July 13, 2000
CONFIDENTIAL
Board of Directors
Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
RE: ACQUISITION OF MATRIX BANCORP, INC.
BY SOUTHWEST SECURITIES GROUP, INC.
Gentlemen:
We are pleased to provide you with this letter of intent (the "Letter of
Intent") which confirms our mutual present intentions with respect to a proposed
business combination between Southwest Securities Group, Inc. ("SWS") and Matrix
Bancorp, Inc. ("Matrix").
The basic terms, conditions and understandings of this proposal are set
forth below:
1. Due Diligence Period. SWS and Matrix and their respective
representatives will have an opportunity during a period of twenty (20) business
days following the effective date of this Letter of Intent in which to conduct a
due diligence inspection of each other's business, accounting, financial and
legal affairs. Such mutual inspections will be at the expense of each party.
Each party agrees that it and its representatives will conduct the due diligence
inspection in a manner designed to be least disruptive to the daily operations
of SWS and Matrix and in a manner designed to cause the least concern to SWS's
and Matrix's customers and employees.
If either SWS or Matrix determine, at any time prior to 5:00 p.m. Dallas,
Texas time on August 11, 2000 (the "Determination Date"), that the condition,
financial or otherwise, of the other party is unsatisfactory, then either SWS or
Matrix may terminate its obligations under this Letter of Intent, in such
party's sole discretion, by giving written notice to that effect to the other
party and no party to this Letter of Intent will have any further obligations or
liability hereunder; provided, that the parties shall continue to be obligated
to comply with the provisions of Paragraphs 16 and 18 of this Letter of Intent
which shall survive any such termination.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 2
2. Execution of Definitive Agreement. In the event that the parties hereto
determine that the condition, financial and otherwise, of the other party is
satisfactory, Matrix and SWS will negotiate in good faith to enter into a
definitive agreement (the "Definitive Agreement") setting forth in detail the
terms and conditions governing the proposed business combination. If Matrix and
SWS are unable to negotiate and execute a mutually agreeable Definitive
Agreement by August 11, 2000, this Letter of Intent will terminate and no party
to this Letter of Intent will have any further obligations or liability
hereunder; provided that the parties shall continue to be obligated to comply
with the provisions of Paragraphs 16 and 18 of this Letter of Intent which shall
survive any such termination.
3. Structure. The Definitive Agreement will provide that the proposed
business combination will be accomplished through the merger of Matrix and SWS
or a subsidiary of SWS (the "Merger"). In the Merger, all of the issued and
outstanding shares of stock of Matrix will be acquired by SWS solely in exchange
for whole shares of SWS common stock (plus cash in lieu of any fractional share
interests). The Definitive Agreement will provide that consummation of the
Merger is conditioned upon, among other things, (i) receipt by each party an
opinion of counsel that the Merger will qualify as a tax-free reorganization
under Section 368 and other applicable sections of the Internal Revenue Code of
1986, as amended, and (ii) receipt by SWS of an opinion of its independent
accountants that the Merger may be accounted for as a pooling of interests or
other accounting treatment satisfactory to SWS.
4. Merger Consideration. The Definitive Agreement will provide that, upon
consummation of the Merger, each outstanding share of Matrix Common Stock will
be converted into the right to receive 0.4715 shares (the "Exchange Ratio") of
SWS common stock, which Exchange Ratio shall be fixed (the aggregate amount of
consideration being the "Merger Consideration"). In the event SWS changes the
number of shares of SWS common stock issued and outstanding prior to the Closing
Date of the Merger as a result of a stock split, stock dividend,
recapitalization, or similar transaction with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective time
thereof (in the case of a stock split or similar recapitalization for which a
record date is not established) shall be prior to the Closing Date of the
Merger, the Exchange Ratio shall be proportionately adjusted.
The shares of SWS common stock to be received by shareholders of Matrix in
the Merger will be registered with the Securities and Exchange Commission
pursuant to an effective registration statement and will be listed for trading
on the New York Stock Exchange. The Definitive Agreement will provide that SWS
will enter into a mutually agreeable registration rights agreement with those
shareholders of Matrix deemed to be affiliates (as such term is defined under
Rule 144 of the Securities Act of 1933), providing for a one time demand
registration right for such affiliates.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 3
In arriving at the Exchange Ratio and the Merger Consideration, SWS has
assumed that: (i) no additional shares of capital stock of Matrix will be issued
prior to the effective date of the Merger (other than through the exercise of
currently outstanding stock options or warrants); and (ii) no additional
options, warrants or rights to acquire capital stock of Matrix will be granted
prior to the effective date of the Merger. Any options or warrants to acquire
shares of Matrix stock that remain unexercised upon consummation of the Merger
would be converted by SWS and would become options or warrants to acquire shares
of SWS common stock on similar economic terms and conditions.
5. Stock Options. By July 21, 2000, Matrix will execute and deliver to SWS
a stock option agreement, in form and substance mutually agreeable to both
parties, pursuant to which SWS will have an option to acquire up to 19.9% of the
issued and outstanding capital stock of Matrix at an exercise price equal to the
per share value of the Merger Consideration on the date of this Letter of
Intent. Such option will be exercisable by SWS in the event Matrix elects to
terminate the Definitive Agreement based on advice of outside counsel that
failure to do so would be reasonably likely to constitute a breach of Matrix's
board of directors fiduciary duties to Matrix's shareholders under applicable
law as further described in Section 14 of this Letter of Intent.
6. Necessary Approvals. The Definitive Agreement will provide that the
Merger will be conditioned upon the prior receipt of all necessary regulatory,
shareholder and corporate approvals on terms and conditions acceptable to SWS.
In addition to approval of the Merger by the shareholders of Matrix, the Merger
will also be conditioned upon approval of the shareholders of SWS. Either party
will cooperate and aid the other party in the preparation of all necessary
applications and agrees to provide the other party with access to any records or
information relative to it that is reasonably necessary for or is required to be
included in such applications or notices or that is required or requested by any
such regulatory authority. The Definitive Agreement will provide that any
conditions imposed by regulatory authorities that would limit the future
business of SWS in any material respect or that would require the divestiture of
any material portion of the current business of Matrix or SWS may be
unacceptable to SWS and may result in a permitted termination of the Definitive
Agreement by SWS.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 4
7. No Material Adverse Change. The Definitive Agreement will provide that
each party's obligation to consummate the Merger will be conditioned upon
verification that there has been no material adverse change in the financial
condition, assets, operations, properties or business of the other party from
the date of the Definitive Agreement through the Closing Date (as defined
herein). For purposes of the Definitive Agreement, the term "material adverse
change" will be defined to include any adverse change that results in a
reduction of the shareholders' equity of such company (on a consolidated basis)
of an amount equal to or exceeding ten percent (10%) of such company's
shareholders' equity calculated as of June 30, 2000; provided, however, in the
case of SWS, market fluctuations after June 30, 2000 in the value of the
Knight/Trimark Group Class A Common Stock shall be excluded.
8. Designation of Invitees. The Definitive Agreement will provide that
(subject to customary and legal limitations) following the time it is executed,
each party hereto will give two (2) persons designated by the other party notice
of and permission to attend as invitees all regular and special meetings of the
board of directors and executive committee of that party. If the Definitive
Agreement is terminated, such designees will no longer be entitled to notice of
and permission to attend such meetings.
9. Management; Releases. The Definitive Agreement will provide that the
Merger will be conditioned upon the ability of SWS to reach mutually
satisfactory employment and noncompete agreements with the key officers and
management of Matrix and its subsidiaries to be effective on the Closing Date.
The Definitive Agreement will also provide that directors of Matrix will execute
and deliver to SWS at Closing releases of any and all claims against Matrix and
use their best efforts to obtain similar releases from the executive officers of
Matrix.
10. Board Representation. The Definitive Agreement will provide that upon
consummation of the Merger, SWS will appoint one outside director designated by
Matrix to SWS's board, and that SWS will nominate such designee for election as
a director of SWS at SWS's next annual shareholders' meeting.
11. Voting Agreements. Contemporaneously with execution of the Definitive
Agreement, Matrix will deliver to SWS voting agreements from shareholders of
Matrix owning or controlling not less than a majority of the voting power of
Matrix providing that such shareholders will agree to vote their shares of
Matrix common stock in the same proportion as all other shareholders of Matrix
that are not parties to the voting agreement vote their shares on the Merger.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 5
12. Director and Officer Indemnification. The Definitive Agreement will
provide that for a period of three (3) years after the Closing of the Merger,
SWS will indemnify, defend and hold harmless each officer and director of Matrix
entitled to indemnification from Matrix against all liabilities arising out of
actions or omissions occurring at or prior to the Closing of the Merger to the
same extent and subject to the conditions set forth in Matrix's articles and
bylaws as in effect on the date of the Definitive Agreement and, for the same
period, will continue to provide, within reasonable limits, existing director
and officer liability insurance coverage to such individuals.
13. Fairness Opinions. The Definitive Agreement will provide that
consummation of the Merger will be conditioned upon receipt by each of SWS and
Matrix of opinions from their respective financial advisors that the terms of
the Merger are fair from a financial point of view to the respective
shareholders of SWS and Matrix.
14. Representations, Warranties, Covenants and Conditions. The Definitive
Agreement will contain such representations, warranties, agreements, covenants
and conditions as are mutually agreeable to SWS and Matrix. The Definitive
Agreement will also provide that Matrix may terminate the Definitive Agreement
in the event that (i) Matrix has received an acquisition proposal that is
superior to the terms of those contained in the Definitive Agreement and (ii)
that based on advice of outside counsel, the board of directors of Matrix
determines that failure to terminate the Definitive Agreement would be
reasonably likely to constitute a breach of its fiduciary duties to Matrix
shareholders under applicable law.
15. Closing and Closing Date. The closing (the "Closing") of the
transactions contemplated by the Definitive Agreement, including the Merger,
will occur on a date mutually agreeable to SWS and Matrix (the "Closing Date")
within thirty (30) calendar days after receipt of all necessary regulatory and
shareholder approvals and the expiration of any mandatory waiting periods. The
Definitive Agreement will provide, however, that either party may terminate the
Definitive Agreement in the event the Closing Date does not occur on or before
June 30, 2001.
16. Public Disclosure. Neither SWS nor Matrix will make any press release
or other public disclosure concerning this transaction without the prior written
consent of the other party to this Letter of Intent; provided, however, that
notwithstanding the foregoing, SWS and Matrix will, after giving notice to the
other, be permitted to make any public disclosures or governmental filings as
legal counsel may deem necessary to maintain compliance with or to prevent
violations of applicable law or regulations or that may be necessary to obtain
regulatory approval for the transaction contemplated herein.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 6
17. Exclusivity. Unless (i) Matrix shall have received either (a) an
unsolicited acquisition proposal that is superior to the proposed terms of the
Merger described in this Letter of Intent or (b) an inquiry reasonably
determined by the board of directors of Matrix to be likely to lead to such a
proposal and (ii) the board of directors of Matrix shall have determined, based
upon advice of outside counsel, that failure to do so is reasonably likely to
constitute a breach of its fiduciary duties to the Matrix shareholders under
applicable law, Matrix agrees that until the earlier of the termination this
Letter of Intent or upon execution of the Definitive Agreement, which will
contain similar provisions, neither Matrix, its affiliates, employees, nor any
of Matrix's directors, officers, financial advisors or agents will:
(a) solicit, encourage, initiate or participate in any
negotiations or discussions with any third party with respect
to any offer or proposal to merge with or acquire Matrix or
all or substantially all of Matrix's business whether by
acquisition, purchase of stock or assets or otherwise;
(b) disclose to any third party any information concerning
Matrix's business, properties, books or records of Matrix,
except in the ordinary course of business for purposes other
than an acquisition or as compelled by law; or
(c) cooperate with any third party to make any proposal to merge
with or acquire all or any part of the capital stock or assets
of Matrix other than acquisitions in the ordinary course of
business or non-essential or excess assets.
Any party receiving a formal or informal offer or proposal for such an
acquisition (or an offer or proposal to enter negotiations therefore) shall
immediately inform SWS thereof (including the terms of such offer) and provide
SWS with copies of any documents relating thereto.
18. Confidentiality. The terms of that certain Confidentiality Agreement
dated January ___, 2000, by and between SWS and Matrix are not effected by this
Letter of Intent and shall continue in full force and effect without regard to
the terms of this Letter of Intent.
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 7
19. Further Cooperation. SWS and Matrix hereby agree to cooperate and work
together to provide any information required by either party to consummate this
transaction and in negotiating and agreeing upon any other matters that may
arise in connection with the preparation of the Definitive Agreement or in
connection with the consummation of the Merger proposed herein.
20. Amendment, Modification or Extension. The terms of this Letter
of Intent may not be amended, modified or extended, nor may any of its terms
be waived, except by a written instrument signed by both parties hereto.
21. Multiple Counterparts. This Letter of Intent may be executed in
separate or multiple counterparts by the parties, and all of such counterparts
will be considered as one and the same instrument notwithstanding the fact that
various counterparts are signed by only one or more of SWS and Matrix, and all
of such instruments will be deemed but one and the same instrument.
22. Effectiveness. This Letter of Intent will be effective upon the
date a counterpart is executed by an authorized officer of Matrix and a fully
executed copy is returned to SWS at its address set forth above.
If the foregoing Letter of Intent is acceptable to Matrix, please so
signify by having an appropriate officer of Matrix execute this letter in the
space provided below and returning one copy of this letter to the undersigned.
Very truly yours,
SOUTHWEST SECURITIES GROUP, INC.
By: /s/ David Glatstein
Its: President
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Board of Directors
Matrix Bancorp, Inc.
July 13, 2000
Page 8
Agreed and Accepted this 13th day of July, 2000:
MATRIX BANCORP, INC.
By: /s/ Guy A. Gibson
Its: President/CEO
