
additional assets as contemplated by paragraph 2 above) to be paid to Buyer in
the event of a disposition of the Acquired Business (including any sale or
disposition of all or any material portion of the assets comprising the
Acquired Business) in any Alternative Transaction within nine months after the
termination of the Acquisition Agreement and (c) bid procedures for the auction
of the Acquired Business which are in form and substance reasonably
satisfactory to Buyer, including (i) an overbid requirement of any qualified
bid in the amount of $20 million, (ii) a requirement that any qualified bidder
be reasonably acceptable to the Company's designated self regulatory
organization, the Chicago Mercantile Exchange ("CME"), and (iii) to the extent
that any other bidder in the bankruptcy auction offers to employ fewer
employees than the Buyer, the additional severance cost incurred by Debtors
will be reflected in the calculation of the price offered by such other bidder.
Payments pursuant to clauses (a) and (b) above shall constitute administrative
expenses under chapter 11, title 11 of the United States Code. Buyer shall have
the right, in its sole discretion, to terminate this MOU if the Bankruptcy
Court shall not have entered the Bid Procedures Order within ten (10) days
after the filing of the Sale Motion, or if such order is reversed, vacated or
modified in any manner to which Buyer has not consented.
7. Exclusivity. Prior to the earlier of the termination of this MOU
pursuant to paragraph 9 below and the entry of the Bid Procedures Order on the
Bankruptcy Court's docket, the Debtors shall not, directly or indirectly,
through any officer, director, employee, agent, professional or advisor, (i)
solicit, initiate, encourage or discuss any proposal or offer from any person
(other than Sponsors or Buyer) relating to any financing, refinancing,
acquisition, divestiture, business combination or reorganization of or
involving the business and operations of the Acquired Business (an "Alternative
Transaction"), (ii) furnish any information with respect to, or assist or
participate in, or facilitate in any other manner, any effort or attempt by any
person to do or seek the foregoing or (iii) seek or support Bankruptcy Court
approval of a motion or order inconsistent in any way with the transactions
contemplated by this MOU. Promptly after the execution of this MOU by Debtors,
Debtors will terminate (and will cause each of its affiliates, stockholders,
directors, officers, employees, agents or representatives to terminate) all
discussions with any third party regarding the foregoing and will notify
Sponsors immediately after Debtors (or any of its affiliates, stockholders,
directors, officers, employees, agents or representatives) learns that any
person has made any proposal, offer, inquiry or contact with respect to the
foregoing. The acknowledgement of, and agreement with, the terms and conditions
set forth in this letter by Debtors will constitute a representation and
warranty by Debtors that neither Debtors nor, to its knowledge, any of its
affiliates, stockholders, directors, officers, employees, agents or
representatives, has entered into any executory agreement which has not yet
terminated or accepted any commitment with respect to the foregoing
transactions.
8. Publicity and Confidentiality. Unless otherwise provided in the
Acquisition Agreement or as otherwise required by law, neither any party hereto
nor their respective affiliates, stockholders, directors, officers, employees,
agents or representatives will make any press release or public announcement or
any other disclosure concerning the existence or terms of this letter or the
Acquisition, except with the prior written consent of Sponsors, Buyer and
Debtors. Prior to making any such filing or disclosure required by law, the
parties shall give one another a reasonable opportunity to review and approve
such disclosure.
9. Legal Effect. Execution of this MOU constitutes an expression of
Sponsors' and Debtors' mutual intent regarding the subject matter hereof;
provided, however, that regarding paragraphs 3, 4, 6, 7, 8 and 10 hereof and
this paragraph 9, Debtors' execution of this MOU shall constitute a binding
agreement with Sponsors. Notwithstanding anything contained herein to the
contrary, other than as set forth in this paragraph 9, this letter is not
binding upon any person and has no legal effect whatsoever. Neither this letter
nor any party's execution hereof shall constitute an obligation or commitment
of any party to enter into the Acquisition Agreement or give any party any
rights or claims against another in the event any party for any reason
terminates negotiations to effect the Acquisition, other than in respect of
claimed breaches of paragraphs 3, 4, 6, 7, and 8 hereof and this paragraph 9.
All obligations or commitments to proceed with the Acquisition shall be
contained only in the Acquisition Agreement. Either party shall have the right
to terminate this MOU by giving notice to the other party in the event that an
Acquisition Agreement has not been executed on or before October 24, 2005.
10. Governing Law. This letter of intent and the Acquisition Agreement
shall be construed under, and governed by, the laws of the State of New York.
If the content of this letter correctly expresses the mutual intent of
Sponsors and Debtors regarding the subject matter hereof, please so indicate by
executing a copy where indicated below and returning it to the undersigned.
Very truly yours,
FGS REFCO ACQUISITION, LLC
/s/ X.X. Xxxxxxx
---------------------------------
Name: X.X. Xxxxxxx
Title: Managing Member
Accepted and Agreed To
as of this 17th day of
October, 2005:
REFCO, INC.
/s/ Xxxxx X. Xxxxxx
----------------------------
Name:
Title:
REFCO GLOBAL FUTURES, LLC
/s/ Xxxxx X. Xxxxxx
----------------------------
Name:
Title:
APPENDIX A
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1. THE CLOSING. The Closing shall occur not later than the first (1st)
business day after the day on which all the conditions precedent set forth
herein and in the Acquisition Agreement have been satisfied (or waived).
2. TERMINATION.
The Acquisition Agreement will be terminable before the Closing as
follows:
(a) by mutual consent of Xxxxx and Xxxxxxx;
(b) by the party not in breach in the event of a material breach
by the other party which is not cured within 2 days after
notice thereof;
(c) by Buyer:
(i) if the Bid Procedures Order is not entered within 10
days after the date the Sale Motion is filed, or if
timely entered, is subsequently stayed, reversed,
amended or vacated;
(ii) if the Sale Order, in form and substance reasonably
satisfactory to Buyer, has not been entered within
10 days after the entry of the Bid Procedures Order,
or if after such entry, such order has not, within
11 days after its entry, become final,
non-appealable and no longer subject to appeal,
reconsideration or stay;
(iii) if Xxxxxxx' case is converted to a case under
chapter 7 of the Bankruptcy Code, a trustee is
appointed in the Debtors' chapter 11 case or the
Debtors' chapter 11 case is dismissed;
(iv) If average customer deposits for any trailing three
business day period prior to the closing are less
than $3.75 billion; or
(v) Any regulatory action shall be taken against any of
the Acquired Business that has had or could
reasonably be expected to have a material adverse
effect.
(d) by Buyer or, subject to the prior payment of the breakup fee,
Debtors if the Closing has not occurred before November 11,
2005, provided that the terminating party is not in breach of
the Acquisition Agreement and provided, further that, at
Buyer's election (in the event any required approvals or
consents have not been obtained), such date may be extended
up to another 30 days;
(e) by Buyer or, subject to the prior payment of the breakup fee,
Debtors if Debtors shall have entered into, or shall have
publicly announced its intention to enter into, an agreement
in principle, letter of intent, memorandum of understanding,
definitive agreement or other similar arrangement, whether
binding or non-binding, or whether subject to terms and
conditions, with any person or entity, other than Buyer.
3. CONDITIONS PRECEDENT.
The Closing shall be subject to certain conditions, including the
following:
(a) Required Notices and Consents. All required notices shall
have been given and filings made and, as the case may be, all
applicable waiting periods shall have expired without adverse
action by, and all favorable orders, consents and approvals
in the form required to consummate the Acquisition and
operate the Acquired Business shall have been received from
all (i) federal, state and local governmental and regulatory
agencies, self-regulatory organizations, exchanges, and
clearing agencies or clearing organizations, including the
National Futures Association, the Commodities and Commodity
Futures Trading Commission, the Clearing Corporation and the
Chicago Mercantile Exchange and (ii) all third parties,
including in respect of material executory contracts or
licenses of Debtors which Xxxxx agrees to assume, unless not
required by law.
(b) No Injunctions. There shall be no injunction or court order
restraining consummation of the Acquisition and there shall
not have been adopted any law or regulation making all or any
portion of the Acquisition illegal.
(c) No Material Adverse Change. There shall not have occurred any
material adverse change (including any litigation) in the
business, assets, conditions (financial or otherwise) of the
Acquired Business.
(d) Title. The Subsidiaries shall have good and valid title to
all assets, properties, licenses, contracts and rights owned
by the Subsidiaries, and the Buyer shall have received all
other assets primarily used or held for use in the operation
of the Acquired Business. If so requested by Xxxxx, following
the closing the Debtors will cease to use the name "Refco" or
any combinations or derivations thereof, including in any
proceedings before the Bankruptcy Court within a commercially
reasonable period of time following such request and ensure
that the Buyer otherwise shall have the sole and exclusive
right to the name "Refco" and all related trademarks and
trade dress.
(e) Bankruptcy Court Orders. The Bankruptcy Court shall have
entered all necessary orders, including the Bid Procedures
Order, the Sale Order and the Assumption Order, in form and
substance reasonably satisfactory to the Buyer and all such
orders shall be final and non-appealable.
(f) Claim Injunction. The Sale Order shall include (A) provisions
for a permanent "channeling" injunction against all parties
requiring that all judgments, fines, penalties and claims
(including claims, as defined under Section 101(5) of the
Bankruptcy Code, of all parties including employees) against
the Subsidiaries arising out of any fact, claim, action or
event occurring prior to the closing (including known and
unknown claims) (the "Enjoined Claims") be paid solely by the
Parent from the Sale Proceeds, (B) granting priority to the
holders of such Enjoined Claims (or to the Buyer to the
extent of any costs or liabilities if such holders seek
recovery from the Buyer) in the Sale Proceeds to the same
extent, validity and amount such holders have in the assets
of the Subsidiaries, (C) findings that the Subsidiaries are
not alter egos of Debtors and that there is no basis for any
substantive or equitable consolidation, (D) an absolute
release and exculpation of the Buyer and the Subsidiaries
from all such Enjoined Claims and (E) provisions requiring
that the Bankruptcy Court enter an order approving the
distribution of the Sale Proceeds only after the resolution
of the Enjoined Claims or creation of reserves for such
Enjoined Claims are made, including appropriate reserves to
compensate the Buyer for costs and liabilities related to
Enjoined Claims. Nothing in this provision will limit any
other direct claim any holders of an Enjoined Claim may have
against the Debtors.
(g) Representations and Warranties. Customary bring downs of all
representations and warranties under the Acquisition
Agreement.
(h) Computer Files and Related Data. Debtors will transfer to
Buyer all electronic data (including data relating to
customers, sales history, inventory, accounts receivable,
vendors, employees and accounts payable) relating to the
Acquired Business operations that is located or stored on
computer files.
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