As filed with the Securities and Exchange Commission on September 20, 2002
Registration No. 333-98685
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
-----------------
Oklahoma 6021 73-1373454
(State or other
jurisdiction of (Primary Standard
incorporation or Industrial (I.R.S. Employer
organization) Classification Code) Identification No.)
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
(918) 588-6000
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
-----------------
Stanley A. Lybarger
President and Chief Executive Officer
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
(918) 588-6000
(Name, address, including zip code, and telephone number,
including area code of agent for service)
-----------------
Copies to:
Frederic Dorwart G. Waverly Vest
Tamara R. Wagman Charlotte M. Rasche
Frederic Dorwart, Lawyers Bracewell & Patterson,
L.L.P.
Old City Hall South Tower Pennzoil Place
124 E. 4th Street 711 Louisiana Street,
Suite 2900
Tulsa, Oklahoma 74103 Houston, Texas 77002-2781
(918) 583-9922 (713) 223-2900
-----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied or
waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-----------------
CALCULATION OF REGISTRATION FEE
================================================================================
Title of each class Proposed Proposed maximum
of securities to Amount to be maximum offering aggregate Amount of
be registered registered (1)(2) price per unit offering price(4) registration fee
-----------------------------------------------------------------------------------------------------
Common Stock, $.00006 par value 11,901,150 (3) $362,172,217 $33,320(5)
-----------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Based upon an estimate of the maximum number of shares of BOK Financial
Corporation common stock to be issued in connection with the merger described
herein, based on an assumed conversion ratio for the merger of 1.94497 shares
of BOK Financial common stock for each of the 977,470 shares of Bank of
Tanglewood common stock outstanding.
(2) Includes registration of the benchmark price protection rights described
in the merger agreement, the 10,000,000 shares of the BOK Financial common
stock which may be issued under the benchmark price protection rights and any
shares to be issued pursuant to the anti-dilution provisions of the benchmark
price protection as described in the merger agreement as amended.
(3) Not applicable.
(4) Calculated in accordance with Rule 457(f)(2) under the Securities Act of
1933 (the "Act"), as amended, based on the book value of $17.58 per share, as
of the last practicable date prior to the filing of the registration statement,
of 977,470 shares of Bank of Tanglewood common stock expected to be cancelled
in connection with the merger described herein, except with regard to the
10,000,000 benchmark price protection shares which were calculated in
accordance with Rule 457(c) under the Act by multiplying the 10,000,000
benchmark price protection shares by $32.875, the average of the high and low
sale prices per share of BOK Financial common stock reported on NASDAQ on
August 20, 2002.
(5) Previously paid by registrant.
-----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
[LOGO] BANK OF TANGLEWOOD
To our shareholders:
The boards of directors of Bank of Tanglewood, N.A. and BOK Financial
Corporation have approved a merger of Bank of Tanglewood and a wholly owned
subsidiary of BOK Financial. We are sending you this document to ask you to
vote "FOR" the merger and to approve certain payments to three Bank of
Tanglewood executives under existing compensation arrangements with such
executives. The special meeting will be held on Thursday, October 24, 2002 at
10:00 a.m., central time, at the Houston Country Club, located at One Potomac
Drive, Houston, Texas.
BOK Financial has agreed to issue $65,000,000 (less transaction costs of
$450,000) in BOK Financial common stock to the shareholders and stock option
holders of Bank of Tanglewood. Of this $64,550,000 of BOK Financial common
stock, approximately $750,000 of BOK Financial common stock will be placed into
escrow for possible future distribution to former Bank of Tanglewood
shareholders and stock option holders as further described on pages 42 and 43.
Because the market value of BOK Financial common stock fluctuates, you will not
know at the time you vote on the merger the exact number of shares of BOK
Financial common stock you will receive for your Bank of Tanglewood common
stock. However, using the average trading price of BOK Financial common stock
for the 30 trading days ending on September 17, 2002 of $32.84 by way of
example, Bank of Tanglewood shareholders or option holders would be entitled to
receive, or exercise options to purchase, 1.72 shares of BOK Financial common
stock for each share of Bank of Tanglewood common stock.
BOK Financial has also agreed to provide assurance, subject to limitations
further described on pages 40 and 41, that the market value of 50% of the BOK
Financial common stock received in the transaction will increase by 8% per year
for five years. Such amount will not be compounded. The remaining 50% of the
shares of BOK Financial common stock received by Bank of Tanglewood
shareholders and option holders will not be protected and will be subject to
the same price fluctuations as any other share of BOK Financial common stock.
Bank of Tanglewood shareholders are also being asked to approve the payment
of an aggregate of $277,805 to three Bank of Tanglewood executives under
existing compensation agreements with such executives in order to avoid adverse
tax consequences. Approval of these payments will not effect the value or
number of shares of BOK Financial common stock you will receive in the merger.
BOK Financial common stock is listed on the NASDAQ Stock Market National
Market System under the symbol "BOKF."
An investment in BOK Financial common stock in connection with the merger
involves risks. See "Risk Factors" beginning on page 6 of this document.
Neither the Securities and Exchange Commission, the Office of the
Comptroller of the Currency, the Federal Reserve Board nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this document. Any representation to
the contrary is a criminal offense.
The securities offered through this document are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
(continued on reverse side)
If the merger were completed as of September 17, 2002, a total of 1,658,411
shares of BOK Financial common stock would be issued to Bank of Tanglewood
shareholders, not including 287,154 shares of BOK Financial common stock
reserved for the exercise of Bank of Tanglewood stock options, and 22,838
shares of BOK Financial common stock that would be deposited into escrow.
Excluding the option shares and the escrow shares, Bank of Tanglewood
shareholders would own approximately 3.13% of BOK Financial common stock
outstanding after the merger.
Your vote is very important. We cannot complete the merger unless the
holders of two-thirds of Bank of Tanglewood common stock approve it. We cannot
make the executive payments unless the holders of 75% of the outstanding shares
of Bank of Tanglewood common stock (excluding shares held by such executives
and certain of their family members) approve it.
The accompanying proxy statement-prospectus contains answers to frequently
asked questions and a summary description of the merger, followed by a more
detailed discussion of the merger and related matters. In addition, you may
obtain information about BOK Financial from documents that BOK Financial has
filed with the Securities and Exchange Commission. We urge you to review
carefully this entire document.
/s/ Richard W. Jochetz
Richard W. Jochetz,
President and Chief Executive Officer
Proxy statement-prospectus dated September 20, 2002, and first mailed to
shareholders on or about September 25, 2002.
BANK OF TANGLEWOOD, N.A.
500 Chimney Rock Road
Houston, Texas 77056-1220
---------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
October 24, 2002
---------------------------------------------
To the Shareholders of Bank of Tanglewood, N.A.:
Notice is hereby given that a special meeting of shareholders of Bank of
Tanglewood, N.A. will be held at The Houston Country Club, One Potomac Drive,
Houston, Texas, at 10:00 a.m., central time, on Thursday, October 24, 2002 for
the following purposes:
(1) To consider and vote upon a proposal to approve the merger agreement
among BOK Financial Corporation, TW Interim National Bank, which is a
newly-formed, wholly-owned subsidiary of BOK Financial, and Bank of
Tanglewood, N.A., and the transactions contemplated by the merger agreement,
including the merger;
(2) To consider and vote upon a proposal to approve payments in the
aggregate amount of $277,805 by Bank of Tanglewood to Robert G. Greer,
Richard W. Jochetz and James L. Tidwell pursuant to existing compensation
arrangements with such executives; and
(3) To transact such other business as may properly come before the Bank
of Tanglewood special meeting or any adjournment or postponement thereof.
Holders of record of shares of Bank of Tanglewood common stock at the close
of business on September 20, 2002 are entitled to notice of and to vote at the
meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you are
planning to attend the meeting, you are urged to complete, date and sign the
enclosed proxy and return it promptly. The delivery of the proxy does not
preclude you from voting in person if you attend the meeting. No additional
postage is necessary if mailed in the United States. If you desire to revoke
your proxy, you may do so at any time before the vote as discussed on page 19.
If you do not vote, it will have the same effect as voting against approval of
the merger agreement and the executive payments.
Under the National Bank Act, you are entitled to assert dissenters' rights
as further described in the accompanying proxy statement-prospectus.
By Order of the Board of Directors
/s/ Richard W. Jochetz
Richard W. Jochetz,
President and Chief Executive Officer
September 20, 2002
Houston, Texas
The board of directors of Bank of Tanglewood unanimously recommends that you
vote FOR approval of the merger agreement and the merger. The board of
directors (with Messrs. Greer, Jochetz and Tidwell abstaining) also recommends
that you vote FOR the approval of the executive payments in the aggregate
amount of $277,805 under existing compensation arrangements with Messrs. Greer,
Jochetz and Tidwell.
TABLE OF CONTENTS
Page
----
Questions and Answers about the Merger........................................................... QA-1
Summary.......................................................................................... 1
Risk Factors..................................................................................... 6
Comparative Per Share Market Price and Dividend Information...................................... 11
Summary of Selected Historical Consolidated Financial Data....................................... 12
Summary of Historical and Pro Forma Per Share Selected Financial Data............................ 15
Forward-Looking Statements....................................................................... 17
Bank of Tanglewood Special Meeting............................................................... 18
Proposal I -- Approval of the Merger Agreement and the Merger.................................... 21
Background of the Merger...................................................................... 21
Bank of Tanglewood Reasons for the Merger..................................................... 22
Recommendations of the Bank of Tanglewood Board of Directors.................................. 23
BOK Financial Reasons for the Merger.......................................................... 23
Accounting Treatment.......................................................................... 24
Regulatory Approvals.......................................................................... 24
Material U. S. Federal Income Tax Consequences................................................ 24
Dissenters' Rights of Appraisal............................................................... 27
Opinion of Bank of Tanglewood's Financial Advisor............................................. 29
Directors and Management Following the Merger................................................. 35
Financial Interests of Bank of Tanglewood Directors and Officers in the Merger................ 36
Transferability of Shares of BOK Financial Common Stock....................................... 38
The Merger Agreement.......................................................................... 40
The Merger................................................................................ 40
Conversion Ratio.......................................................................... 40
Exchange of Shares........................................................................ 40
Benchmark Price Protection................................................................ 41
Escrow.................................................................................... 42
Bank of Tanglewood Stock Option Plan; Phantom Stock Agreements............................ 43
Representations and Warranties............................................................ 44
Material Covenants........................................................................ 45
Conditions to Completion of the Merger.................................................... 47
Termination............................................................................... 48
Amendment and Waiver...................................................................... 48
Proposal II -- Voting on Executive Payments...................................................... 49
Comparison of Rights of Shareholders of Bank of Tanglewood and BOK Financial..................... 51
Management's Discussion and Analysis of Financial Condition and Results of Operations of Bank of
Tanglewood..................................................................................... 57
Business of Bank of Tanglewood................................................................... 77
Beneficial Ownership of Bank of Tanglewood Stock by Management and Principal Shareholders of Bank
of Tanglewood.................................................................................. 83
Business of BOK Financial........................................................................ 85
Description of BOK Financial Capital Stock....................................................... 86
Legal and Tax Matters............................................................................ 87
Experts.......................................................................................... 87
Independent Public Accountants................................................................... 88
Other Matters.................................................................................... 88
Where You Can Find More Information.............................................................. 88
i
Index to Bank of Tanglewood, N.A. Historical Financial Statements F-1
Annex I Agreement and Plan of Merger, as amended (including
Amendment No. 1 and certain exhibits) AI-1
Annex II Phantom Stock Agreement of Richard W. Jochetz AII-1
Annex III Phantom Stock Agreement of Robert G. Greer AIII-1
Annex IV Phantom Stock Agreement of James L. Tidwell AIV-1
Annex V Waiver of Phantom Stock Rights of Richard W. Jochetz AV-1
Annex VI Waiver of Phantom Stock Rights of Robert G. Greer AVI-1
Annex VII Waiver of Phantom Stock Rights of James L. Tidwell AVII-1
Annex VIII Opinion of Hovde Financial, LLC AVIII-1
Annex IX Provisions of the National Bank Act Relating to Rights of Dissenting Shareholders AIX-1
ii
HOW TO OBTAIN ADDITIONAL INFORMATION
This document incorporates important business and financial information
about BOK Financial from documents filed with the Securities and Exchange
Commission that have not been included in or delivered with this document. This
information is available at the Internet web site that the Securities and
Exchange Commission maintains at http://www.sec.gov, as well as from other
sources. See "Where You Can Find More Information" on page 88.
You also may request copies of these documents from BOK Financial, without
charge, upon written or oral request to:
James F. Ulrich
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
(918) 588-6135
In order to receive timely delivery of the documents, you must make your
requests no later than October 14, 2002.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Bank of Tanglewood and BOK Financial proposing the merger?
A: Our companies are proposing the merger because we believe that the combined
company will be a more effective competitor and will provide future growth
opportunities. BOK Financial offers products and services that Bank of
Tanglewood does not or cannot offer due to the smaller size of Bank of
Tanglewood. Bank of Tanglewood provides a customer base previously unavailable
to BOK Financial. Please read the more detailed description of our reasons for
the merger on pages 22 and 23.
Q: What will I receive in exchange for my Bank of Tanglewood shares in the
merger?
A: BOK Financial has agreed to issue $65,000,000 (less transaction costs of
$450,000) in BOK Financial common stock to the shareholders and stock option
holders of Bank of Tanglewood. Of this $64,550,000 of BOK Financial common
stock, approximately $750,000 of BOK Financial common stock will be placed into
escrow for possible future distribution to former Bank of Tanglewood
shareholders and stock option holders as further described on pages 42 and 43.
Because the market value of BOK Financial common stock fluctuates, you will not
know at the time you vote on the merger the exact number of shares of BOK
Financial common stock you will receive for your Bank of Tanglewood common
stock. However, using the average trading price of BOK Financial common stock
for the 30 trading days ending on September 17, 2002 of $32.84 by way of
example, Bank of Tanglewood shareholders and option holders would be entitled
to receive, or exercise options to purchase, 1.72 shares of BOK Financial
common stock for each share of Bank of Tanglewood common stock.
BOK Financial has also agreed to provide assurance, subject to limitations
further described on pages 40 and 41, that the market value of 50% of the BOK
Financial common stock received in the transaction will increase by 8% per year
for five years. Such amount will not be compounded. The remaining 50% of the
shares of BOK Financial common stock received by Bank of Tanglewood
shareholders and option holders will not be protected and will be subject to
the same price fluctuations as any other share of BOK Financial common stock.
Q: What are the executive payments and why am I being asked to approve them?
A: Bank of Tanglewood has various agreements and plans to provide compensation
to its officers and employees. These include the Bank of Tanglewood 1996 Stock
Option Plan and the Phantom Stock Agreements between Bank of Tanglewood and 11
of its officers. A change in control of the bank, such as the merger, causes
rights under the plans and agreements to mature or vest at the time of the
change of ownership, rather than pursuant to the normal vesting schedule
provided for in the various agreements. As a result, three executive officers
of Bank of Tanglewood will receive cash payments in connection with the merger
that exceed certain limits under federal income tax laws.
Federal income tax law provides that such payments made to executives in
connection with a change of ownership of the bank (such as the merger) in
excess of certain amounts are characterized as "parachute payments". This
characterization results in the loss of the tax deduction by Bank of Tanglewood
with respect to amounts in excess of a defined base amount and subjects such
executives to a 20% excise tax on the excess amount. The payments will not be
characterized as "parachute payments" if the executives' right to receive these
excess payments is approved by the holders of more than 75% of the outstanding
shares of Bank of Tanglewood common stock (not including shares of such
executives and certain other shareholders related to the executives).
Consequently, to avoid the adverse tax consequences, the three executives
(Messrs. Greer, Jochetz and Tidwell) have waived their rights to receive a
portion of the amount each executive would be entitled to receive upon
consummation of the merger ($277,805 in total) unless approved by the
shareholders. The amount of the payment each executive has waived reduces their
respective payments to a level where there are no excise taxes or lost
corporate deductions. Approval of these payments will not effect the value or
number of shares of BOK Financial common stock you will receive in the merger.
QA-1
For further details regarding the executive payments and the amounts due under
compensation plans and agreements, see "Proposal II -- Voting On Executive
Payments" on page 49.
Q: When do you expect the merger to be completed?
A: We currently anticipate that the closing of the merger will occur on or
about October 25, 2002, but this is subject to change.
Q: How does the board of directors recommend that I vote?
A: Our board of directors, by a unanimous vote, has approved and adopted the
merger agreement and the merger and recommends that the shareholders vote FOR
approval of the merger. The board of directors believes that the merger is fair
to, and in the best interests of, our shareholders. The board of directors
(with Messrs. Greer, Jochetz and Tidwell abstaining) also recommends that you
vote FOR approval of the executive payments in the aggregate amount of $277,805
pursuant to the existing compensation arrangements with Messrs. Greer, Jochetz
and Tidwell.
Q: What happens if I transfer my shares after the record date?
A: The record date for the special meeting is earlier than the expected date
of the merger. Therefore, if you transfer your shares of common stock after the
record date, but prior to the merger, you will retain the right to vote at the
special meeting, but the right to receive the merger consideration will
transfer with the shares of stock.
Q: Will I have to pay taxes as a result of the merger?
A: Generally no, except with respect to the benchmark price protection rights.
Because the merger qualifies as a tax free reorganization under the Internal
Revenue Code, no gain or loss will be recognized by holders of Bank of
Tanglewood common stock who exchange their Bank of Tanglewood common stock
solely for BOK Financial common stock. However, you will have to recognize
capital gain to the extent of the value of the benchmark price protection
rights that you receive. Also, if you dissent from the merger and are paid the
fair value of your stock in cash, you will be subject to tax on the cash
payments. See "Material U.S. Federal Income Tax Consequences" on page 24.
Q: What do I need to do to vote?
A: Mail your signed proxy in the enclosed return envelope as soon as possible
so that your shares may be represented at the special meeting.
Q. May I vote in person?
A: Yes. You may attend the special meeting and may vote your shares in person,
rather than signing and mailing a proxy. However, in order to assure that we
obtain your vote, please vote as instructed on your proxy even if you currently
plan to attend the special meeting in person.
Q: May I change my vote even after returning a proxy?
A: Yes. If you want to change your vote, you may do so at any time before the
Bank of Tanglewood special meeting by sending to the Secretary of Bank of
Tanglewood a proxy with a later date. Alternatively, you may revoke your proxy
by delivering to the Secretary of Bank of Tanglewood a written revocation prior
to the special meeting or by voting in person at the special meeting. If your
shares are held in "street name" with a bank or broker, you must contact your
bank or broker if you wish to revoke your proxy.
QA-2
Q: What happens if I don't return a proxy or vote?
A: If a Bank of Tanglewood shareholder does not submit a proxy or vote at the
Bank of Tanglewood shareholder meeting, it will have the same effect as a vote
against adoption and approval of the merger agreement and the merger and a vote
against approval of payment of the compensation to certain executives.
Q: Should I send in my Bank of Tanglewood stock certificates now?
A: No. After the merger is completed, we will send written instructions that
will explain how to exchange Bank of Tanglewood stock certificates for BOK
Financial common stock. Please do not send your stock certificates with your
proxy.
Q: When will I receive my shares BOK Financial common stock?
A: You will receive all of your shares of BOK Financial common stock, except
your proportionate share of the $750,000 worth of shares of BOK Financial
common stock to be deposited in escrow, as soon as practicable after you have
surrendered your Bank of Tanglewood stock certificates to the transfer agent in
accordance with the stock transfer letter.
You will receive your proportionate number of the shares of BOK Financial
common stock deposited in escrow upon the termination of the escrow account,
which shall be the later of December 31, 2003 or the date on which all claims
under the escrow have been resolved.
Q: Do I have any rights to avoid participating in the merger?
A. Yes. You have the right to withhold your vote for the merger, dissent from
the merger and seek appraisal value for your shares. The appraised value may be
more or less than the value of the BOK Financial common stock being paid in the
merger. In order to preserve your dissenters' rights, you must follow strictly
the provisions of the National Bank Act and the Office of the Comptroller of
the Currency's regulations regarding dissenters' rights. For further
description of these rights, see page 27 and Annex IX, which contains a copy of
the applicable provisions of the National Bank Act and the OCC Banking Circular
explaining dissenters' rights and procedures.
Q: If I have more questions about the merger, voting or BOK Financial or Bank
of Tanglewood, how can I find answers?
A: In addition to reading this document and its annexes, you can find more
information about BOK Financial in filings it has previously made with the
Securities and Exchange Commission. BOK Financial incorporates by reference
into this document its filings with the SEC. See "Where You Can Find More
Information" on page 88. You may also contact James F. Ulrich of BOK Financial
at (918) 588-6135 for additional information about BOK Financial or Richard W.
Jochetz of Bank of Tanglewood at (713) 266-2900 for additional information
about Bank of Tanglewood or the merger.
QA-3
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger more fully, and for a more complete description of the legal terms of
the merger, we recommend that you read carefully this entire document and the
other available information referred to in "Where You Can Find More
Information" on page 87. Each item in this summary includes a page reference
directing you to a more complete description of that item. We have included the
merger agreement, as amended, as Annex I to this document. It is the legal
document that governs the merger and we encourage you to read it.
The Companies (pages 77 and 85)
Bank of Tanglewood, N.A.
500 Chimney Rock Road
Houston, Texas 77056-1220
(713) 226-2900
Bank of Tanglewood, N.A. is a national banking association organized under
the banking laws of the United States. Bank of Tanglewood conducts its banking
business at three locations in the Houston area including its branches
operating under the names Bank of West University and Bank of Memorial. Bank of
Tanglewood has 51 full-time equivalent employees and provides business and
personal banking, as well as investment services. At June 30, 2002, Bank of
Tanglewood had total assets of $234.3 million, total deposits of $204.7 million
and total shareholders' equity of $17.2 million.
BOK Financial Corporation
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
(918) 588-6000
BOK Financial was incorporated under the laws of the State of Oklahoma in
1990 and is a bank holding company under the Bank Holding Company Act of 1956.
BOK Financial owns, directly or indirectly, all of the outstanding capital
stock of Bank of Oklahoma, N.A., Bank of Texas, N.A., Bank of Albuquerque,
N.A., Bank of Arkansas, N.A. and BOSC, Inc. BOK Financial is listed on NASDAQ
under the symbol "BOKF." It offers, through its subsidiaries, commercial
banking services, investment securities and money market services, mortgage
banking, trust and asset management services and electronic funds transfer. BOK
Financial and its subsidiaries have approximately 3,400 full-time equivalent
employees at 72 locations in Oklahoma, 21 locations in Texas, 18 locations in
Albuquerque, New Mexico and 3 locations in Arkansas. At June 30, 2002, BOK
Financial had total assets of $11.2 billion, total deposits of $7.2 billion and
total shareholders' equity of $924.4 million.
TW Interim National Bank
500 Chimney Rock Road
Houston, Texas 77056-1220
(713) 226-2900
TW Interim National Bank is a wholly owned subsidiary of BOK Financial,
formed as an interim national bank pursuant to the National Bank Act. Since its
creation, TW Interim has not carried on any activities, other than in
connection with the merger.
The Merger (page 21)
We propose a merger transaction in which Bank of Tanglewood will merge into
TW Interim National Bank, a wholly owned subsidiary of BOK Financial. BOK
Financial contemplates that the merged Tanglewood/TW
1
Interim entity will promptly be merged into Bank of Texas, N.A., another wholly
owned subsidiary of BOK Financial.
Bank of Tanglewood's Financial Advisor Has Opined that the Merger is Fair to
Shareholders (page 29)
On May 9, 2002, Hovde Financial, LLC, Bank of Tanglewood's financial
advisor, delivered to the Bank of Tanglewood board its preliminary written
opinion as to the fairness, from a financial point of view, of the merger
consideration to the holders of Bank of Tanglewood common stock. The written
opinion was accompanied by an oral presentation to the Bank of Tanglewood board
of directors regarding the fairness of the transaction, from a financial
perspective. We have attached Hovde's opinion, as reviewed and updated, dated
September 20, 2002 as Annex VIII to this document. We urge you to read this
opinion in its entirety to understand the assumptions made and matters
considered by Hovde in rendering its opinion.
Hovde provided its opinion to Bank of Tanglewood's board of directors for
its use and benefit and such opinion addresses only the fairness, from a
financial point of view as of the date of the opinion, of the merger
consideration to the holders of Bank of Tanglewood common stock. The Hovde
opinion is not a recommendation to any Bank of Tanglewood shareholder as to how
that shareholder should vote at the special meeting.
Recommendation of Bank of Tanglewood's Board to Shareholders (page 23)
The board of directors of Bank of Tanglewood believes that the merger is
fair to you and in your best interests and unanimously recommends that you vote
FOR the proposal to approve the merger agreement and the transactions
contemplated by the merger agreement, including the merger. All the members of
the Bank of Tanglewood board of directors are independent and not otherwise
employed by or affiliated with Bank of Tanglewood except Messrs. Greer, Jochetz
and Tidwell.
The members of the Bank of Tanglewood board of directors (with Messrs.
Greer, Jochetz and Tidwell abstaining) also recommend that you vote FOR the
proposal to approve payments in the amount of $277,805 pursuant to the existing
compensation arrangements with Messrs. Greer, Jochetz and Tidwell. Approval of
these payments will not effect the value or number of shares of BOK Financial
common stock you will receive in the merger.
Management and Operations after the Merger (page 35)
After the merger, the resulting entity will be called Bank of Tanglewood,
N.A., will be headquartered in Houston, Texas and will be a wholly owned
subsidiary of BOK Financial. The officers and directors of Bank of Tanglewood
will be the officers and directors of the surviving bank until changed as
provided by law. Upon consummation of the merger, BOK Financial shall cause
Robert G. Greer, Chairman of the board of directors of Bank of Tanglewood, to
be elected as advisory director of BOK Financial and thereafter, to be
nominated for election as a voting director of BOK Financial at BOK Financial's
2003 annual meeting of shareholders. Mr. Greer will also be elected to the Bank
of Texas, N.A. board of directors, which is a wholly owned subsidiary of BOK
Financial. BOK Financial contemplates that the merged Tanglewood/TW Interim
entity will be merged into Bank of Texas, N.A. The subsequent merger into Bank
of Texas is also planned for the fourth quarter of 2002, but delays could occur.
Some of the Officers and Directors of Bank of Tanglewood have Financial
Interests in the Merger that Differ from Your Interests (page 36)
In considering the recommendation of the Bank of Tanglewood board to vote in
favor of the merger and the executive payments, you should be aware that
certain officers and directors of Bank of Tanglewood have
2
financial interests in the merger that may be different from, or in addition
to, your interests as a shareholders. These interests include:
. rights under the Phantom Stock Agreements between Bank of Tanglewood and
11 of its executive officers (including Messrs. Greer, Jochetz and
Tidwell) will accelerate and become fully vested upon completion of the
merger;
. certain of Bank of Tanglewood's officers hold options to purchase shares
of Bank of Tanglewood common stock, which will accelerate and become
fully vested at the completion of the merger. These options will convert
into options to acquire shares of BOK Financial common stock, subject to
the escrow account, and must be exercised by such officers no later than
120 days following completion of the merger. In addition, the option
holders will receive cash payments from Bank of Tanglewood in connection
with exercising their options to partially offset tax liabilities they
will incur;
. certain officers and directors of Bank of Tanglewood have entered into
employment and non-competition/non-solicitation agreements with BOK
Financial;
. BOK Financial has agreed to elect Mr. Greer as an advisory member of the
BOK Financial board of directors and to nominate him to be a voting
director at the 2003 BOK Financial annual shareholders meeting. Mr. Greer
is also to be elected as a member of the Bank of Texas, N.A. board of
directors after completion of the merger; and
. the right of Bank of Tanglewood's directors and officers to continued
indemnification and insurance coverage by BOK Financial for acts or
omissions occurring prior to completion of the merger.
Members of Bank of Tanglewood's Management are Expected to Vote Their Shares
For Approval of the Merger Agreement and the Payments to Certain Executives
(page 18)
As of September 20, 2002, the record date, directors, executive officers and
affiliates of Bank of Tanglewood, certain of their family members and entities
they control were entitled to vote 160,531 shares, or approximately 16.42%, of
the outstanding shares of Bank of Tanglewood common stock. No director,
executive officer or affiliate of BOK Financial owns any shares of Bank of
Tanglewood common stock.
Shares of Bank of Tanglewood common stock held by Messrs. Greer, Jochetz and
Tidwell (and certain family members), which total 40,804 shares, or
approximately 4.17%, of the outstanding shares of Bank of Tanglewood common
stock, may not be voted in connection with the proposal to approve the payments
which have been waived by such executives and will not be counted as
outstanding with regard to such proposal.
As of September 20, 2002, Bank of Tanglewood had 977,470 shares of common
stock outstanding.
The Distribution of a Portion of the Shares of BOK Financial Common Stock to be
Issued in the Merger is Subject to the Terms of an Escrow Agreement (page 42)
Of the shares of common stock that BOK Financial will issue in the merger,
shares of BOK Financial common stock with an aggregate value of $750,000 will
be deposited into an escrow account to compensate BOK Financial for any
breaches in representations and warranties of Bank of Tanglewood which are
discovered between completion of the merger and December 31, 2003. Upon
termination of the escrow account, the Bank of Texas Trust Department, as
escrow agent, will distribute to the former Bank of Tanglewood shareholders and
exercising option holders the escrowed shares remaining after the deduction of
any losses related to a breach. Each Bank of Tanglewood shareholder will
receive his or her pro rata share of any distribution of remaining escrowed
shares and any dividends paid with respect to such escrowed shares. No
fractional shares shall be placed into escrow, and any fractional share will be
rounded up to a whole share of BOK Financial common stock and will be placed
into the escrow.
If the merger is approved, you will be bound by the terms of the escrow
agreement whether or not you vote in favor of the merger. Under the terms of
the merger agreement, the Bank of Tanglewood agent, who may be
3
removed at any time by a majority vote of the former Bank of Tanglewood
shareholders, will make decisions on behalf of the former Bank of Tanglewood
shareholders and exercising option holders related to the disposition of the
shares held in escrow and will vote the shares in any action requiring a vote
of BOK Financial shareholders. Further, the merger agreement provides that the
Bank of Tanglewood agent will be liable to the Bank of Tanglewood shareholders
and exercising option holders only as a result of gross negligence or
intentional wrongdoing.
While the shares are held in escrow, the Bank of Tanglewood shareholders
will not receive any cash or stock dividends paid with respect to the shares
until such time, if any, that the shares are released from the escrow. However,
former Bank of Tanglewood shareholders will be taxed on any cash dividends paid
during the escrow period. See "Material U.S. Federal Income Tax Consequences"
on page 24. The rights of Bank of Tanglewood shareholders under the escrow
agreement are not transferable other than by will or by the laws of descent and
distribution.
Overview of the Merger Agreement (pages 40)
We have included the merger agreement as Annex I to this document. It is the
legal document that governs the merger and we encourage you to read it.
Conditions to the Merger (page 47)
We will complete the merger only if a number of conditions are satisfied or
waived including, among others:
. approval of the merger agreement by the Bank of Tanglewood shareholders;
. material accuracy of the representations, warranties and covenants made
by both parties and contained in the merger agreement;
. the Federal Reserve Board, the Office of the Comptroller of the
Currency and other required regulatory authorities have approved the
merger of Bank of Tanglewood and TW Interim National Bank, as well as
the merger of Bank of Tanglewood into Bank of Texas, N.A.;
. the registration statement relating to the shares of BOK Financial
common stock to be issued in the merger or pursuant to the benchmark
price protection rights and the benchmark price protection rights shall
be declared effective and no stop order respecting such registration
statement shall be in effect;
. authorization by NASDAQ for the listing of the shares of BOK Financial
common stock to be issued in the merger and any shares of BOK Financial
common stock issued pursuant to the benchmark price protection rights
or stock options, subject to official notice of the issuance;
. performance or compliance, in all material respects, by each of us with
all covenants and conditions under the merger agreement which were to
be performed or complied with prior to or upon completion of the merger;
. absence of a material adverse change in the business or financial
condition of BOK Financial and in the financial condition, assets,
liabilities, businesses or properties of Bank of Tanglewood;
. Bank of Tanglewood shall have entered into employment agreements and/or
non-competition agreements and/or non-solicitation agreements with key
executives;
. Bank of Tanglewood shall have entered into amendments to the respective
Phantom Stock Agreements of Richard W. Jochetz, Robert G. Greer and
James L. Tidwell providing for the waiver of rights to certain payments;
. receipt by Bank of Tanglewood of an opinion from Hovde Financial, LLC
that the merger consideration is fair to the shareholders of Bank of
Tanglewood from a financial point of view;
4
. receipt by Bank of Tanglewood of an opinion of Bracewell & Patterson,
L.L.P. as to tax consequences of the merger, in a form reasonably
satisfactory to Bank of Tanglewood; and
. receipt by BOK Financial of agreements from at least ninety-seven
percent (97%) of the holders of Bank of Tanglewood stock options that
(1) the Bank of Tanglewood stock options will automatically become BOK
Financial stock options that do not constitute incentive stock options
under the Internal Revenue Code, (2) the Bank of Tanglewood stock
options may not be exercised prior to completion of the merger and (3)
the converted stock options must be exercised within 120 calendar days
following completion of the merger or the stock options will terminate.
No Solicitation (page 46)
Bank of Tanglewood has agreed not to:
. solicit or encourage inquires or proposals with respect to the merger
of Bank of Tanglewood or the sale of any of the shares of Bank of
Tanglewood stock or other material asset(s) of Bank of Tanglewood from
any party other than BOK Financial; or
. to merge with any party or sell any of the shares of the Bank of
Tanglewood stock or material asset(s).
However, Bank of Tanglewood may have discussions and negotiations with
another party regarding a merger or share or asset sale if the Bank of
Tanglewood board of directors determines in good faith that the failure to take
such action could constitute a breach of the fiduciary duties of the board of
directors or as necessary to comply with regulatory requirements.
Termination of the Agreement (page 48)
Bank of Tanglewood and BOK Financial may, by mutual agreement, terminate the
merger agreement at any time, even after the shareholders of Bank of Tanglewood
have approved the merger. In addition, either party may terminate the merger
agreement if:
. the conditions to closing have not been fulfilled or waived on or prior
to closing;
. the merger has not been completed on or before December 31, 2002; or
. there is a material breach of the merger agreement.
Regulatory Approvals (page 24)
We were required to, and have received, approval for the merger from the
Office of the Comptroller of the Currency, the Federal Reserve Board and the
Texas Department of Banking.
Your Rights as a Shareholder of BOK Financial will be Different than as a
Shareholder of Bank of Tanglewood (page 51)
BOK Financial is an Oklahoma corporation and the rights of its shareholders
are governed by Oklahoma law and its certificate of incorporation and bylaws.
Bank of Tanglewood is a national banking association and the rights of its
shareholders are governed by the National Bank Act, Texas law and its articles
of association and bylaws. Upon completion of the merger, Bank of Tanglewood
shareholders will become shareholders of BOK Financial and their rights will be
governed by BOK Financial's certificate of incorporation and bylaws and
Oklahoma law. BOK Financial's certificate of incorporation and bylaws will
remain the same unless altered, amended or repealed in the future.
5
RISK FACTORS
In deciding whether to approve the merger and the executive payments, you
should carefully read this proxy statement-prospectus and the accompanying
documents to which we refer you. You should also carefully consider the risks
described below before making a decision to approve the merger. The risks and
uncertainties described below are not the only ones relating to the merger or
facing BOK Financial. Additional risks and uncertainties not currently known to
BOK Financial or that it currently deems immaterial may also adversely effect
its business and operations.
RISKS RELATING TO THE MERGER
BOK Financial shares to be received by Bank of Tanglewood shareholders in the
merger will fluctuate in value.
The market price of the BOK Financial common stock to be issued in the
merger may change following the merger as a result of changes in BOK
Financial's business, operations or prospects, market assessments of the impact
of the merger or general market conditions. Although the merger agreement
provides that the market value of 50% of the BOK Financial common stock you
receive in to the merger will increase by 8% per year for five years, this
protection is subject to certain limitations and restrictions as further
described in "Benchmark Price Protection" on page 41. Further, the other 50% of
the BOK Financial common stock you receive will have no form of benchmark price
protection and there can be no assurance as to their value following the merger.
BOK Financial may experience difficulties in integrating Bank of Tanglewood's
business with the existing business of BOK Financial subsidiaries, which could
cause BOK Financial to lose many of the anticipated potential benefits of the
merger.
BOK Financial entered into the merger agreement with Bank of Tanglewood
because it believes that the merger will be beneficial to the combined company.
Achieving the anticipated benefits of the merger will depend in part upon
whether BOK Financial can integrate the businesses of its subsidiary, Bank of
Texas, and Bank of Tanglewood in an efficient and effective manner. BOK
Financial may not be able to accomplish this integration process smoothly or
successfully. The necessity of coordinating geographically separated
organizations and addressing possible differences in technologies, corporate
cultures and management philosophies may increase the difficulties of
integration. The integration of certain operations following the merger will
require the dedication of significant management resources, which may
temporarily distract management's attention from the day-to-day business of the
combined companies. Employee uncertainty and lack of focus during the
integration process may also disrupt the business of the combined companies.
Any inability of BOK Financial management to integrate successfully the
operations of Bank of Tanglewood into Bank of Texas could have an adverse
effect on the business, results of operations and financial condition of BOK
Financial.
There are no assurances that Bank of Tanglewood shareholders will receive any
of the $750,000 in shares of BOK Financial common stock to be held in escrow,
yet you will have to pay taxes with respect to any cash dividends accrued on
these shares.
Bank of Tanglewood has agreed to put into escrow, on behalf of Bank of
Tanglewood shareholders and option holders, a portion of the shares of BOK
Financial common stock to be issued in the merger having a market value of
$750,000. The Trust Department of Bank of Texas, acting as escrow agent, will
hold these shares to compensate BOK Financial for losses that may be incurred
by BOK Financial resulting from the discovery of a breach by Bank of Tanglewood
of any of its representations and warranties made in the merger agreement
during the period beginning at the completion of the merger and ending on
December 31, 2003. As a result, you may receive only a portion, or none, of the
$750,000 in the shares of BOK Financial common stock held in escrow.
6
In addition, for the period from the completion of the merger through
December 31, 2003 during which your portion of escrowed shares will be held in
the escrow, you will be required to recognize as income for federal income tax
purposes an amount equal to any cash dividends which accrue on your shares and
interest earned on such amounts in the tax year in which the dividends are paid
into the escrow, even though you will not receive these amounts until a later
date, if at all. Although BOK Financial has never paid a cash dividend in the
past, there is no assurance that it will not pay a cash dividend during the
period in which the escrow is in effect. As a result, any dividend payments and
interest earned on such amounts are likely to result in ordinary income, and a
related tax liability, even though you will only receive the dividends if and
when you receive the related escrowed shares. Further, you may not transfer
your interest in these escrowed shares other than by will or the laws of
descent and distribution. Therefore, you would be subject to the same tax
liability even if after the merger you sell all of the shares of Bank of
Tanglewood common stock that you received in the merger.
You will have less influence as a shareholder of BOK Financial than as a
shareholder of Bank of Tanglewood.
As a Bank of Tanglewood shareholder, you currently have the right to vote in
the election of the board of directors of Bank of Tanglewood and on other
matters affecting Bank of Tanglewood. The merger will transfer control of Bank
of Tanglewood to BOK Financial and to the shareholders of BOK Financial. When
the merger occurs, you will become a shareholder of BOK Financial with a
percentage ownership much smaller than your percentage ownership of Bank of
Tanglewood.
If the merger were completed as of September 17, 2002, based on an assumed
conversion ratio of 1.72, a total of 1,658,411 shares of BOK Financial common
stock would be issued to Bank of Tanglewood shareholders upon completion of the
merger and 22,838 shares of BOK Financial common stock would be deposited into
the escrow account. As a result, Bank of Tanglewood shareholders would own
approximately 3.13% of BOK Financial common stock outstanding after the merger.
In addition, 287,154 shares of BOK Financial common stock will be reserved for
issuance pursuant to the exercise of converted Bank of Tanglewood stock
options. Because of this, you will have less influence on the management and
policies of BOK Financial than you now have on the management and policies of
Bank of Tanglewood.
RISKS RELATING TO BOK FINANCIAL
Adverse regional economic developments could negatively affect BOK Financial's
business.
A substantial majority of BOK Financial loans are generated in Oklahoma and
other markets in the southwest region, with approximately 73% of 2001 earnings
derived from activities in the state of Oklahoma. As a result, poor economic
conditions in Oklahoma or other markets in the southwest region may cause BOK
Financial to incur losses associated with higher default rates and decreased
collateral values in BOK Financial's loan portfolio. A regional economic
downturn could also adversely affect revenue from brokerage and trading
activities, mortgage loan originations and other sources of fee-based revenue.
Adverse economic factors affecting particular industries could have a negative
effect on BOK Financial customers and their ability to make payments to BOK
Financial.
Certain industry-specific economic factors also affect BOK Financial. For
example, as of year-end 2001, 16% of BOK Financial's total loan portfolio was
comprised of loans to borrowers in the energy industry and 3% of BOK
Financial's total loan portfolio was comprised of loans to borrowers in the
agricultural industry, both of which are historically cyclical industries. Low
commodity prices may adversely affect those industries and, consequently, may
affect BOK Financial's business negatively. In addition, as of year-end, 2001,
21% of BOK Financial's total loan portfolio was comprised of commercial real
estate loans. A downturn in the real estate industry in Oklahoma and the
Southwest region could also have an adverse effect on BOK Financial's
operations.
7
Fluctuations in interest rates could adversely affect BOK Financial's business.
BOK Financial's business is highly sensitive to:
. the monetary policies implemented by the Federal Reserve Board, including
the discount rate on bank borrowings and changes in reserve requirements,
which affect BOK Financial's ability to make loans and the interest rates
we may charge;
. changes in prevailing interest rates, due to the dependency of BOK
Financial's banks on interest income; and
. open market operations in U.S. Government securities.
Significant increases in market interest rates, or the perception that an
increase may occur, could adversely affect both BOK Financial's ability to
originate new loans and BOK Financial's ability to grow. Conversely, a decrease
in interest rates could result in an acceleration in the payment of loans,
including loans underlying BOK Financial's holdings of mortgage-backed
securities, and termination of BOK Financial's mortgage servicing rights. In
addition, changes in market interest rates, changes in the relationships
between short-term and long-term market interest rates or changes in the
relationships between different interest rate indices, could affect the
interest rates charged on interest-earning assets differently than the interest
rates paid on interest-bearing liabilities. This difference could result in an
increase in interest expense relative to interest income. BOK Financial's
strategy of borrowing funds in the capital markets to supplement deposit growth
subjects us to additional interest rate and liquidity risk. An increase in
market interest rates also could adversely effect the ability of BOK
Financial's floating-rate borrowers to meet their higher payment obligations.
If this occurred, it could cause an increase in nonperforming assets and net
charge-offs, which could adversely affect BOK Financial's business.
BOK Financial's substantial holdings of mortgage-backed securities and mortgage
servicing rights could adversely affect BOK Financial's business.
BOK Financial has invested a substantial amount of its holdings in
mortgage-backed securities, which are investment interests in pools of
mortgages. Mortgage-backed securities are highly sensitive to changes in
interest rates. BOK Financial mitigates this risk somewhat by investing
principally in shorter duration, mortgage products which are less sensitive to
changes in interest rates. Nonetheless, a significant decrease in interest
rates could lead mortgage holders to refinance the mortgages constituting the
pool backing the securities, subjecting BOK Financial to a risk of prepayment
and decreased return on investment due to subsequent reinvestment at lower
interest rates.
In addition, as part of BOK Financial's mortgage banking business, BOK
Financial has acquired substantial holdings of mortgage servicing rights. The
value of these rights is also very sensitive to changes in interest rates.
Falling interest rates tend to increase loan prepayments, which may lead to
cancellation of the related servicing rights. BOK Financial's investments and
dealings in mortgage-related products increase the risk that falling interest
rates could adversely affect BOK Financial's business. BOK Financial attempts
to manage this risk by maintaining an active hedging program for its mortgage
servicing rights. BOK Financial's hedging program has only been partially
successful in recent years.
Substantial competition could adversely affect BOK Financial.
Banking is a competitive business. BOK Financial competes actively for loan,
deposit and other financial services business in Oklahoma, as well as in BOK
Financial's other markets. BOK Financial's competitors include a large number
of small and large local and national banks, savings and loan associations,
credit unions, trust companies, broker-dealers and underwriters, as well as
many financial and nonfinancial firms that offer services similar to BOK
Financial's. Large national financial institutions have entered the Oklahoma
market. These institutions have substantial capital, technology and marketing
resources. Such large financial institutions may have greater access to capital
at a lower cost than BOK Financial does, which may adversely affect BOK
8
Financial's ability to compete effectively. In addition, there have been a
number of recent mergers involving financial institutions located in Oklahoma
and BOK Financial's other markets. Significant limitations in Oklahoma on the
ability of existing banks to establish branches expired on June 30, 1999.
Accordingly, BOK Financial may face increased competition from both merged
banks and new entrants to BOK Financial's markets. BOK Financial has expanded
into markets outside of Oklahoma, where it competes with a large number of
financial institutions that have an established customer base and greater
market share than BOK Financial. BOK Financial may not be able to continue to
compete successfully in these markets outside of Oklahoma. With respect to some
of its services, BOK Financial competes with non-bank companies that are not
subject to regulation. The absence of regulatory requirements may give
non-banks a competitive advantage.
Adverse factors could impact BOK Financial's ability to implement its operating
strategy.
Although BOK Financial has developed an operating strategy which it expects
to result in continuing improved financial performance, BOK Financial cannot
assure you that it will be successful in fulfilling this strategy or that this
operating strategy will be successful. Achieving success is dependent upon a
number of factors, many of which are beyond BOK Financial's direct control.
Factors that may adversely affect BOK Financial's ability to implement its
operating strategy include:
. deterioration of BOK Financial's asset quality;
. inability to control BOK Financial's noninterest expenses;
. inability to increase noninterest income;
. deterioration in general economic conditions, especially in BOK
Financial's core markets;
. decreases in net interest margins;
. increases in competition; and
. adverse regulatory developments.
Banking regulations or changes in banking regulations could adversely affect
BOK Financial.
BOK Financial and its subsidiaries are extensively regulated under both
federal and state law. In particular, BOK Financial is subject to the Bank
Holding Company Act of 1956 and its subsidiary banks are subject to the
National Bank Act. These regulations are primarily for the benefit and
protection of BOK Financial's customers and not for the benefit of BOK
Financial's shareholders. In the past, BOK Financial's business has been
materially effected by these regulations. For example, regulations limit BOK
Financial's business to banking and related businesses, and they limit the
location of BOK Financial's branches and offices, as well as the amount of
deposits that it can hold in a particular state. These regulations may limit
BOK Financial's ability to grow and expand into new markets and businesses.
Additionally, under the Community Reinvestment Act, BOK Financial is
required to provide services in traditionally underserved areas. BOK
Financial's ability to make acquisitions and engage in new business may be
limited by these requirements.
In addition, the Federal Deposit Insurance Corporation Improvement Act of
1991 and the Bank Holding Company Act of 1956, and various regulations of
regulatory authorities, require us to maintain specified capital ratios. Any
failure to maintain required capital ratios would limit the growth potential of
BOK Financial's business.
Under a long-standing policy of the Board of Governors of the Federal
Reserve System, a bank holding company is expected to act as a source of
financial strength for its subsidiary banks. As a result of that policy, BOK
Financial may be required to commit financial and other resources to its
subsidiary banks in circumstances where we might not otherwise do so.
9
The trend toward extensive regulation is likely to continue in the future.
Laws, regulations or policies currently affecting us and BOK Financial's
subsidiaries may change at any time. Regulatory authorities may also change
their interpretation of these statutes and regulations. Therefore, BOK
Financial's business may be adversely affected by any future changes in laws,
regulations, policies or interpretations.
Statutory restrictions on subsidiary dividends and other distributions and
debts of BOK Financial's subsidiaries could limit amounts BOK Financial's
subsidiaries may pay to BOK Financial.
BOK Financial is a bank holding company, and a substantial portion of BOK
Financial's cash flow typically comes from dividends that BOK Financial's bank
and nonbank subsidiaries pay to BOK Financial. Various statutory provisions
restrict the amount of dividends BOK Financial's subsidiaries can pay to BOK
Financial without regulatory approval. Management has also developed, and the
BOK Financial board of directors approved, an internal capital policy that is
more restrictive than the regulatory capital standards. In addition, if any of
BOK Financial's subsidiaries liquidates, that subsidiary's creditors will be
entitled to receive distributions from the assets of that subsidiary to satisfy
their claims against it before BOK Financial, as a holder of an equity interest
in the subsidiary, will be entitled to receive any of the assets of the
subsidiary. If, however, BOK Financial is a creditor of the subsidiary with
recognized claims against it, BOK Financial will be in the same position as
other creditors.
Although publicly traded, BOK Financial's common stock has substantially less
liquidity than the average trading market for a stock quoted on the Nasdaq
National Market System.
A relatively small fraction of BOK Financial's outstanding common stock is
actively traded. The risks of low liquidity include increased volatility of the
price of BOK Financial's common stock. Low liquidity may also limit holders of
BOK Financial's common stock in their ability to sell or transfer BOK
Financial's shares at the price, time and quantity desired.
BOK Financial's principal shareholder controls a majority of BOK Financial's
common stock.
Mr. George B. Kaiser owns a majority of the outstanding shares of BOK
Financial common stock. Following the merger, Mr. Kaiser will continue to be
able to elect all of BOK Financial's directors and effectively to control the
vote on all matters submitted to a vote of BOK Financial's common shareholders.
Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any
other change in control could have an adverse effect on the market price for
BOK Financial's common stock. A substantial majority of BOK Financial's
directors are not officers or employees of BOK Financial or any of its
affiliates. However, because of Mr. Kaiser's control over the election of BOK
Financial's directors, he could change the composition of BOK Financial's Board
of Directors so that it would not have a majority of outside directors.
Possible future sales of shares by BOK Financial's principal shareholder could
adversely affect the market price of BOK Financial's common stock.
Mr. Kaiser has the right to sell shares of BOK Financial's common stock in
compliance with the federal securities laws at any time, or from time to time.
The federal securities laws are the only restrictions on Mr. Kaiser's ability
to sell. Because of his current control of BOK Financial, Mr. Kaiser could sell
large amounts of his shares of BOK Financial common stock by causing BOK
Financial to file a registration statement that would allow him to sell shares
more easily. In addition, Mr. Kaiser could sell his shares of BOK Financial
common stock without registration under Rule 144 of the Securities Act.
Although BOK Financial can make no predictions as to the effect, if any, that
such sales would have on the market price of BOK Financial common stock, sales
of substantial amounts of BOK Financial common stock, or the perception that
such sales could occur, could adversely affect market prices. If Mr. Kaiser
sells or transfers his shares of BOK Financial common stock as a block, another
person or entity could become BOK Financial controlling shareholder.
10
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Shares of BOK Financial common stock are listed on the NASDAQ under the
symbol "BOKF". The following table sets forth the high and low trading prices
per share of BOK Financial common stock on NASDAQ for the periods indicated.
The market price of shares of BOK Financial will fluctuate prior to and after
the merger. See page 6 with regard to risk factors related to this fluctuation.
You should obtain current stock price quotations for BOK Financial common stock.
BOK Financial
Common Stock
-------------
High Low
------ ------
2000:
First Quarter............................. $20.56 $15.31
Second Quarter............................ $17.56 $15.63
Third Quarter............................. $18.75 $16.75
Fourth Quarter............................ $21.25 $17.50
2001:
First Quarter............................. $24.56 $21.31
Second Quarter............................ $26.90 $23.12
Third Quarter............................. $32.55 $26.00
Fourth Quarter............................ $32.75 $28.81
2002:
First Quarter............................. $34.05 $28.15
Second Quarter............................ $36.52 $31.94
Third Quarter (through September 17, 2002) $34.25 $28.51
There has been no active public trading market for shares of Bank of
Tanglewood common stock. It is traded infrequently in private transactions
about which Bank of Tanglewood's management has little reliable information
regarding price.
As of September 20, 2002, Bank of Tanglewood had approximately 433
shareholders of record and 977,470 shares of common stock outstanding.
As of September 17, 2002, BOK Financial had approximately 1,032 shareholders
of record and 53,023,763 shares of common stock outstanding.
On May 14, 2002, the last trading day before we announced the merger, BOK
Financial's shares closed at $35.00 per share. On September 17, 2002, the most
recent practicable date before the mailing of this document, BOK Financial's
shares closed at $33.16 per share.
Dividend Information
BOK Financial's present policy is to retain earnings for capital and future
growth, and management has no current plans to recommend payment of cash
dividends on its common stock. BOK Financial's policy is to pay an annual stock
dividend on BOK Financial common stock at a rate of 3%. However, BOK Financial
is not required or committed to issue any future stock dividends.
Until the merger is completed or the merger agreement is terminated, Bank of
Tanglewood is prohibited from declaring or paying any dividends on its capital
stock. Bank of Tanglewood has not paid dividends since inception and has no
present plans to pay a dividend. In the event the merger is not completed, the
declaration and payment of such dividends will be at the discretion of the
board of directors of Bank of Tanglewood and will depend upon future earnings
of Bank of Tanglewood, its general financial condition, the success of its
business activities, its capital requirements and general business conditions.
11
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Selected Historical Consolidated Financial Data of BOK Financial
BOK Financial is providing the following information to aid you in your
analysis of the financial aspects of the merger. BOK Financial derived the
information as of and for the years ended December 31, 1997 through December
31, 2001 from its historical audited consolidated financial statements for
those fiscal years. BOK Financial derived the financial information for the six
months ended June 30, 2002 and 2001 from its unaudited financial statements.
The audited and unaudited financial information contained in this proxy
statement-prospectus is the same historical information that BOK Financial has
presented in its prior filings with the SEC, except as noted.
The operating results for the six months ended June 30, 2002 are not
necessarily indicative of the operating results that may be expected for the
year ended December 31, 2002. BOK Financial expects that it will incur merger
and restructuring expenses as a result of the acquisition of Bank of
Tanglewood. BOK Financial and Bank of Tanglewood both anticipate that the
merger will provide the combined company with financial benefits that include
reduced operating expenses and enhanced opportunities to earn more revenue. The
historical information presented below does not reflect these financial
expenses or benefits and, accordingly, does not attempt to predict or suggest
future results. This information is only a summary, and you should read it in
conjunction with BOK Financial's consolidated financial statements and related
notes contained in BOK Financial's 2001 Annual Report on Form 10-K, which has
been incorporated by reference into this document. See "Where You Can Find More
Information" on page 88.
As of and for the
Six Months Ended
June 30, As of and for the Year Ended December 31,
------------------------ -----------------------------------------------------------
2002 2001 2001 2000 1999 1998(1) 1997(1)
----------- ----------- ----------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
Selected Financial Data
For the year:
Interest revenue.................. $ 286,727 $ 344,548 $ 654,633 $ 638,730 $ 500,274 $ 402,832 $ 357,074
Interest expense.................. 107,119 189,319 327,859 369,843 264,150 212,406 194,842
Net interest revenue.............. 179,608 155,229 326,774 268,887 236,124 190,426 162,232
Provision for loan losses......... 15,700 16,070 37,610 17,204 10,365 14,591 9,256
Net income........................ 66,470 56,383 116,302 100,140 89,226 79,611 68,155
Period-end:
Loans, net of reserve............. 6,205,303 5,968,008 6,193,473 5,435,207 4,567,255 3,581,177 2,801,977
Assets............................ 11,190,722 10,306,155 11,130,388 9,748,334 8,373,997 7,059,507 5,613,233
Deposits.......................... 7,182,246 6,580,988 6,905,744 6,046,005 5,263,184 4,607,727 3,924,405
Subordinated debentures........... 185,860 186,744 186,302 148,816 148,642 146,921 148,356
Shareholders' equity.............. 924,414 775,320 828,483 703,576 557,164 524,793 451,880
Nonperforming assets (2).......... 44,912 55,620 50,708 43,599 22,943 18,762 25,249
Proforma impact of adoption of
FAS 142: (4)
Net income........................ 66,470 59,916 124,566 105,487 94,926 85,820 73,919
Net income per diluted share (3).. 1.10 1.01 2.09 1.79 1.60 1.45 1.25
Profitability Statistics
Earnings per share (based on
average equivalent shares): (3)
Basic............................. $ 1.24 $ 1.06 $ 2.19 $ 1.89 $ 1.68 $ 1.50 $ 1.28
Diluted........................... 1.10 0.95 1.95 1.70 1.50 1.34 1.15
Percentages (based on daily
averages):
Return on average assets.......... 1.22% 1.13% 1.14% 1.15% 1.17% 1.34% 1.29%
Return on average
shareholders' equity............. 15.40 15.35 14.93 16.46 16.45 16.38 16.78
Average shareholders' equity to
average assets................... 7.92 7.35 7.62 7.00 7.12 8.17 7.71
Selected Balance Sheet Statistics
Period-end:
Tier 1 risk-based capital
ratio............................ 8.69% 7.59% 8.08% 8.06% 7.27% 7.93% 9.87%
Total risk-based capital ratio.... 12.11 11.02 11.56 11.23 10.72 12.02 14.95
Leverage ratio.................... 6.78 5.85 6.38 6.51 5.92 6.60 7.06
Reserve for loan losses to
nonperforming loans (2).......... 282.34 186.35 233.90 207.95 391.65 467.70 270.65
Reserve for loan losses to
loans (5)....................... 1.73 1.51 1.66 1.51 1.66 1.86 1.95
12
--------
(1) Restated for pooling of interests in 1999.
(2) Includes nonaccrual loans, renegotiated loans and assets acquired in
satisfaction of loans. Excludes loans past due 90 days or more and still
accruing.
(3) Restated for the effects of a 3% common stock dividend declared by BOK
Financial on April 30, 2002.
(4) Adjusted to reflect FAS 142, "Goodwill and Other Intangible Assets", which
was adopted on January 1, 2002.
(5) Excludes residential mortgage loans held for sale.
Selected Historical Consolidated Financial Data of Bank of Tanglewood
The following table summarizes financial results achieved by Bank of
Tanglewood for the periods and at the dates indicated and should be read in
conjunction with Bank of Tanglewood's financial statements and the notes to the
financial statements. The selected financial data as of December 31, 2001 and
2000 and for each of the years in the two-year period ended December 31, 2001
are derived from Bank of Tanglewood's audited financial statements and related
notes included elsewhere in this proxy statement-prospectus. The selected
financial data as of December 31, 1999, 1998 and 1997 and for each of the years
in the three-year period ended December 31, 1999 is derived from Bank of
Tanglewood's audited financial statements and related notes which are not
included in this proxy statement-prospectus. Financial amounts as of and for
the six months ended June 30, 2002 and June 30, 2001 are unaudited, but
management of Bank of Tanglewood believes that such amounts reflect all normal
recurring adjustments necessary for a fair presentation of the results of
operations and financial position for those periods. You should not assume the
results of operations for past periods and for the six months ended June 30,
2002 indicate results for any future period.
13
As of and for the
Six Months Ended
June 30, As of and for the Year Ended December 31,
---------------------- --------------------------------------------------
2002 2001 2001 2000 1999 1998 1997(1)
---------- ---------- ---------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
Income Statement Data:
Net interest income........................ $ 5,215 $ 3,502 $ 8,047 $ 5,302 $ 3,605 $ 2,508 $ 1,409
Provision for loan losses.................. 155 75 272 316 445 90 90
---------- ---------- ---------- -------- -------- -------- --------
Net interest income after provision
for loan losses........................ 5,060 3,427 7,775 4,986 3,160 2,418 1,319
Noninterest income......................... 483 544 1,028 364 176 170 77
Noninterest expense........................ 3,150 2,631 5,858 3,867 2,785 2,068 1,439
---------- ---------- ---------- -------- -------- -------- --------
Income before taxes..................... 2,393 1,340 2,945 1,483 551 520 (43)
Provision for income taxes................. 762 436 921 409 144 138 --
---------- ---------- ---------- -------- -------- -------- --------
Net income (loss)....................... $ 1,631 $ 904 $ 2,024 $ 1,074 $ 407 $ 382 $ (43)
========== ========== ========== ======== ======== ======== ========
Per Share Data:
Basic earnings (loss) per share............ $ 1.67 $ 0.95 $ 2.10 $ 1.19 $ 0.46 $ 0.58 $ (0.07)
Diluted earnings (loss) per share.......... 1.49 0.86 1.89 1.08 0.42 0.52 (0.06)
Book value per share....................... 17.58 15.14 16.04 13.22 11.60 11.03 9.79
Cash dividends declared.................... -- -- -- -- -- -- --
Weighted average shares outstanding
(basic)................................... 977,273 949,264 963,212 900,933 876,294 658,647 650,000
Weighted average shares outstanding
(diluted)................................. 1,092,098 1,049,464 1,070,082 991,363 960,074 735,347 703,000
Shares outstanding at end of period........ 977,310 977,160 977,160 901,200 900,800 753,762 650,000
Balance Sheet Data (at period end):
Total assets............................... $ 234,256 $ 199,567 $ 250,204 $155,472 $122,086 $ 85,016 $ 66,291
Loans...................................... 134,010 99,247 118,989 82,207 63,177 38,002 24,785
Allowance for loan losses.................. 1,363 1,017 1,215 943 632 187 97
Total deposits............................. 204,740 180,456 221,957 139,050 104,863 75,583 58,888
Borrowings and notes payable............... 11,678 3,649 11,891 3,800 6,388 895 845
Total shareholders' equity................. 17,181 14,792 15,672 11,913 10,453 8,311 6,360
Selected Ratios and Other Data:
Return on average assets (2)............... 1.37% 1.04% 1.00% 0.79% 0.62% 0.65% (0.10)%
Return on average equity (2)............... 20.04 13.47 14.10 9.80 6.30 7.46 (0.68)
Net interest margin (2).................... 4.65 4.24 4.22 4.14 3.75 3.52 3.42
Asset Quality Ratios (3):
Nonperforming assets to total loans and
other real estate......................... 0.70% 1.21% 0.68% N/A N/A N/A N/A
Net loan charge-offs (recoveries) to
average loans (2)......................... 0.01 0.001 N/A 0.01 N/A N/A N/A
Allowance for loan losses to total
loans..................................... 1.02 1.02 1.02 1.15 1.00 0.49 0.39
Allowance for loan losses to
nonperforming loans (4)................... N/A 84.47 149.30 N/A N/A N/A N/A
Capital Ratios:
Leverage ratio............................. 7.24% 7.67% 6.40% 8.07% 9.24% 10.06% 0.35%
Tier 1 risk-based capital ratio............ 12.47 12.20 11.22 12.57 14.98 17.90 19.18
Total risk-based capital ratio............. 13.47 13.07 12.11 13.56 15.85 18.31 19.49
--------
(1) Bank of Tanglewood began operations on December 10, 1996.
(2) Performance ratios for the six months ended June 30, 2002 and 2001 have
been annualized.
(3) Asset quality and capital ratios are based on balances at period end,
unless otherwise indicated.
(4) Nonperforming loans consist of nonaccruing loans, loans contractually past
due 90 days or more and restructured loans.
14
SUMMARY OF HISTORICAL AND PRO FORMA PER SHARE SELECTED FINANCIAL DATA
Set forth below are the diluted earnings, cash dividends and book value per
common share data for BOK Financial and Bank of Tanglewood on a historical
basis, on a pro forma combined basis and on a pro forma combined basis per Bank
of Tanglewood equivalent share. The pro forma data was derived by combining the
historical consolidated financial information of BOK Financial and Bank of
Tanglewood using the purchase method of accounting for business combinations.
In July 2001, the Financial Accounting Standards Board issued Statement No.
142, "Goodwill and Other Intangible Assets," which eliminates the requirement
to amortize goodwill and requires goodwill to be evaluated annually, or more
frequently if impairment indicators arise, for impairment. The historical and
pro forma per share financial information as of and for the year ended
December 31, 2001 includes the impact of amortizing goodwill since Statement
No. 142 was not effective for the year ended December 31, 2001.
The Bank of Tanglewood pro forma equivalent share information shows the
effect of the merger from the perspective of an owner of Bank of Tanglewood
common stock. The information was computed by multiplying the pro forma
information based on an assumed conversion ratio of 1.72, which includes 22,838
shares of BOK Financial common stock to be deposited in the escrow account.
You should read the information below together with the historical financial
statements and related notes and other information of Bank of Tanglewood
included in this proxy statement-prospectus and the historical financial
statements and related notes that BOK Financial has presented in its prior
Securities and Exchange Commission filings. We have incorporated the
information related to BOK Financial into this document by reference. See
"Where You Can Find More Information" on page 88 for instructions on how to
receive copies of the incorporated information. We expect that Bank of
Tanglewood and BOK Financial will incur merger and integration charges and
receive certain benefits as a result of combining their companies. The pro
forma information, while helpful in illustrating the financial characteristics
of the combined company under one set of assumptions, does not reflect these
expenses or benefits. The unaudited pro forma combined data below is for
illustrative purposes only. The companies may have performed differently had
they always been combined. You should not rely on this information as being
indicative of the historical results that would have been achieved had the
companies always been combined or the future results that the combined company
will experience after the merger.
Year Ended
Six Months Ended December 31,
June 30, 2002 2001
---------------- ------------
Income per average diluted common share:
Historical:
BOK Financial..................................................... $ 1.10 $ 1.95(1)
Bank of Tanglewood................................................ 1.49 1.89
Pro forma combined per:
BOK Financial share............................................... 1.08 1.89
Equivalent Bank of Tanglewood share............................... 1.86 3.24
Dividends per common share:
Neither BOK Financial nor Bank of Tanglewood have paid cash dividends
on common shares during the applicable periods.
Book value per outstanding common share (period end):
Historical:
BOK Financial..................................................... $17.45 $15.71(1)
Bank of Tanglewood................................................ 17.58 16.04
Pro forma combined per:
BOK Financial share............................................... 18.14 16.46
Equivalent Bank of Tanglewood share............................... 31.12 28.23
--------
(1) Restated for the effects of a 3% common stock dividend declared by BOK
Financial on April 30, 2002.
15
In connection with the application of BOK Financial to the Board of
Governors of the Federal Reserve System ("Board") for approval of the
acquisition of Bank of Tanglewood, the staff of the Board requested that the
capital attributable to those shares of BOK Financial common stock issued in
connection with the transaction which are subject to the benchmark price
protection rights and the value of the rights be, and BOK Financial represented
that it would be, excluded from Tier 1 and Tier 2 regulatory capital
calculations until the rights expire. This representation is not applicable to
the calculation of the regulatory capital of the subsidiary banks of BOK
Financial or to the calculation of shareholders' equity for financial reporting
purposes or in accordance with generally accepted accounting principles. The
"BOK Financial" and "Tanglewood" columns of the following table present the
shareholders' equity of BOK Financial and Bank of Tanglewood to regulatory
capital prior to consummation of the acquisition. The "Pro Forma Combined"
column of the following table reconciles on a pro forma basis the shareholders'
equity of BOK Financial combined with Bank of Tanglewood giving effect to the
foregoing representation.
Reconciliation of Pro Forma Regulatory Capital Ratios
(Dollars in thousands)
As of June 30, 2002
-----------------------------------------------
BOK Acquisition Pro Forma
Financial Tanglewood Adjustments Combined
----------- ---------- ----------- -----------
Shareholders' equity(1)................... $ 924,414 $ 17,181 $ 50,369 $ 991,964
Less:
Intangible assets...................... (146,212) -- (53,322) (199,534)
Non-qualifying shareholders equity(2). -- -- (35,275) (35,275)
Accumulated other comprehensive income. (33,860) (130) -- (33,990)
Other.................................. (7) -- -- (7)
----------- -------- -------- -----------
Tier 1 Capital............................ 744,335 17,051 (38,228) 723,158
Plus:
Subordinated debentures................ 185,860 -- -- 185,860
Allowance for loan losses.............. 108,084 1,363 -- 109,447
Other.................................. 181 -- -- 181
----------- -------- -------- -----------
Total Regulatory Capital.................. $ 1,038,460 $ 18,414 $(38,228) $ 1,018,646
=========== ======== ======== ===========
Risk weighted assets...................... $ 8,565,543 $136,730 $ -- $ 8,702,273
Average assets............................ 10,976,004 235,673 -- 11,211,677
Tier 1 capital ratio...................... 8.69% 12.47% 8.31%
Total capital ratio....................... 12.11% 13.47% 11.71%
Leverage ratio............................ 6.78% 7.24% 6.45%
--------
(1) Determined in accordance with generally accepted accounting principles.
(2) Adjustment to reflect BOK Financial representation respecting exclusion
from Tier 1 and Tier 2 capital.
16
FORWARD-LOOKING STATEMENTS
We have each made "forward-looking statements" in this proxy
statement-prospectus (and in documents to which we refer you in this proxy
statement-prospectus) within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are based on management's beliefs, assumptions, current
expectations, estimates and projections about BOK Financial, the financial
services industry and the economy in general. Words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "plans", "projects",
variations of such words and similar expressions are intended to identify such
forward-looking statements.
Management judgments relating to, and discussion of the provision and
reserve for, loan losses involve judgments as to future events and are
inherently forward-looking statements. Assessments that BOK Financial's
acquisitions and other growth endeavors will be profitable are necessarily
statements of belief as to the outcome of future events, based in part on
information provided by others which BOK Financial has not independently
verified. Forward-looking statements are not guarantees of future performance
and involve risks, uncertainties, and assumptions that are difficult to predict
with regard to timing, extent, likelihood, and degree of occurrence. Therefore,
actual results and outcomes may materially differ from what is expressed,
implied, or forecasted in such forward-looking statements.
Many possible events or factors could effect the future financial results
and performance of each of our companies before the merger or BOK Financial
after the merger and could cause those results or performance to differ
materially from those expressed in our forward-looking statements, including,
but not limited to:
. the ability to fully realize expected cost savings from the merger within
the expected time frame,
. our ability to integrate our businesses,
. general business and economic conditions in the markets we serve,
. the ability of other companies on which BOK Financial relies to provide
goods and services in a timely and accurate manner,
. changes in interest rates and interest rate relationships,
. demand for products and services,
. the degree of competition by traditional and nontraditional competitors,
. changes in banking regulations, tax laws, prices, levies, and assessments,
. the impact of technological advances, and
. trends in customer behavior as well as their ability to repay loans.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement-prospectus,
and we undertake no obligation to update this information unless the securities
laws require us to do this. When considering forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this
proxy statement-prospectus and the documents BOK Financial has incorporated by
reference.
17
BANK OF TANGLEWOOD SPECIAL MEETING
Information about the Shareholder Meeting and Proposals
The Bank of Tanglewood board of directors is using this document to solicit
proxies from you for use at the special meeting. At the special meeting,
shareholders will vote on
. a proposal to approve the merger agreement and the transactions
contemplated by the merger agreement;
. a proposal to approve the executive payments in the amount of $277,805
under existing compensation arrangements between Bank of Tanglewood and
Robert G. Greer, Richard W. Jochetz and James L. Tidwell; and
. any other matter which may properly come before the special meeting or
any adjournment or postponement of the special meeting.
Date, Time and Place of the Special Meeting
The Bank of Tanglewood special shareholder meeting will be held October 24,
2002 at 10:00 a.m., central standard time, at the Houston Country Club located
at One Potomac Drive, Houston, Texas.
Record Date for the Special Meeting
You may vote at the shareholders meeting if you owned shares of Bank of
Tanglewood common stock at the close of business on September 20, 2002.
On the record date, 977,470 shares of Bank of Tanglewood common stock were
outstanding.
Shares Entitled to Vote at the Special Meeting
For each share of Bank of Tanglewood common stock that you own on the record
date, you will have one vote on each proposal to be presented at the meeting.
Quorum Requirement for the Special Meeting
The presence at the meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Bank of Tanglewood common stock is
necessary to constitute a quorum. If a quorum is not represented at the
meeting, the meeting will be adjourned to a subsequent date. Abstentions and
broker non-votes count as present for establishing a quorum.
Shares Owned by Bank of Tanglewood Directors and Executive Officers as of
Record Date
As of September 20, 2002, the executive officers and directors of Bank of
Tanglewood owned or otherwise controlled 160,531 shares of Bank of Tanglewood
common stock, which does not include any options outstanding to acquire shares
of Bank of Tanglewood common stock. These shares represent approximately 16.42%
of the shares of Bank of Tanglewood common stock outstanding as of the record
date. These individuals, although not bound by an agreement, have indicated
that they intend to vote their shares of Bank of Tanglewood common stock in
favor of the approval of the merger agreement and the merger and the executive
payments to Messrs. Greer, Jochetz and Tidwell. Messrs. Greer, Jochetz and
Tidwell (and certain of their family members) will abstain from voting with
respect to the executive payments as required by the Internal Revenue Code and
their shares will not be counted as outstanding for purposes of voting on that
matter.
18
Votes Necessary at the Meeting to Approve Bank of Tanglewood Proposals
Approval of the merger agreement and the transactions contemplated by the
merger agreement requires the approval of the holders of two-thirds of the
outstanding shares of Bank of Tanglewood common stock entitled to vote on the
merger.
Approval of the executive payments in the aggregate amount of $277,805 which
have been waived by Messrs. Robert G. Greer, Richard W. Jochetz and James L.
Tidwell requires the approval of the holders of 75% of the outstanding shares
of Bank of Tanglewood common stock entitled to vote on the proposal. The shares
of Bank of Tanglewood common stock held by Messrs. Greer, Jochetz and Tidwell
(and certain of their family members) will not be entitled to vote on this
matter and will not be counted as shares outstanding for purposes of this
matter.
The proposals to approve the merger agreement and the executive payments are
"non-discretionary" items, meaning that brokers and banks who hold shares in an
account for customers who are the beneficial owners of such shares may not give
a proxy to vote those shares without specific instructions from their
customers. Any abstentions and broker non-votes will have the same effect as
votes against approval of the merger agreement and the executive payments.
Accordingly, the Bank of Tanglewood board of directors encourages you to
complete, date and sign the accompanying proxy and return it promptly in the
enclosed postage-paid envelope.
Voting and Revocation of Proxies
You may vote in person at the special meeting or by proxy. We recommend you
vote by proxy even if you plan to attend the meeting. To vote by proxy, you
should complete, sign and date the enclosed proxy and return it to Bank of
Tanglewood in the enclosed postage prepaid envelope. You can revoke your proxy
before it is voted as described below.
If you are the record holder or your shares, you may revoke your proxy
before it is voted by:
. submitting a new proxy with a later date,
. notifying Bank of Tanglewood's Secretary, in writing, before the special
meeting that you have revoked your proxy; or
. voting in person, or notifying the Secretary orally of your wish to
revoke your proxy, at the shareholder meeting. If you hold your shares in
street name with a bank or broker, you must contact the bank or broker if
you wish to revoke your proxy.
All written notices of revocation and other communications with respect to
revocation or proxies should be sent to: Bank of Tanglewood, N.A., 500 Chimney
Rock Road, Houston, Texas 77056, Attention: James Tidwell, Secretary.
Other Voting Matters
Voting in Person. If you plan to attend the meeting and wish to vote in
person, we will give you a ballot at the special meeting. However, if your
shares of common stock are held in the name of a brokerage firm or trustee, you
must obtain from the firm or trustee an account statement, letter or other
evidence of your beneficial ownership of the common shares in order for you to
vote in person at the meeting.
People with Disabilities. We can provide reasonable assistance to help you
participate in the shareholder meeting if you tell us about your disability and
your plan to attend. Please call or write the Secretary of Bank of Tanglewood
at least two weeks before the shareholder meeting at the number or address
provided on page 1 of this proxy statement-prospectus.
19
Proxy Solicitation; Expenses. We will each pay our own costs of soliciting
proxies, including the reasonable expenses of brokers, banks, fiduciaries and
other nominees in forwarding solicitation material to beneficial owners. In
addition to the solicitation of proxies by use of the mail, solicitation may be
made by telephone and facsimile and Bank of Tanglewood may utilize the services
of some of its officers and employees to solicit proxies personally. Such
officers and employees will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. If undertaken, we expect the expense of such solicitation
by officers and employees to be nominal. Bank of Tanglewood will file with the
SEC all materials used to aid in the solicitation of proxies.
Do not send any Bank of Tanglewood stock certificates with your proxy. If
the merger is consummated, the exchange agent will mail transmittal forms with
instructions for the surrender of stock certificates promptly after completion
of the merger.
Other Business; Adjournments and Postponements
We currently are not aware of any other business to be acted upon at the
meeting. If, however, other matters are properly brought before the meeting, or
any adjourned or postponed meeting, your proxies will have discretion to vote
or act on those matters according to their best judgment, including to adjourn
the meeting.
Adjournments or postponements of the shareholder meeting may be made for the
purpose of, among other things, soliciting additional proxies. Any adjournment
may be made from time to time by approval of the holders of Bank of Tanglewood
common stock representing a majority of the votes present in person or by proxy
at the meeting, whether or not a quorum exists, without further notice other
than by an announcement made at the special meeting. A vote by proxy against
the merger will result in such proxy being voted against an adjournment or
postponement of the shareholder meeting to solicit additional proxies. A vote
by proxy in favor of the merger will result in such proxy being voted for an
adjournment or postponement of a shareholder meeting to solicit additional
proxies.
20
PROPOSAL I--APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
Background of the Merger
In early February 2002, Bank of Tanglewood's Chief Financial Officer and one
of BOK Financial's mergers and acquisitions representatives met at a mergers
and acquisitions conference. While they did not discuss the concept of a
merger, they agreed that BOK Financial representatives would contact Bank of
Tanglewood's management team in the near future. In late February, BOK
Financial representatives met with Bank of Tanglewood's Chairman, Chief
Executive Officer and Chief Financial Officer. At that time, Bank of
Tanglewood's management team indicated that they were not actively pursuing
sales opportunities, although they would not rule out a sale in the event the
correct suitor presented an acceptable offer.
In March 2002, Bank of Tanglewood received an unsolicited offer to be
acquired by another Texas-based financial institution. The Bank of Tanglewood
board of directors determined that it was in the shareholders' best interest to
consider a sale and to determine if others in the marketplace might be
interested in acquiring Bank of Tanglewood.
Bank of Tanglewood then engaged Hovde Financial, LLC on March 21, 2002 to,
among other things, assist in exploring ways to enhance shareholder value,
including studying Bank of Tanglewood's acquisition value and identifying
potential acquirers. The board authorized Hovde to contact a limited number of
qualified prospects to determine their interest in a business combination with
Bank of Tanglewood. In March 2002, Hovde contacted seven potential acquirers,
including BOK Financial, to determine their level of interest in the possible
acquisition of Bank of Tanglewood. Four financial institutions expressed
interest in Bank of Tanglewood.
In March 2002, Hovde initially contacted BOK Financial inviting BOK
Financial's participation in the purchase process. BOK Financial also received
and signed an agreement to keep confidential any nonpublic information
concerning Bank of Tanglewood that BOK Financial may obtain during such
process. During March, BOK Financial evaluated the financial information
relating to Bank of Tanglewood supplied by Hovde. On March 28, 2002, BOK
Financial hand delivered to Bank of Tanglewood a preliminary, nonbinding letter
expressing its interest in acquiring Bank of Tanglewood. After discussions with
Bank of Tanglewood's management, BOK Financial issued a revised nonbinding
letter to Bank of Tanglewood on April 12, 2002.
The indication of interest from BOK Financial offered consideration that the
Board deemed superior to the other offer seriously being considered by Bank of
Tanglewood. On April 12, 2002, the board of directors authorized Bank of
Tanglewood management to invite BOK Financial to perform due diligence and,
upon its completion, to enter into negotiations of a definitive agreement. BOK
Financial performed due diligence in late April 2002 and the parties began the
negotiation of a definitive agreement.
At a meeting of the Bank of Tanglewood board of directors on May 9, 2002, a
representative of Hovde informed the board of directors orally that, in Hovde's
opinion: (1) an acquisition of Bank of Tanglewood in the present time frame at
the price levels indicated in the written indications of interest would be in
the best economic interests of Bank of Tanglewood and its shareholders; (2)
based on numerous factors, including the current price levels at which bank
acquisition transactions of comparable size in Texas and the southwest were
currently being effected, the price proposed in the BOK Financial offer was
more favorable than the other offers; and (3) the merger consideration offered
by BOK Financial was fair to Bank of Tanglewood and its shareholders from a
financial point of view. As a result, the board of directors determined that
the price being offered by BOK Financial, along with the other terms of BOK
Financial's offer, made it the more advantageous offer. At the special meeting
on May 9, 2002, subject to finalization of certain provisions of the definitive
agreement and execution of employment agreements and option amendment
agreements, the Bank of Tanglewood board of directors approved the merger and
related transactions. At its regular meeting on May 15, 2002, the board of
directors approved the final terms of the definitive agreement and it was
executed the same day.
21
Bank of Tanglewood Reasons for the Merger
The terms of the merger agreement, including the consideration to be paid to
Bank of Tanglewood shareholders, were the result of arm's length negotiations
between representatives of BOK Financial and Bank of Tanglewood. In evaluating
whether to affiliate with BOK Financial, the Bank of Tanglewood board
considered a number of factors, including, without limitation, the following:
. the additional capital and resources needed for Bank of Tanglewood's
operations to continue to grow and the dilutive effect to shareholders of
obtaining this additional capital;
. information regarding the financial condition, business, operating
results, earnings, financial condition, technological capabilities,
management, earnings and prospects of each of Bank of Tanglewood and BOK
Financial;
. the merger consideration in the form of BOK Financial common stock with a
closing price on May 15, 2002 of $35.82 per share, or an aggregate of
approximately $65.0 million less transaction costs, compared with the
Bank of Tanglewood shareholders' equity and earnings as of March 31, 2002;
. the current financial services industry environment, including the
continued consolidation within the industry, the increased competition in
the market areas served by Bank of Tanglewood and the costs of evolving
trends in technology;
. the appreciation in the price of BOK Financial common stock and the
prospects for positive long-term performance of BOK Financial common
stock;
. the belief of Bank of Tanglewood's board that the terms of the merger and
the merger agreement are fair to and in the best interests of Bank of
Tanglewood shareholders;
. the analyses provided by Hovde and the oral and written preliminary
opinion of Hovde provided on May 9, 2002 that, as of such date, the
conversion ratio as set out in the merger agreement was fair from a
financial point of view to Bank of Tanglewood shareholders (see "Opinion
of Bank of Tanglewood's Financial Advisor" beginning on page 29);
. the tax-free nature of the exchange of BOK Financial common stock as the
merger consideration to Bank of Tanglewood shareholders for federal
income tax purposes;
. the fact that BOK Financial common stock is publicly traded on the
NASDAQ, thereby representing a more liquid investment than Bank of
Tanglewood common stock, which is closely held with little trading
activity or liquidity;
. the historical stock dividends paid by BOK Financial on its common stock
as compared with the fact that Bank of Tanglewood has never paid a
dividend on its common stock;
. the board's review of other strategic alternatives potentially available
to Bank of Tanglewood;
. BOK Financial's ability to provide the ever-increasing and broadening
array of financial services and products demanded by Bank of Tanglewood's
customers; and
. the financial terms of other recent business combinations in the banking
industry.
Bank of Tanglewood's board of directors determined that Bank of Tanglewood's
competitive position and the value of its stock could best be enhanced through
affiliation with BOK Financial. The aggregate price to be paid to holders of
Bank of Tanglewood common stock resulted from negotiations which considered the
historical earnings and dividends of BOK Financial and Bank of Tanglewood; the
potential growth in Bank of Tanglewood's market and earnings, both as an
independent entity and as a part of a larger organization such as BOK
Financial; Bank of Tanglewood's asset quality; and the effect of the merger on
the shareholders, customers and employees of Bank of Tanglewood and the
communities that Bank of Tanglewood serves.
22
The above discussion of the information and factors considered by the Bank
of Tanglewood board is not intended to be exhaustive, but includes the material
factors the Bank of Tanglewood board considered. In reaching its determination
to approve and recommend the merger, the Bank of Tanglewood board did not
assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
Recommendation of the Bank of Tanglewood Board of Directors
The Bank of Tanglewood board of directors believes that the merger is in the
best interests of Bank of Tanglewood and its shareholders. Accordingly, the
Bank of Tanglewood board has unanimously approved the merger agreement and
unanimously recommends that you vote FOR approval of the merger agreement and
the transactions contemplated by the merger agreement.
BOK Financial Reasons for the Merger
In approving the merger agreement and the transactions contemplated by the
merger agreement, including the merger, the BOK Financial board of directors
considered a number of factors, including the following:
. BOK Financial's Growth Strategy. The BOK Financial board of directors
considered that BOK Financial has found that it is more efficient to
develop emerging markets through carefully chosen acquisitions than by
establishing de novo operations. The board of directors felt that the
acquisition of Bank of Tanglewood complemented the current operations of
its subsidiary, Bank of Texas, N.A., in the Houston area.
. Enhanced Service; Benefits to Customers. The BOK Financial board of
directors considered the fact that the acquisition of Bank of Tanglewood
and its three locations will enhance service for Bank of Texas's
customers in the Houston area and that it will allow Bank of Tanglewood
to expand its current customer base into market niches previously
unavailable to Bank of Tanglewood.
. Terms of the Transaction. The BOK Financial board of directors
considered the terms of the transaction as contemplated by the merger
agreement, including the representations and warranties, covenants,
termination provisions and conditions to the merger and found them
acceptable.
. Financial Considerations. The BOK Financial board of directors
considered certain financial issues, including information relating to
the financial condition, results of operations, earnings and businesses
of Bank of Tanglewood, on both a historical and prospective basis.
. Bank of Tanglewood Management Team. The BOK Financial board of directors
considered the quality and experience of the members of Bank of
Tanglewood's existing management team, and the terms and conditions upon
which such persons have generally agreed to remain employed by the
surviving association following the merger.
. Reputation of Bank of Tanglewood. The BOK Financial board of directors
considered the reputation of Bank of Tanglewood for quality customer
service.
. Risk Factors. The BOK Financial board of directors considered certain of
the matters set forth in this proxy statement-prospectus under the
heading "Risk Factors".
The foregoing discussion of the information and factors considered by the
BOK Financial board of directors is not intended to be exhaustive, but includes
the material factors considered by the BOK Financial board of directors. In
view of the variety of factors considered in connection with its evaluation of
the merger, the BOK Financial board of directors did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and recommendation. In
addition, individual directors may have given differing weights to different
factors.
23
Accounting Treatment
Under generally accepted accounting principles, the merger will be accounted
for as a purchase. Under this accounting method, BOK Financial will record Bank
of Tanglewood's assets and liabilities at their fair values, including any
identifiable intangible assets. If the purchase price exceeds the net fair
value of assets acquired, BOK Financial will record the excess as goodwill,
which is not amortized. Instead, goodwill is evaluated annually, or more
frequently if impairment indicators arise, for impairment. BOK Financial will
include the revenues and expenses of Bank of Tanglewood in BOK Financial's
financial statements from the date of the consummation of the merger.
Regulatory Approvals
The parties, being subject to the Bank Holding Company Act of 1956 and the
National Bank Act, are required to receive approval for the merger of Bank of
Tanglewood into TW Interim from the Office of the Comptroller of the Currency,
the Federal Reserve Board and the Texas Department of Banking. Pursuant to the
merger agreement, it is a condition of completion of the merger that the OCC
and the FRB also approve a subsequent merger of the merged Tanglewood/TW
Interim entity into Bank of Texas, N.A., a wholly owned subsidiary of BOK
Financial. BOK Financial filed applications with the FRB, the OCC and the TDB
to obtain approval of the mergers and has subsequently obtained approval from
all three entities and all applicable waiting periods have expired.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which does not include review of the merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed merger.
BOK Financial and Bank of Tanglewood are not aware of any governmental
approvals or compliance with banking laws and regulations that are required for
the merger to become effective other than those described above.
Material U.S. Federal Income Tax Consequences
The following discussion describes the material United States federal income
tax consequences of the exchange of Bank of Tanglewood common stock for BOK
Financial common stock pursuant to the merger. This discussion is based on the
Internal Revenue Code of 1986, as amended, related regulations, existing
administrative interpretations and court decisions, all of which are subject to
change, possibly with retroactive effect. This discussion assumes you hold your
common stock of Bank of Tanglewood as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code. This discussion does not address all
aspects of United States federal income taxation that may be important to you
in light of your particular circumstances or if you are subject to special
rules, such as rules relating to:
. financial institutions;
. regulated investment companies;
. pass through entities;
. mutual funds;
. tax-exempt organizations;
. insurance companies;
. dealers in securities or foreign currencies;
. traders in securities who elect to apply a mark-to-market method of
accounting;
. foreign holders;
24
. persons who hold shares of Bank of Tanglewood common stock as a hedge
against currency risk or as part of a straddle, constructive sale or
conversion transaction; or
. holders who acquired their shares of Bank of Tanglewood common stock upon
the exercise of warrants or employee stock options or otherwise as
compensation.
Completion of the merger is conditioned on the delivery of an opinion to
Bank of Tanglewood from Bracewell & Patterson, L.L.P., stating that, on the
basis of the facts, representations and assumptions set forth in the opinion,
and based on certain representations as to the factual matters to be executed
by appropriate officers of Bank of Tanglewood and BOK Financial, the merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.
This opinion neither binds the Internal Revenue Service or precludes the
Internal Revenue Service from adopting a position contrary to that expressed in
the opinion, and no assurance can be given that contrary positions will not be
successfully asserted by the Internal Revenue Service nor adopted by a court if
the issues are litigated. Neither Bank of Tanglewood or BOK Financial intends
to obtain a ruling from the Internal Revenue Service with respect to the tax
consequences of the merger or the ownership and disposition of benchmark price
protection rights.
Tax Consequences of the Merger. Bracewell & Patterson, L.L.P. has rendered
its opinion subject to the above limitations and on the basis of facts,
representations and assumptions set forth or referred to in the opinion, which
are consistent with the state of facts existing at the effective time of the
merger, that for federal income tax purposes:
. the merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code and Bank of Tanglewood, BOK Financial
and TW Interim will each be a party to the reorganization;
. you will recognize gain, but not loss for United States federal income
tax purposes when you exchange your Bank of Tanglewood common stock for
BOK Financial common stock and the benchmark price protection pursuant to
the merger;
. the amount of gain that you must recognize as a result of the merger, and
on which you will pay taxes, will equal the lesser of the following: (i)
the fair market value of the benchmark price protection that you receive
in the exchange and (ii) the amount of gain you actually realize in the
exchange. The amount of gain you realize in the exchange will equal: (i)
the fair market value of the benchmark price protection plus the fair
market value of the BOK Financial common stock that you receive in the
merger minus (ii) your adjusted tax basis in the Bank of Tanglewood
common stock that you surrendered in the merger;
. any gain you recognize will constitute long term capital gain if your
holding period in your Bank of Tanglewood common stock exceeds one year
at the time of the exchange;
. your aggregate tax basis in the BOK Financial common stock you receive as
a result of the merger will be the same as your aggregate adjusted tax
basis in the Bank of Tanglewood common stock you surrender in the
exchange, increased by any gain you recognize because of the merger;
. the holding period of the BOK Financial common stock you receive as a
result of the exchange, but not including the BOK Financial stock you
might receive because of the benchmark price protection, will include the
period during which you held the Bank of Tanglewood common stock you
exchange in the merger;
. neither BOK Financial, Bank of Tanglewood nor TW Interim National Bank
will recognize gain or loss for federal income tax purposes as a result
of the merger.
Fractional shares of BOK Financial common stock will not be issued in the
merger. Any fractional share will be rounded up to a whole share.
25
Back-up Withholding. Unless an exemption applies under the applicable law
and regulations, the exchange agent must withhold 31% of any cash payments you
are entitled to in the merger. The exchange agent will not withhold this amount
if you provide your tax identification number, social security or employer
identification number and certify that the number is correct. You must complete
and sign the substitute Form W-9 that will be included as part of the
transmittal letter sent by the exchange agent to avoid back-up withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the exchange agent.
Tax Consequences of Ownership and Disposition of Benchmark Price Protection
Rights. The federal income tax consequences to you from the payment at or
before maturity, lapse or disposition of any benchmark price protection that
you receive in the merger will depend upon how the Internal Revenue Service
characterizes the benchmark price protection for federal income tax purposes.
The Internal Revenue Service has taken the position that taxpayers should treat
rights similar to the benchmark price protection as "cash settlement put
options" for federal income tax purposes. However, it is possible that the
benchmark price protection might be treated as debt instruments or in some
other manner. Legislation, regulations, court decisions and revenue rulings
after the merger but prior to payment, lapse or disposition of the benchmark
price protection could affect the federal income tax treatment of the benchmark
price protection. BOK Financial anticipates that it will treat the benchmark
price protection as cash settlement put options for federal income tax
purposes, and the following summary assumes that the Internal Revenue Service
will treat the benchmark price protection as cash settlement put options for
federal income tax purposes, except as specifically noted. For details
regarding the valuation and terms of the benchmark price protection see
"Benchmark Price Protection" on pages 40 and 41.
Unless the straddle rules as described below apply, upon the payment at or
before maturity or sale or exchange of the benchmark price protection,
generally you will recognize capital gain or loss in an amount equal to the
difference between the cash or fair market value of the BOK Financial common
stock paid in respect of the benchmark price protection and your tax basis in
the benchmark price protection. Your tax basis in the benchmark price
protection generally should equal the fair market value of the benchmark price
protection at the time the merger is completed. In the event your benchmark
price protection lapse without any payment to you, you will recognize capital
loss equal to your tax basis in your benchmark price protection. Your capital
gain or loss will be long term if your holding period in the benchmark price
protection is more than one year at the time of payment, lapse, sale or
exchange.
If you hold both benchmark price protection and BOK Financial common stock
at the time of a payment, lapse or disposition of benchmark price protection,
the tax rules dealing with "straddles" may apply to you. A straddle is, in
general terms, offsetting positions in personal property, such as a long and
short position in the same stock. The applicability of the straddle rules to
these circumstances is not clear under current tax law. In the event, however,
that the Internal Revenue Service determines that your benchmark price
protection and your BOK Financial common stock comprise a straddle:
. some or all of the capital loss that you would otherwise recognize on
your BOK Financial common stock may be deferred until a later tax year.
The amount deferred would be equal to the amount by which the fair market
value of the BOK Financial common stock and benchmark price protection
you own exceeds your adjusted tax basis in the BOK Financial common stock
and the benchmark price protection on the last trading day of the tax
year in which you would otherwise recognize the capital loss. The
deferred portion of such loss would be treated as loss incurred in a
later taxable year, the recognition of which would continue to be subject
to the straddle rules;
. if you had a holding period in your BOK Financial common stock of more
than one year when you received your benchmark price protection, some or
all of the capital loss that you would otherwise recognize on the
disposition of your BOK Financial common stock may be deferred, and some
or all of the capital gain that you would recognize on the disposition of
your BOK Financial common stock may be characterized as short term
capital gain instead of long term capital gain, but any capital loss
recognized by you on your benchmark price protection will be long term,
regardless of your holding period in the benchmark price protection;
26
. if you had a holding period in your BOK Financial common stock of one
year or less when you received your benchmark price protection, some or
all of the capital gain or loss that you would otherwise recognize upon a
payment at or before maturity, lapse, sale or exchange of the benchmark
price protection may be short term capital gain or loss instead of long
term capital gain or loss;
. if you had a holding period of one year or less in your BOK Financial
common stock when you received your benchmark price protection , some or
all of the capital loss that you would otherwise recognize on a
disposition of your BOK Financial common stock shares may be deferred and
be short term capital loss instead of long term capital loss;
. you may not be able to deduct interest and carrying charges allocable to
the benchmark price protection or your BOK Financial common stock. Such
items will increase your adjusted tax basis in benchmark price protection
and BOK Financial common stock, respectively;
. since the treatment of contemporaneous ownership of benchmark price
protection and BOK Financial common stock as a straddle is not clear, you
should consult your own tax advisor at the time of payment, lapse or
disposition of the benchmark price protection.
This discussion is not intended to be a complete analysis or description of
all potential United States federal income tax consequences or any other
consequences of the merger. In addition, this discussion does not address tax
consequences which may vary with, or be contingent on, your individual
circumstances. Moreover, this discussion does not address any non-income tax or
any foreign, state or local tax consequences of the merger. Accordingly, you
are strongly urged to consult with your own tax advisor to determine the
particular United States federal, state, local or foreign income or other tax
consequences to you of the merger.
Dissenters' Rights of Appraisal
Holders of shares of Bank of Tanglewood common stock have a statutory right
to dissent from the merger by following the specific procedures set forth
below. If the merger is approved and consummated, holders of shares of Bank of
Tanglewood common stock who properly perfect their dissenters' rights will be
entitled to receive an amount of cash equal to the fair value of their shares
of Bank of Tanglewood common stock rather than being required to accept the
consideration provided in the merger agreement. The following summary is not a
complete statement of the statutory dissenters' rights of appraisal, and such
summary is qualified in its entirety by reference to the applicable provisions
of the National Bank Act, which are reproduced in full at Annex IX to this
proxy statement-prospectus. A Bank of Tanglewood shareholder must follow the
exact procedure required by the National Bank Act in order to properly exercise
his or her dissenter's rights of appraisal and avoid waiver of those rights.
If the merger is approved at the Bank of Tanglewood special meeting, any
Bank of Tanglewood shareholder who has voted against the merger at the special
meeting or who has given notice in writing at or prior to the special meeting
to the presiding officer that he or she dissents from the merger agreement will
be entitled to receive the value of the shares of Bank of Tanglewood held by
him or her when the merger is approved by the OCC by making a written request
to the receiving association at any time before thirty days after the date of
consummation of the merger. At the time the Bank of Tanglewood shareholder
makes the written request, he or she must also surrender his or her
certificates representing the Bank of Tanglewood common stock.
If the Bank of Tanglewood and the dissenting shareholder are not able to
agree on the fair value of his or her stock, the value of the Bank of
Tanglewood common stock owned by any dissenting shareholders shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three people, composed of (1) one selected by the vote of the
holders of the majority of the Bank of Tanglewood common stock for which the
owners request appraisal; (2) one selected by the directors of the receiving
association and (3) one selected by the two so selected. The valuation of the
Bank of Tanglewood common stock agreed upon by any two of the three appraisers
shall govern.
27
If the value so fixed is not satisfactory to any dissenting shareholder who
has requested payment for his or her Bank of Tanglewood common stock, that
shareholder may, within five days after being notified of the appraised value
of his or her shares, appeal to the OCC. The OCC shall cause a reappraisal to
be made which shall be final and binding as to the value of the shares. If
within ninety days from the date of consummation of the merger, for any reason
one or more of the appraisers is not selected, or the appraisers fail to
determine the value of the Bank of Tanglewood common stock, the OCC, upon
written request of any interested party, shall cause an appraisal to be made
which shall be final and binding on all parties.
The expenses of the OCC in making the reappraisal or the appraisal, as the
case may be, shall be paid by the receiving association. The value of the Bank
of Tanglewood common stock ascertained shall be promptly paid to the dissenting
shareholders. The shares of Bank of Tanglewood common stock that would have
been delivered to dissenting shareholders had they not requested payment shall
be sold, and if the shares are sold at a price greater than the amount paid to
the dissenting shareholders, the excess in the sale price shall be paid to the
dissenting shareholders.
Any shareholder who votes against the merger at the special meeting, or who
gives notice in writing at or prior to the special meeting to the presiding
officer of the meeting, that he or she dissents from the merger, will be
notified in writing of the date of consummation of the merger.
The OCC issued Banking Circular 259 which describes the methods used by the
OCC to estimate the value of a bank's shares when a shareholder dissents from a
conversion, merger or consolidation involving a national bank. The following
summary is not a complete statement of Banking Circular 259, and such summary
is qualified in its entirety by reference to the applicable provisions of
Banking Circular 259, which is reproduced in full at Annex IX to this proxy
statement-prospectus.
Through its appraisal process, the OCC attempts to arrive at a fair estimate
of the value of a bank's stock. The OCC reviews the particular facts of each
case and the information on a bank's stock that may be available to it, and
from such review selects an appropriate valuation method, or combination of
methods, to determine a reasonable estimate of the value of shares. The various
valuation methods that the OCC considers are discussed below.
Market Value. If there is sufficient trading in the shares and the prices
are available from direct quotes from the Wall Street Journal or a market
maker, the OCC considers those quotes in determining the market value. If no
market value is readily available, or if the market value available is not well
established, the OCC may use the investment value or adjusted book value
methods of valuation.
Investment Value. The OCC determines investment value by looking at peer
banks, or institutions of comparable size in the same geographic area with
similar earnings patterns. Investment value requires an assessment of the value
to investors of a share in the future earnings of the bank and is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the bank in question.
Adjusted Book Value. Adjusted book value is calculated by multiplying the
book value of the bank's assets, on a per share basis, by the ratio of market
price to book value for comparable banking organizations. That ratio shows
whether the stock of comparable banks sells at a premium or discount to book
value.
The investment value method and the adjusted book value method present
appraised values which are based on the bank's value as a going concern and
provide estimates of the market value of the shares of the bank in question.
The OCC may use more than one of the above-described methods in determining the
value of shares of stock, and if more than one method is used, varying weights
may be applied in reaching an overall valuation. The weight given to the value
by a particular valuation method is based on the OCC's perception of how
accurately the given method is believed to represent market value.
28
Opinion of Bank of Tanglewood's Financial Advisor
The fairness opinion of Bank of Tanglewood's financial advisor, Hovde
Financial, LLC, is described below. The description contains projections,
estimates and/or other forward-looking statements about future earnings or
other measures of the future performance of BOK Financial and Bank of
Tanglewood. Hovde has reviewed and consented to the following description
relating to its opinion. You should not rely on any of these statements as
having been made or adopted by BOK Financial or Bank of Tanglewood.
Bank of Tanglewood engaged Hovde as its financial advisor on March 21, 2002
in connection with a possible transaction involving Bank of Tanglewood. On May
9, 2002 Hovde delivered to the Bank of Tanglewood board of directors its
preliminary written opinion that, as of that date and based upon and subject to
the matters set forth in such opinion, the merger consideration described in
the merger agreement to be received by the holders of Bank of Tanglewood common
stock was fair from a financial point of view to the holders of Bank of
Tanglewood common stock. The written opinion was accompanied by an oral
presentation to the Bank of Tanglewood board of directors regarding the
fairness of the transaction, from a financial perspective. Hovde subsequently
confirmed its preliminary opinion by delivering an updated opinion dated the
date of this proxy statement-prospectus.
Pursuant to an engagement letter between Hovde and Bank of Tanglewood dated
March 21, 2002, Bank of Tanglewood agreed to pay to Hovde a transaction fee
based on the transaction value and conditioned upon completion of a merger.
Assuming the merger is consummated at the merger consideration described in the
merger agreement, Bank of Tanglewood and Hovde estimate that Hovde's
transaction fee will be equal to approximately $450,000. In addition, Bank of
Tanglewood also agreed to reimburse Hovde for its reasonable out-of-pocket
expenses related to its rendering of financial advisory and investment banking
services to Bank of Tanglewood, including the fees and expenses of its legal
counsel. Bank of Tanglewood also agreed to indemnify Hovde and its affiliates,
the respective directors, officers, partners, agents and employees of Hovde and
its affiliates, and controlling persons for certain losses, claims, damages,
liabilities and expenses related to or arising out of its engagement as
financial advisor.
Hovde's opinions were provided to the Bank of Tanglewood board of directors
for its use and benefit and address only the fairness from a financial point of
view of the merger consideration to the holders of Bank of Tanglewood common
stock. Hovde's opinions do not address the merits of the underlying decision by
Bank of Tanglewood to engage in the merger and do not constitute a
recommendation to any shareholder as to how that shareholder should vote at the
special meeting. The amount and form of consideration to be paid in the
transaction was the result of arms-length negotiations between BOK Financial
and Bank of Tanglewood. Hovde's preliminary opinion dated May 8, 2002 and its
presentation to the Bank of Tanglewood board of directors on May 9, 2002 were
among many factors taken into consideration by the Bank of Tanglewood board of
directors in making its determination to approve and recommend the transaction
described in the merger agreement.
Hovde has delivered to Bank of Tanglewood's board its opinion that, based
upon and subject to the various considerations set forth in its updated written
opinion dated the date of this proxy statement-prospectus, the consideration is
fair from a financial point of view to the holders of Bank of Tanglewood common
stock as of such date. In requesting Hovde's advice and opinion, no limitations
were imposed by Bank of Tanglewood upon Hovde with respect to the
investigations made or procedures followed by it in rendering its opinion. The
full text of the opinion of Hovde, dated the date of this proxy
statement-prospectus, which describes the procedures followed, assumptions
made, matters considered and limitations on the review undertaken, is attached
hereto as Annex VIII. Bank of Tanglewood shareholders should read this opinion
in its entirety.
Hovde is a nationally recognized investment banking firm and, as part of its
investment banking business, is continually engaged in the valuation of
financial institutions in connection with mergers and acquisitions, private
placements and valuations for other purposes. As a specialist in securities of
financial institutions, Hovde has
29
experience in, and knowledge of, banks, thrifts and bank and thrift holding
companies. Bank of Tanglewood's board of directors selected Hovde to act as its
financial advisor in connection with the merger on the basis of the firm's
reputation and expertise in transactions such as the merger.
Hovde will receive a fee contingent upon the completion of the merger for
services rendered in connection with advising Bank of Tanglewood regarding the
merger, including the fairness opinion and financial advisory services provided
to Bank of Tanglewood. As of the date of this proxy statement-prospectus, such
fee is approximately $450,000 and Hovde has received $112,500 of such fee.
Hovde's opinion is directed only to the fairness, from a financial point of
view, of the consideration, and does not constitute a recommendation to any
Bank of Tanglewood shareholders as to how the shareholder should vote at the
Bank of Tanglewood meeting. The summary of the opinion of Hovde set forth in
this proxy statement-prospectus is qualified in its entirety by reference to
the full text of the opinion.
The following is a summary of the analyses performed by Hovde in connection
with its fairness opinion. Certain of these analyses were presented to the Bank
of Tanglewood board of directors by Hovde in a preliminary written report and
in an oral presentation on May 9, 2002 and were subsequently updated and
confirmed in its written opinion dated September 19, 2002. The summary set
forth below does not purport to be a complete description of either the
analyses performed by Hovde in rendering its opinion or the presentation made
by Hovde to the Bank of Tanglewood board of directors, but it does summarize
all of the key material analyses performed and presented by Hovde.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances. In arriving at
its opinion, Hovde did not attribute any particular weight to any analysis and
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Hovde may have given
various analyses more or less weight than other analyses. Accordingly, Hovde
believes that its analyses and the following summary must be considered as a
whole and that selecting portions of its analyses, without considering all
factors and analyses, could create an incomplete view of the process underlying
the analyses set forth in its report to the Bank of Tanglewood board and its
fairness opinion.
In performing its analyses, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Bank of Tanglewood and BOK
Financial. The analyses performed by Hovde are not necessarily indicative of
actual value or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as part of Hovde's analysis of the fairness of the consideration, from a
financial point of view, to the Bank of Tanglewood shareholders. The analyses
do not purport to be an appraisal or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at the
present time or at any time in the future. Hovde's opinion does not address the
relative merits of the merger as compared to any other business combination in
which Bank of Tanglewood might engage. In addition, as described above, Hovde's
opinion to the Bank of Tanglewood board was one of many factors taken into
consideration by the Bank of Tanglewood board in making its determination to
approve the merger agreement.
During the course of its engagement, and as a basis for arriving at its
opinion, Hovde reviewed and analyzed material bearing upon the financial and
operating condition of Bank of Tanglewood and BOK Financial and material
prepared in connection with the merger, including, among other things, the
following: the merger agreement; certain historical publicly available
information concerning Bank of Tanglewood and BOK Financial, including as
applicable: Bank of Tanglewood and BOK Financial's audited consolidated
financial statements, documents filed with the Securities and Exchange
Commission, the Federal Deposit Insurance Corporation, the Federal Reserve, and
other state or other regulatory agencies; recent internal reports and
projections regarding Bank of Tanglewood; the nature and terms of recent sale
and merger transactions involving banks and bank
30
holding companies that Hovde considered relevant, as well as its knowledge of
the commercial banking industry and its general experience in securities
valuations; and financial information provided to us by the management teams of
both Bank of Tanglewood and BOK Financial.
In rendering the fairness opinion, Hovde assumed and relied upon the
accuracy and completeness of the financial and other information provided to it
by Bank of Tanglewood or BOK Financial without assuming any responsibility for
independent verification of such information and further relied upon the
assurance of the managements of BOK Financial and Bank of Tanglewood that they
were not aware of any facts or circumstances that would make such information,
provided by them, inaccurate or misleading. With respect to financial
statements and/or projections to the extent such were provided by Bank of
Tanglewood and BOK Financial, Hovde assumed that such financial statements
and/or projections were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the respective managements of
Bank of Tanglewood and BOK Financial. Hovde assumed that the merger would be
accounted for using the purchase method of accounting. In rendering the
fairness opinion, Hovde did not conduct a physical inspection of the properties
and facilities of Bank of Tanglewood or BOK Financial and did not make or
obtain any evaluations or appraisals of the assets or liabilities of Bank of
Tanglewood or BOK Financial. In addition, Hovde noted that it is not an expert
in the evaluation of loan portfolios or allowances for loan, lease or real
estate owned losses, and it assumed that the allowances for loan, lease and
real estate owned losses (as currently stated or as adjusted for in connection
with the merger or otherwise) provided to it by Bank of Tanglewood and used by
it in its analysis and in rendering its fairness opinion were in the aggregate
adequate to cover all such losses. The fairness opinion was based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date the fairness opinion.
Merger Value Analysis. The total value of the consideration offered by BOK
Financial to Bank of Tanglewood is $65.0 million in BOK Financial common stock.
This $65.0 million merger consideration includes approximately $450,000 to be
paid to Hovde as Bank of Tanglewood's financial advisor and assumes the
issuance to Bank of Tanglewood shareholders of the $750,000 in BOK Financial
common stock to be placed into the escrow account to compensate BOK Financial
for any breaches in representations and warranties of Bank of Tanglewood in the
merger agreement which are discovered between completion of the merger and
December 31, 2003. The $65 million merger consideration excludes the value of
the benchmark price protection rights. The value of the stock has been
supplemented by the benchmark price protection provision. The benchmark price
protection was not taken into consideration by Hovde in rendering its fairness
opinion. Hovde calculated the price-to-book value, the price-to-last twelve
months earnings multiple (LTM), the price-to-assets, and the premium-to-core
deposits using the following values as of December 31, 2001 for Bank of
Tanglewood: Book Value of $15,672,000; Twelve Months Trailing Earnings of
$2,024,000; Total Assets of $250,204,000; and Total Core Deposits of
$191,601,000. The deal value metrics equate to 432.0% of tangible book value,
32.1x LTM earnings, 26.0% of assets and 25.8% premium to core deposits.
31
Analysis of Selected Mergers. As part of its analysis, Hovde reviewed
comparable mergers involving banks in the west and southwest (states for
southwest and west include CO, LA, NM, OK, TX, AK, AZ, CA, HI, ID, MT, NV, OR,
WA, WY) announced between June 30, 2000 and September 10, 2002 in which the
selling institution had assets between $150 million and $500 million and a
return on assets of at least 1.0% and a return on equity of at least 10.0% over
the last twelve months. This merger group ("Merger Group 1") consisted of the
following 23 transactions:
Buyer Seller
----- ------
Union BanCal Corp. (CA) First Western Bank (CA)
SouthTrust Corp. (AL) Landmark Bancshares Inc. (TX)
Business Bancorp (CA) MCB Financial Corp. (CA)
Regions Financial Corp. (AL) First Bancshares of Texas Inc. (TX)
National Mercantile Bancorp (CA) South Bay Bank, N.A. (CA)
Boston Private Financial (MA) Borel Bank & Trust Co. (CA)
Investor Group (IL) First Bancorp of Durango, Inc. (CO)
Mid-State Bancshares (CA) Americorp (CA)
Texas Financial Bancorp. (MN) First National Bank (TX)
SouthTrust Corp. (AL) Bay Bancshares Inc. (TX)
Sterling Bancshares Inc. (TX) Camino Real Bankshares of Texas, Inc. (TX)
Southwest Bancorp. Of Texas (TX) Citizens Bankers Inc. (TX)
Zions Bancorp. (UT) Draper Bancorp (UT)
First Banks Inc. (MO) San Francisco Co. (CA)
Humboldt Bancorp (CA) Tehama Bancorp (CA)
Whitney Holding Corp. (LA) American Bank (TX)
BOK Financial Corp. (OK) CNBT Bancshares Inc. (TX)
Umpqua Holdings Corp. (OR) VRB Bancorp (OR)
First State Bancorporation (NM) First Community Industrial Bank (CO)
First Fed Financial Corp. (CA) City Holding's two CA Subsidiaries (CA)
Pacific Northwest Bancorp (WA) Bank of the Northwest (OR)
UnionBanCal Corporation (CA) Valencia Bank & Trust (CA)
Wells Fargo & Company (CA) Tejas Bancshares (TX)
Hovde also reviewed comparable mergers involving banks headquartered in
Texas announced between January 1, 2001 and September 10, 2002, in which
purchase accounting methods were used. This merger group ("Purchase Merger
Group") consisted of the following 34 transactions:
Buyer Seller
----- ------
Texas Financial Bancorp (MN) First National Bank (TX)
Henderson Citizens Bancshares (TX) Rusk County Bancshares, Inc. (TX)
Mercantile Bancorp Inc. (TX) Townbank, N.A. (TX)
County Bancshares, Inc. (TX) Newton Bancshares, Inc. (TX)
First Financial Bankshares, Inc. (TX) City Bancshares, Inc. (TX)
First National Bank Group, Inc. (TX) Alamo Corporation of Texas (TX)
Incus Company, Ltd. (VI) Del Rio National Bancshares, Inc. (TX)
Whitney Holding Corporation (LA) Redstone Financial, Inc. (TX)
Olney Bancshares of Texas, Inc. (TX) Friona State Bank (TX)
International Bancshares Corp. (TX) National Bancshares Corp. of Texas (TX)
Regions Financial Corp. (AL) First Bancshares of Texas, Inc. (TX)
Texas Regional Bancshares, Inc. (TX) Riverway Holdings, Inc. (TX)
Sterling Bancshares, Inc. (TX) Community Bancshares, Inc. (TX)
Texas United Bancshares, Inc. (TX) Bryan-College Station Financial HC (TX)
Baylor Bancshares, Inc. (TX) Citizens State Bank (TX)
Colonial BancGroup, Inc. (AL) Mercantile Bancorp, Inc. (TX)
Wells Fargo & Co. (CA) Tejas Bancshares, Inc. (TX)
32
Buyer Seller
----- ------
SouthTrust Corp. (AL) Landmark Bancshares, Inc. (TX)
Regions Financial Corp. (AL) Brookhollow Bancshares, Inc. (TX)
Regions Financial Corp. (AL) Independence Bank, N.A. (TX)
First Community Capital Corp. (TX) Express Bank (TX)
Prosperity Bancshares, Inc. (TX) Texas Guaranty Bank, N.A. (TX)
Industry Bancshares (TX) Coupland Bancshares Inc. (TX)
Private Investor Group Kenco Bancshares, Inc. (TX)
Private Investor Group Sanderson State Bank (TX)
LubCo Bancshares, Inc. (TX) Shamrock Bancshares, Inc. (TX)
McLaughlin Bancshares, Inc. (TX) First Hale Center, Inc. (TX)
Outsource Capital Group (TX) First Citizens Bank, NA (TX)
Pinnacle Bancorp, Inc. (NE) Keene Bancorp, Inc. (TX)
Prosperity Bancshares, Inc. (TX) First State Bank (TX)
Prosperity Bankshares, Inc. (TX) Paradigm Bancorporation, Inc. (TX)
Regions Financial Corp. (AL) Independent Bank, NA (TX)
Smith Investor Group (TX) First Bank & Trust Company (TX)
Sterling Bancshares, Inc. (TX) ENB Bankshares, Inc. (TX)
Hovde calculated the medians for "Merger Group 1" and averages for the
"Purchase Merger Group" for the following relevant transaction ratios: the
percentage of the offer value to the acquired company's total assets; the
multiple of the offer value to the acquired company's earnings per share for
the twelve months preceding the announcement date of the transaction; the
multiple of the offer value to the acquired company's tangible book value per
share; and the tangible book value premium to core deposits, each as of the
announcement date of the transaction. Hovde compared these multiples with the
corresponding multiples for the proposed Bank of Tanglewood merger. In
calculating the multiples for the merger, Hovde used Bank of Tanglewood's
earnings per share for the 12 months ended December 31, 2001 and Bank of
Tanglewood's tangible book value per share, total assets and total deposits as
of December 31, 2001. The results of this analysis are as follows:
Offer Value to:
---------------------------
12 months Ratio of Tangible
Tangible Preceding Book Value
Total Book Value Earnings Premium to Core
Assets Per Share Per Share Deposits
(%) (x) (x) (%)
------ ---------- --------- -----------------
Bank of Tanglewood........... 25.98 4.32 32.11 25.75
Merger Group 1 High.......... 31.76 3.69 23.94 32.14
Merger Group 1 Median........ 22.57 2.67 17.61 19.64
Merger Group 1 Low........... 11.67 1.37 9.10 4.58
Purchase Merger Group High... 29.83 5.13 57.56 34.61
Purchase Merger Group Average 17.75 2.11 22.35 11.91
Purchase Merger Group Low.... 7.85 1.12 10.42 1.48
33
Comparable Company Analysis. Using publicly available information, Hovde
compared the financial performance and potential stock market valuation for BOK
Financial with the following publicly traded banks located in the United States
with assets between $5 billion and $20 billion that have a return on average
assets greater than 1.0% and a return on average equity greater than 10.0% over
the last twelve months and price-to-Institutional Brokers Estimate System
estimated 2002 earnings greater than 13 times :
Total Assets
Company Name ($Thousands)
------------ ------------
Associated Banc-Corp (WI)............ 14,327,900
City National Corporation (CA)....... 11,217,349
Commerce Bancorp, Inc. (NJ).......... 12,484,633
Community First Bankshares, Inc. (ND) 5,657,926
First Midwest Bancorp, Inc. (IL)..... 5,842,789
First Tennessee National Corp. (TN).. 19,608,817
Greater Bay Bancorp (CA)............. 8,330,025
Hudson United Bancorp (NJ)........... 6,825,218
North Fork Bancorporation, Inc. (NY). 17,156,577
Old National Bancorp (IN)............ 9,169,075
Sky Financial Group Inc. (OH)........ 9,461,000
Synovus Financial Corp. (GA)......... 16,725,734
TCF Financial Corporation (MN)....... 11,170,583
Trustmark Corporation (MS)........... 6,771,435
United Bankshares, Inc. (WV)......... 5,557,581
Valley National Bancorp (NJ)......... 8,850,659
Wilmington Trust Corporation (DE).... 7,420,487
Indications of such financial performance and potential stock market
valuation included profitability (return on average assets and return on
average equity) for December 31, 2001, the ratio of tangible equity to tangible
assets (TER) and non-performing assets (NPAs) to total assets at December 31,
2001 and market prices as of April 25, 2002.
Market Capitalization Assessment Performance Metrics Valuation Metrics
-------------------------------- ---------------------- ----------------------------------
NPAs/ Price to Price to
ROAA ROAE TER Assets Tang. Book LTM Price to Total
(%) (%) (%) (%) Value (x) EPS (x) Assets (%)
---- ----- ---- ------ ---------- -------- --------------
BOK Financial................ 1.16 14.96 6.59 0.58 2.52 16.22 16.03
Comparable Company Average... 1.62 19.00 6.70 0.52 4.51 16.90 23.80
Discounted Earnings Analysis. Hovde estimated the present value of the Bank
of Tanglewood by starting with earnings of $2.0 million in 2001 and assuming a
8.0% annual growth rate in earnings and a 10.0% annual growth rate in assets
through 2007 (resulting in net income of $3.4 million, $3.9 million, $4.8
million, $5.2 million, $5.8 million and $6.3 million in 2002, 2003, 2004, 2005,
2006, and 2007 respectively). In arriving at the present value of Bank of
Tanglewood's earnings stream at the end of 2007, Hovde assumed an annual
discount rate of 16.0%. This analysis and its underlying assumptions yielded a
range of values for Bank of Tanglewood of approximately $37.7 million to $61.5
million compared to a total merger consideration of $65.0 million offered by
BOK Financial.
The $65.0 million merger consideration includes approximately $450,000 to be
paid to Hovde as Bank of Tanglewood's financial advisor and assumes the
issuance to Bank of Tanglewood shareholders of the $750,000 in BOK Financial
common stock to be placed into the escrow account to compensate BOK Financial
for any breaches in representations and warranties of Bank of Tanglewood in the
merger agreement which are discovered between completion of the merger and
December 31, 2003. The $65 million merger consideration excludes the value of
the benchmark price protection rights and such value is not considered for
purposes of this analysis.
34
Contribution Analysis. Hovde prepared a contribution analysis showing
percentages of assets, loans, deposits, common equity, tangible equity, cash
earnings and generally accepted accounting principles (GAAP) earnings based on
December 31, 2001 financial data for Bank of Tanglewood and BOK Financial that
would be contributed to the combined company on a pro forma basis by Bank of
Tanglewood and BOK Financial.
BOK Financial Bank of Tanglewood
------------- ------------------
Total Assets......... 98.14% 1.86%
Total Deposits....... 96.89% 3.11%
Total Equity......... 98.14% 1.86%
Total Tangible Equity 97.36% 2.64%
Cash Earnings........ 97.67% 2.33%
GAAP Earnings........ 97.30% 2.70%
Conclusion. Based upon the foregoing analyses and other investigations and
assumptions set forth in its opinion, without giving specific weightings to any
one factor or comparison, Hovde determined that the consideration was fair from
a financial point of view to the Bank of Tanglewood shareholders.
Directors and Management Following the Merger
After the merger, the combined TW Interim National Bank and Bank of
Tanglewood, N.A. will be known as Bank of Tanglewood, N.A. and will be
headquartered in Houston, Texas. The Bank of Tanglewood management and board of
directors will continue to manage the business of Bank of Tanglewood. The
management and board of directors of BOK Financial shall remain unchanged
following the merger, with the exception of Robert G. Greer, who shall be
appointed as an advisory member of the BOK Financial board of directors and
thereafter nominated for election as a voting director of BOK Financial at the
2003 annual meeting of shareholders. Subsequent to the merger, Mr. Greer will
also be elected a director of Bank of Texas, N.A., a wholly owned subsidiary of
BOK Financial.
Robert G. Greer, age 68, is the chairman of the board of directors of Bank
of Tanglewood, a position he has held since Bank of Tanglewood opened in
December 1996. From 1985 to 1995 he served as chairman of the board of
Tanglewood Bank, N.A., and then as vice chairman of the board of Northern Trust
Bank of Texas from 1995 to 1996.
Executive Compensation
The following table provides certain summary information concerning
compensation paid to or accrued by Bank of Tanglewood to or on behalf of Bank
of Tanglewood's Chairman of the Board, Robert G. Greer:
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------
Other
Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
--------------------------- ---- ------- ------- ------------ ------------
Robert G. Greer......... 2001 $75,000 $40,937 $13,448(1) $3,682(2)
Chairman of the Board
--------
(1) Consists of a car allowance of $6,900 and club dues of $6,548.
(2) Consists of contributions made by Bank of Tanglewood to its 401(k) Plan for
the benefit of Mr. Greer.
35
Financial Interests of Bank of Tanglewood Directors and Officers in the Merger
Certain of Bank of Tanglewood's directors and executive officers have
interests in the merger as individuals in addition to, and that may be
different from, your interests as shareholders. Each of the Bank of Tanglewood
board of directors and the BOK Financial board of directors was aware of these
interests of certain Bank of Tanglewood directors and executive officers and
considered them in its decision to adopt the merger agreement.
Stock Option Plan. A stock option plan was adopted by the Bank of
Tanglewood board of directors and approved by shareholders in November 1996.
The plan has been amended on several occasions. Subject to adjustment as
provided in the plan, there are currently 173,000 shares of common stock
reserved for issuance pursuant to the exercise of options granted under the
plan. A total of 166,950 options are presently outstanding to bank officers and
employees at exercise prices ranging from $10.00 and $35.00 per share. Of these
options, 121,250 have vested, and are currently exercisable in accordance with
their terms. Under the terms of the stock option plan, the unvested options
will become vested options on the effective date of the merger.
Pursuant to the terms of the merger agreement, each option holder has
executed an amendment to his or her respective stock option agreement to
provide that any outstanding incentive option shall no longer be an incentive
option for purposes of the Internal Revenue Code, that each option shall expire
120 days after the completion of the merger and that the optionee shall not
exercise the option until after completion of the merger. The exercise of the
options by the optionees will increase the capital of BOK Financial by the
amount of the aggregate exercise price (approximately $2.3 million) and result
in a compensation expense deduction of approximately $7.6 million for BOK
Financial and a corresponding amount of compensation income to the persons
exercising such options. In consideration of the amendment of the stock option
agreements by the option holders, the merger agreement allows Bank of
Tanglewood to pay to the option holders on a pro rata basis an aggregate amount
of $740,000.
Phantom Stock Agreements. In November 2001 and March 2002, Bank of
Tanglewood entered into Phantom Stock Agreements with 11 of its officers. These
agreements were established as part of the bank's long-term incentive
compensation programs for its officers and employees. While no shares of bank
stock will be issued under the agreements, the grantees are entitled to certain
cash payments calculated pursuant to the terms of the agreements.
Under these agreements, each participant was granted a number of shares of
"phantom stock" with an "award value" per share; the award value was $25 per
share in the case of Messrs. Greer, Jochetz and Tidwell and $30 to $35 per
share for the other officers. Each agreement provides that 20% of the shares of
phantom stock will vest on the fourth anniversary of the agreement and
thereafter 20% will vest on each of the next four anniversaries. However, upon
a change in control of the bank, such as the merger with BOK Financial, the
normal vesting schedule of the phantom stock shares is accelerated and each
owner of phantom shares becomes entitled to payment for such shares. The amount
paid by the bank for each share of phantom stock is equal to the amount that
the value of one share of bank common stock exceeds the award value. If the
merger with BOK Financial is completed, the aggregate amount to be paid
pursuant to the Phantom Stock Agreements will be $2,069,305, with Messrs.
Greer, Jochetz and Tidwell receiving an aggregate of $1,532,260 of the total
amount of payments.
Employment Agreement Summary. Bank of Tanglewood and BOK Financial entered
into employment agreements with Messrs. Greer, Jochetz and Tidwell, as well as
several other officers, on May 15, 2002 concurrently with the execution of the
merger agreement. Implementation of the employment agreements is subject to the
condition that BOK Financial shall have acquired Bank of Tanglewood in
accordance with the terms of the merger agreement.
Each employment agreement provides the terms of employment for each
executive, including the duration of the employment agreement, title and
duties, compensation and benefits, termination provisions and non-
36
competition and non-solicitation provisions (except that Mr. Tidwell's contract
does not contain non-competition and non-solicitation provisions). The
executives will be employed by Bank of Tanglewood following its acquisition by
BOK Financial and subsequently by Bank of Texas after Bank of Tanglewood is
merged into Bank of Texas, N.A.
If an executive's employment is terminated "without cause" during the term
of the employment agreement, the executive will continue to receive the annual
salary provided in the agreement, any "mandatory" performance compensation and
employee benefits for the remainder of the contract term, and any unvested
stock options which would otherwise have vested during the term of the contract
shall vest at the termination date and be exercisable by the executive. An
executive's employment may also be terminated "for cause", defined in the
employment agreement to include such things as:
. willful failure to substantially perform the obligations under the
agreement;
. commission of any act which is intended to materially injure the bank;
. conviction of any criminal act or act involving moral turpitude;
. commission of any dishonest or fraudulent act which bank reasonably deems
material to the bank or its reputation;
. refusal to obey written orders or instructions of the chief executive
officer of the bank, unless those instructions would require the
executive to commit an illegal act which would subject the executive to
personal liability, require the executive to violate the terms of his
employment agreement or otherwise be inconsistent with the duties of an
officer of a national bank.
The majority of the board of directors of the bank must determine (after
giving the executive an opportunity to be heard) that the executive has
committed one of these acts to have cause for termination. Upon a termination
for cause, any compensation and benefits will be paid to the executive only
through the date of termination. Terminations due to death or an extended
illness are treated similar to terminations for cause.
The contracts of Messrs. Jochetz and Greer contain non-competition and
non-solicitation provisions that govern such executives' actions following
termination of employment. With respect to such provisions, both executives
will receive separate additional consideration of $10,000 upon completion of
the merger.
The non-competition provisions provide that for a period of two years after
termination, an executive shall not engage in the banking business or any
business in which the bank or an affiliate of the bank has engaged in Harris
County, Texas or in any county in which the bank maintains a banking office for
which such executive has supervisory authority, or any counties contiguous to
any such counties. Mr. Jochetz's agreement (but not Mr. Greer's) further
provides that if his employment is terminated without cause following a change
of control (as defined in the employment agreement) of the bank, the
non-competition provisions shall, at his option, no longer be applicable.
The non-solicitation provisions in Mr. Jochetz's contract provide that for a
period of three to five years following termination (depending on the length of
time which Mr. Jochetz has been employed by Bank of Tanglewood or its
successors prior to his termination of employment), he cannot contact or
solicit individuals or entities who were clients of the Bank of Tanglewood or
its affiliates in the same geographic area covered by the non-competition
provisions for the purpose of providing banking services or contact or solicit
employees of the bank or its affiliates to seek employment with any person or
entity other than the bank or its affiliates. Mr. Greer has agreed to a
five-year non-solicitation term.
For each year in which both the non-competition and non-solicitation clauses
are in effect, Mr. Jochetz will receive a payment equal to 75% of his annual
salary at the date of termination of his employment, and Mr. Greer will be paid
$50,000 annually. In addition, Mr. Greer will be paid $25,000 per year for each
year that only the non-solicitation agreement is in effect and Mr. Jochetz will
be paid 29% of his annual salary at the date of termination for each year that
only the non-solicitation agreement is in effect.
37
Set forth below is a summary of the compensation provisions and certain
other terms of the respective employment agreements for Bank of Tanglewood's
executive officers:
Robert G. Greer will serve as Chairman of the Board of Directors of Bank of
Tanglewood (and subsequently as Vice Chairman of the Board of Directors of the
Bank of Texas) at an annual salary of $106,500 (with a 3% per annum increase)
for a term of five years; performance bonus in the amount of at least $45,000
for the years 2002 through 2007. Mr. Greer will also be entitled to participate
in the BOK Financial stock option plan with a grant of options to acquire at
least 3,000 shares of BOK Financial common stock in 2002 and will receive other
customary benefits.
Richard W. Jochetz will serve as President and Chief Executive Officer of
the Tanglewood Division of Bank of Texas at an annual salary of $172,000 (with
a 3% per annum increase) for a term of three years; performance bonus in the
amount of at least $70,000 for 2002 and $70,000 for 2003. Mr. Jochetz will also
be entitled to participate in the BOK Financial stock option plan with a grant
of options to acquire at least 5,000 shares of BOK Financial common stock in
2002 and will receive other customary benefits.
James L. Tidwell will serve as Executive Vice President and Chief Financial
Officer of the Tanglewood Division of Bank of Texas at an annual salary of
$135,500 (with a 3% per annum increase) for a term of eighteen months;
performance bonus in the amount of at least $58,000 for 2002 and will receive
other customary benefits.
Indemnification and Insurance. The merger agreement generally provides that
BOK Financial will indemnify and hold harmless present and future directors,
officers and employees of Bank of Tanglewood to the fullest extent allowable by
the provisions of the BOK Financial amended and restated certificate of
incorporation and bylaws. BOK Financial will also cause Bank of Tanglewood to
purchase an extended discovery period under the existing Bank of Tanglewood
directors and officers liability policy, or provide a comparable policy, for
three years following the closing of the merger. The indemnification rights, as
well as the limitation of liability existing in favor of such persons in the
Bank of Tanglewood's articles of association, continue after the closing with
respect to claims arising from facts or events that occurred before the closing.
Employee Benefits. After the effective time of the merger, BOK Financial
will provide to officers and employees of Bank of Tanglewood who become
officers or employees of BOK Financial or one of its subsidiaries, employee
benefits under employee benefit plans (other than stock option or other plans
involving the potential issuance of BOK Financial common stock) on terms and
conditions that, taken as a whole, are substantially similar to those currently
provided by BOK Financial and its subsidiaries to their similarly situated
officers and employees. For purposes of participation and vesting (but not
accrual of benefits) under employee benefit plans for which Bank of Tanglewood
had a substantially similar employee benefit plan, service with Bank of
Tanglewood prior to the effective time of the merger will be treated as service
with BOK Financial or its subsidiaries. With regard to BOK Financial employee
benefit plans for which there was no Bank of Tanglewood equivalent, service
with Bank of Tanglewood prior to the effective time of the merger will not be
treated as service with BOK Financial and its subsidiaries. The merger
agreement further provides that BOK Financial will cause the bank to honor all
employment, severance, consulting and other compensation contracts previously
disclosed to BOK Financial between Bank of Tanglewood and any current or former
director, officer or employee, and all provisions for vested amounts earned or
accrued through the effective time of the merger under Bank of Tanglewood's
benefit plans.
New BOK Financial Director and Bank of Texas Director. BOK Financial has
agreed to elect Mr. Greer as an advisory member to the BOK Financial board of
directors until he may be nominated to be a voting director for the 2003 annual
BOK Financial shareholders meeting. Mr. Greer is also to be elected as a
director of Bank of Texas, a wholly owned subsidiary of BOK Financial.
Transferability of Shares of BOK Financial Common Stock
All shares of BOK Financial common stock that Bank of Tanglewood
shareholders will receive in the merger will be freely transferable, except for
shares of BOK Financial common stock that are received by
38
persons who are deemed to be "affiliates" of Bank of Tanglewood under the
Securities Act at the time of the Bank of Tanglewood shareholder meeting.
Persons who may be deemed to be affiliates of Bank of Tanglewood for the above
purposes generally include individuals or entities that control, are controlled
by or are under common control with Bank of Tanglewood, and include directors
and certain executive officers of Bank of Tanglewood.
Persons considered affiliates may resell the shares of BOK Financial common
stock they receive in the merger only pursuant to an effective registration
statement, in transactions permitted by Rule 145 adopted by the SEC under the
Securities Act or as otherwise permitted under the Securities Act. Under Rule
145, during the first calendar year after the merger becomes effective,
affiliates of Bank of Tanglewood may publicly resell the BOK Financial common
stock they receive in the merger, but only within certain limitations as to the
number of shares they can sell in any three-month period and as to the manner
of sale. After the one-year period, affiliates of Bank of Tanglewood who are
not affiliates of BOK Financial may resell their shares without restriction as
long as BOK Financial continues to satisfy its reporting requirements under the
Securities Exchange Act of 1934. The merger agreement requires that Bank of
Tanglewood use commercially reasonable efforts to cause each of these
affiliates to deliver to BOK Financial, within 30 days of the closing date (and
in any event prior to the effective time), a written agreement to the effect
that these persons will not sell, transfer or otherwise dispose of any of the
shares of BOK Financial common stock issued to them in the merger in violation
of the Securities Act or the related SEC rules.
This document does not cover any resales of the BOK Financial common stock
received in the merger, and no person is authorized to make any use of this
document in connection with any such resales.
39
THE MERGER AGREEMENT
The following information summarizes the material terms of the merger
agreement, as amended, a conformed copy of which is attached as Annex I to this
document and is incorporated herein by reference. We urge you to read the
merger agreement in its entirety for a more complete description of the terms
and conditions of the merger.
The Merger
Under the merger agreement, Bank of Tanglewood will merge with TW Interim
National Bank, a wholly-owned subsidiary of BOK Financial. The merger will
become effective on the date which is five business days after the first day on
which BOK Financial may complete the acquisition under applicable law and the
merger of the resulting bank into Bank of Texas, N.A. may be consummated.
Conversion Ratio
At the time of the merger, each share of Bank of Tanglewood common stock
shall automatically be converted into that number of shares of BOK Financial
common stock equal to the conversion ratio. The conversion ratio equals (1) a
number of shares of BOK Financial common stock having an aggregate market value
of $65,000,000 (less $450,000 in transaction costs) divided by the 30 day
average trading price of BOK Financial common stock, divided by (2) the total
number of shares of Bank of Tanglewood common stock outstanding and shares
reserved for issuance pursuant to outstanding stock options. For these
purposes, the 30-day average trading price is the average of the mid-points
between the highest price and the lowest price at which a trade occurs (or, in
the event of a single trade, the price of such trade) for BOK Financial common
stock on NASDAQ on the 30 trading days on which at least one trade actually
occurred, immediately preceding the merger closing date.
Based upon the average trading price of BOK Financial common stock for the
30 trading days ending on September 17, 2002 of $32.84, Bank of Tanglewood
shareholders and option holders would receive up to 1.72 shares of BOK
Financial common stock for each share of Bank of Tanglewood common stock they
own or may acquire by exercising options. Of this amount, 1,658,411 shares of
BOK Financial common stock will be issued upon completion of the merger and
22,838 shares would be deposited into an escrow account for possible future
distribution to Bank of Tanglewood shareholders and exercising option holders.
Exchange of Shares
As soon as practicable after the effective time of the merger, the exchange
agent, SunTrust Bank, will mail you a letter of transmittal and instructions
for exchanging your Bank of Tanglewood stock certificates for BOK Financial
stock certificates. You should not send in your certificates until you receive
a letter of transmittal and instructions.
Fractional shares of BOK Financial common stock will not be issued to
holders of Bank of Tanglewood common stock. For each fractional share of BOK
Financial common stock that would otherwise be issued, the holder will instead
receive a full share of BOK Financial common stock.
After you surrender to the exchange agent one or more certificates for Bank
of Tanglewood common stock, together with a properly completed letter of
transmittal, the exchange agent will (1) issue and mail to the holder a
certificate representing the number of whole shares of BOK Financial common
stock to which the holder is entitled and (2) issue and mail to Bank of Texas,
as escrow agent, the $750,000 in shares of BOK Financial common stock to be
held in escrow pursuant to the escrow agreement. The exchange agent may issue a
certificate for BOK Financial common stock in a name other than the name in
which the surrendered certificate is registered only if (a) the certificate
surrendered is properly endorsed or is otherwise in proper form for transfer
and (b) the
40
person requesting the issuance of the certificate either pays to the exchange
agent any transfer or other taxes required by the issuance of a certificate for
shares in a name other than the registered holder of the certificate
surrendered or establishes to the satisfaction of the exchange agent that the
taxes have been paid or are not due.
All BOK Financial common stock issued in the merger will be deemed issued as
of the effective time of the merger. No dividends with respect to the BOK
Financial common stock with a record date after the effective time will be paid
to the former shareholders of Bank of Tanglewood entitled to receive
certificates for shares of BOK Financial common stock until such shareholders
surrender their certificates representing shares of Bank of Tanglewood common
stock. After the certificates are surrendered, BOK Financial will pay the
shareholder of record any dividends, without any interest thereon, which become
payable with respect to the shares of BOK Financial common stock represented by
the certificate, other than those shares to be held in escrow. If your
certificate for Bank of Tanglewood common stock is lost, stolen or destroyed,
the exchange agent will issue the shares of BOK Financial common stock upon
your submission of an affidavit by you claiming the certificate to be lost,
stolen or destroyed.
Upon completion of the merger, you will cease to have any rights as a
shareholder of Bank of Tanglewood. Until so surrendered, each certificate will
be deemed for all corporate purposes to represent and evidence solely the right
to receive the consideration to be paid pursuant to the merger agreement.
Neither BOK Financial, Bank of Tanglewood, the exchange agent nor any other
party will be liable to any holder of certificates for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Benchmark Price Protection
BOK Financial will provide benchmark price protection for 50% of the shares
to be issued in the merger (including BOK Financial common stock to be issued
pursuant to Bank of Tanglewood stock options). This benchmark price protection
consists of the following:
. Following each benchmark period, BOK Financial will, subject to the
limitations described below, make a benchmark payment to the former Bank
of Tanglewood shareholders and stock option holders who sold BOK
Financial common stock received in the transaction.
. The benchmark price protection is limited at each benchmark date to 10%
of the total BOK Financial shares received by such holder in the
transaction. If you do not exercise your 10% benchmark price protection
in any benchmark period, you will not be able to carry forward that 10%
benchmark price protection right into subsequent benchmark periods.
. The benchmark payment will be an amount equal to the difference between a
benchmark target price and the price at which the former Bank of
Tanglewood shareholder or stock option holder sold the BOK Financial
common stock issued in the merger or pursuant to stock option exercises.
Sales must be made during the benchmark period which is the sixty
calendar day period immediately following each benchmark date.
. BOK Financial may make the benchmark payment either in cash or in BOK
Financial common stock. BOK Financial is not obligated to issue cash. In
the event BOK Financial elects to issue stock, the total number of shares
of BOK Financial common stock that BOK Financial is obligated to issue,
for all benchmark dates to all such holders, is limited to 10,000,000.
If, as of any benchmark date, BOK Financial has already issued 10,000,000
shares, BOK Financial is not obligated to make any further benchmark
payment.
. The benchmark dates are the first, second, third, fourth and fifth
anniversary dates of the closing of the merger. We currently anticipate
that the closing of the merger will occur on or about October 25, 2002,
but this is subject to change.
41
. The benchmark target price is the BOK Financial common stock market value
(as defined in the merger agreement) on the closing date times the
applicable benchmark price multiple, as follows:
Benchmark
Benchmark Date Price Multiple
-------------- --------------
First..... 1.08
Second.... 1.16
Third..... 1.24
Fourth.... 1.32
Fifth..... 1.40
. To be eligible for a benchmark payment, the former Bank of Tanglewood
shareholders or stock option holders must advise BOK Financial, not later
than 75 calendar days following the applicable benchmark date, of the
number, price and date of BOK Financial shares sold by such holder,
together with reasonable supporting documentation.
. The rights to benchmark price protection are personal to the holders who
received the BOK Financial common stock in the merger or by option
exercise and may not be assigned or transferred (except by operation of
law or intestacy).
. The rights to benchmark price protection will not be evidenced by any
certificate or other indicia of ownership. BOK Financial will maintain
records of the number of BOK Financial shares received by each Bank of
Tanglewood shareholder and option holder. You should also maintain your
own records regarding the number of BOK Financial shares issued to you in
the transaction.
. If any BOK Financial share is sold at a price less than the lowest price
of a transaction in BOK Financial common stock on NASDAQ on the date of
sale, the benchmark payment shall be based on a deemed sale price equal
to such lowest price of a transaction on NASDAQ on the date of sale.
. The shares of BOK Financial common stock deposited into the escrow
account are not to be entitled to the benchmark price protection.
Should you have any questions regarding the number of your shares subject to
the benchmark price protection, exercising your benchmark price protection
rights or any other matter related to the benchmark price protection, you may
contact BOK Financial's Investor Relations Director, who at the time of this
mailing is James F. Ulrich, at (918) 588-6000.
The benchmark price protection has a theoretical value of $1.30 per share of
BOK Financial common stock issued in the transaction using the Black-Scholes
Option Pricing Model. The calculation of the $1.30 theoretical value of the
benchmark price protection is based on the following assumptions: $32.84
underlying price; 19.5% volatility factor; 2.35% average risk-free rate of
return; no dividends. Black-Scholes is a model that computes a theoretical
value for stock options based upon assumptions such as the expected dividend
yield and volatility of BOK Financial common stock, a risk-free rate of return
and the average lives of the options. This model was developed to estimate the
fair value of traded options that have no vesting restrictions and are fully
transferable. The benchmark price protection has characteristics that are
significantly different from such options, including the facts that the options
are not traded and are not transferable. Additionally, differences between the
actual and assumed data can materially affect the fair value estimates. The
ultimate value of the benchmark price protection feature may differ
significantly from this estimated value.
Escrow
At closing, BOK Financial shall deposit into an escrow account a number of
shares of BOK Financial common stock having a market value of $750,000, taken
from the shares that were to be delivered to Bank of Tanglewood shareholders
pursuant to the merger agreement. The number of BOK Financial shares
deliverable into escrow shall be prorated between the Bank of Tanglewood
shareholders (excluding any dissenting shares
42
and based on the number of shares of Bank of Tanglewood common stock owned by
each shareholder) and the stock option holders on the closing date, rounded up
to the nearest whole share. The escrow agent shall be Bank of Texas Trust
Company, National Association. Based on an assumed conversion ratio of 1.72,
you would receive for each share of Bank of Tanglewood common stock you own or
options you exercise, 1.70 shares of BOK Financial common stock would be issued
to you upon completion of the merger and .02 shares of BOK Financial common
stock would be placed in the escrow account on your behalf.
In the event BOK Financial claims a breach of the representations and
warranties of Bank of Tanglewood in the merger agreement and suffers a loss
related to such breach, BOK Financial shall give notice of the claim to the
Bank of Tanglewood agent. In the event BOK Financial makes a claim prior to
December 31, 2003, the escrow agent shall continue to hold the escrow shares
until such claim(s) is resolved by (1) mutual agreement between the Bank of
Tanglewood agent and BOK Financial or (2) a final adjudication determining the
merits of the claim(s) at which time the escrow agent shall pay the claim as
mutually agreed or finally adjudicated.
The escrow agent shall make a claim payment by delivering to BOK Financial
out of the escrow that number of escrow shares which is determined by dividing
the amount of the allowed claim expressed in dollars by the BOK Financial
common stock market value determined on the date of the claim payment.
The initial Bank of Tanglewood agent shall be Richard W. Jochetz. The
shareholders may by vote of a majority in interest and upon notice to BOK
Financial, change the agent.
The escrow shall terminate on the later of December 31, 2003 or the date on
which all timely noticed claims have been resolved by mutual agreement or final
adjudication and all allowed claims, if any, shall have been paid to BOK
Financial.
Upon termination of the escrow, the escrow shares remaining, if any, shall
be prorated and delivered to the former shareholders of Bank of Tanglewood and
the former option holders who exercised their options.
The rights of Bank of Tanglewood shareholders and stock option holders to
receive escrow shares shall not be assignable or transferable except by
operation of law or by intestacy or with the approval of BOK Financial (which
approval shall not be unreasonably withheld, delayed or denied).
Bank of Tanglewood Stock Option Plan; Phantom Stock Agreements
Effective as of the closing date, BOK Financial shall assume the Bank of
Tanglewood 1996 Stock Option Plan and each option to buy one share of Bank of
Tanglewood common stock pursuant to the Tanglewood 1996 Stock Option Plan shall
automatically be converted into the right to acquire shares of BOK Financial
common stock. The number of shares of BOK Financial common stock purchasable
under each converted option and the exercise price of these converted options
will be adjusted to reflect the conversion ratio and will be subject to the
escrow. Stock option holders having at least ninety-seven percent (97%) of the
outstanding stock options and Bank of Tanglewood have agreed in writing,
subject to completion of the merger, that:
. the stock options shall automatically be converted into BOK Financial
stock options that do not constitute Incentive Stock Options within the
meaning of Section 422 of the Internal Revenue Code;
. the stock options may not be exercised until the closing has been
consummated; and
. the stock options shall either be exercised within one hundred twenty
(120) calendar days following the closing or the stock options shall
terminate.
As of the date of this proxy statement-prospectus, this condition has been met.
43
Promptly following the merger, BOK Financial intends to register with the
Securities and Exchange Commission the shares of BOK Financial common stock
issuable upon the exercise of these converted options. Unless these shares of
BOK Financial common stock are acquired by an affiliate of Bank of Tanglewood,
following registration, the shares issued upon the exercise of the options will
be freely tradeable.
Prior to closing, Bank of Tanglewood has agreed to make payment under all
Phantom Stock Agreements, at a value of $58.31 per Phantom Stock Share,
including any payments waived by Messrs. Greer, Jochetz and Tidwell which may
be approved by Bank of Tanglewood shareholders at the special meeting. Such
payment will constitute full and final payment of all sums due or which could
become due under the Phantom Stock Agreements.
Representations and Warranties
The merger agreement contains various representations and warranties of BOK
Financial and Bank of Tanglewood, relating, among other things, to the
following:
. their respective incorporation or organization, existence, good standing,
capitalization, corporate power and similar corporate matters;
. their respective authorization, execution, delivery and performance and
the enforceability of the merger agreement and related agreements;
. execution of the merger agreement and compliance with its terms does not
create a conflict, violation or breach under the representing party's
respective articles of incorporation or association and bylaws and other
material agreements and documents; and
. the documents, reports and financial information, filed with the SEC in
the case of BOK Financial and delivered to BOK Financial in the case of
Bank of Tanglewood, and the accuracy and completeness of the information
contained therein and the timeliness of any filings;
And in the case of Bank of Tanglewood, additional representations and
warranties relating to, among other things:
. that there are no material liabilities except those fully reflected or
reserved against, or otherwise disclosed, in the financial statements of
Bank of Tanglewood, incurred with due care since March 31, 2002 in the
normal course of business consistent with past practices and those
specifically disclosed in the merger agreement;
. that except as set forth in the merger agreement, since March 31, 2002
and until the closing of the merger, Bank of Tanglewood has carried on
and will carry on its business only in the ordinary and normal course
consistent with past practices and has not, and will not without the
prior consent of BOK Financial, take certain actions as described in the
merger agreement. These actions include incurring material liabilities or
debt or suffering material adverse changes to financial conditions and
assets or making any material change to the manner of conducting business;
. that Bank of Tanglewood has duly filed all tax reports and returns and
has paid all taxes and other charges due;
. that Bank of Tanglewood has provided a complete list of all material
contracts and commitments and has performed all contractual and other
obligations required to be performed;
. that, except as disclosed, there is no pending or threatened claim or
litigation which may result in a material adverse change to the financial
condition, business or assets of Bank of Tanglewood;
. that Bank of Tanglewood has good and valid title to its assets;
. that, except as disclosed, none of the Bank of Tanglewood employees have
employment or compensation plans with Bank of Tanglewood;
44
. that except as to any breach that would not have material adverse effect
on the financial position of Bank of Tanglewood, all loans were made for
good, valuable and adequate consideration in the ordinary course of
business and in accordance with sound banking practices;
. that Bank of Tanglewood is not subject to any cease-and-desist or other
order issued by, or a party to any written agreement or subject to any
order or directive or the recipient of any extraordinary supervisory
letter and has not adopted any board resolutions at the request of any
regulatory agency that materially restricts the conduct of its business
or that in any manner related to its capital adequacy, credit policies or
management of its business;
. that Bank of Tanglewood has obtained option amendment agreements
respecting the nature and terms of the stock options from stock option
holders holding 85%, and will have as of the closing obtained the
agreements from stock option holders holding 97%, of the stock options as
required by the merger agreement; and
. that no payment to be made in connection with this merger agreement
and/or the merger is an excess parachute payment within the meaning of
Section 280G of the Internal Revenue Code.
And in the case of BOK Financial, additional representations and warranties
relating to, among other things:
. that BOK Financial has duly authorized the issuance of the shares of BOK
Financial common stock to be issued pursuant to the merger, the Bank of
Tanglewood stock option and the benchmark price protection rights as
provided in the merger agreement.
The representations and warranties of Bank of Tanglewood made in the merger
agreement survive completion of the merger notwithstanding any investigation or
knowledge of BOK Financial. BOK Financial must give notice to the Bank of
Tanglewood agent of any claim of a breach of any such representations and
warranties on or before December 31, 2003. The sole remedy for a breach of such
representations and warranties shall be a claim against the escrow shares.
The representations and warranties of BOK Financial made in the merger
agreement do not survive the closing except with respect to BOK Financial's
obligation to indemnify the present and future directors, officers and
employees of Bank of Tanglewood to the fullest extent to which such indemnified
parties would be entitled under the certificate of incorporation and bylaws of
BOK Financial, which survives indefinitely.
Material Covenants
Conduct of Business Pending the Merger
From the date of the merger agreement until the closing, Bank of Tanglewood
agreed to:
. maintain its corporate existence in good standing;
. maintain the general character of its business and conduct its business
only in the ordinary and usual manner consistent with past practices;
. maintain proper business and accounting records generally in accordance
with past practices;
. maintain its properties (except repossessed and foreclosed assets
acquired in satisfaction of debts previously contracted) in normal repair
and condition, normal wear and tear and damage due to fire or other
unavoidable casualty excepted;
. preserve its business organizations intact, use its reasonable efforts to
maintain satisfactory relationships with suppliers, customers and others
having business relations with it whose relationships it believes are
desirable to maintain, and use its reasonable efforts to procure the
willingness of all of the personnel employed by it immediately prior to
the execution of the merger agreement who are material to the success of
its business to continue in its employ on substantially the same terms
and conditions as those on which such personnel were employed immediately
prior to the execution of the merger agreement;
45
. maintain in full force and effect insurance comparable in amount and in
scope of coverage to that now maintained by it on the date of the merger
agreement; and
. except as otherwise disclosed in the merger agreement, perform all of its
obligations under all material contracts, leases and agreements relating
to or effecting its assets, properties and businesses; and comply in all
material respects with and perform all obligations and duties imposed
upon it by federal, state and local laws, and all rules, regulations and
orders imposed by federal, state or local governmental authorities,
except as may be contested by it in good faith by appropriate proceedings.
Bank of Tanglewood Prohibited Actions Prior to the Closing Date
From the date of the merger agreement until the closing date, Bank of
Tanglewood agreed it would not (except as permitted by the merger agreement or
approved by BOK Financial):
. incur any indebtedness for borrowed money or incur any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
. make any extension of credit or any loans to, guarantee the obligations
of, or make any additional investments in any other person, corporation
or joint venture (whether an existing customer or a new customer) except:
. extensions of credit, loans and guarantees (i) less than $1,000,000
per transaction or (ii) less than $500,000 with existing Bank of
Tanglewood customers having existing credit of $500,000 or more made
by Bank of Tanglewood in the usual and ordinary course of its banking
business, consistent with prior practices and policies;
. legal investments by Bank of Tanglewood in the usual and ordinary
course of its banking business consistent with prior practices and
policies; or
. borrowings from the Federal Home Loan Bank, the Federal Reserve Bank,
deposit liabilities and federal funds transactions by Bank of
Tanglewood in the ordinary course of business consistent with past
practices.
. make any:
. material change, except in the ordinary and usual course of business,
in its assets (including, but not limited to, any change in the
composition of such assets so as to materially alter the proportion of
cash) or liabilities;
. material commitment for any capital expenditures, excluding
expenditures for repairs and remodeling in the ordinary and usual
course of business; or
. sale or other disposition of any material capital asset other than for
fair value in the ordinary course of business.
. make any change in its Articles of Association or Bylaws;
. except with respect to outstanding stock options, authorize any shares of
its capital stock for issuance, issue any shares of any previously
authorized but unissued capital stock or grant, issue or make any option
or commitment relating to its capital stock;
. enter into any letter of intent or agreement to sell any of its material
assets, except in the normal and ordinary course of its business, or
acquire, be acquired by or merge, consolidate or reorganize with any
person, firm or corporation;
. declare or pay any dividend, make any other distribution or payment or
set aside any amount for payment with respect to any shares of its
capital stock or directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock or make any commitment relating
to shares of its capital stock;
46
. increase the compensation payable or to become payable to any of its
directors, officers or employees (including, without limitation, any
bonus or incentive payment or agreement; make or enter into any written
employment contract or any bonus, stock option, profit sharing, pension,
retirement or other similar payment or arrangement; or make any payment
to any person, except in the usual and ordinary course of business or
except as required by an existing agreement; provided, however:
. Bank of Tanglewood shall, prior to closing, make the necessary
payments pursuant to the Bank of Tanglewood Phantom Stock Agreements
at a value of $58.31 per Phantom Stock share, including, if approved
at the special meeting, the payments waived by certain Bank of
Tanglewood executive officers;
. Bank of Tanglewood may pay up to $740,000 to its stock option holders
in connection with the exercise of outstanding options to acquire
shares of BOK Financial common stock in accordance with the merger
agreement; and
. Bank of Tanglewood may pay bonuses prior to closing pursuant to the
monthly bonus pool accrual made by Bank of Tanglewood prior to closing
consistent with past practices.
. make any material change in its banking, safe deposit or power of
attorney arrangements;
. enter into any trust, escrow, agency and similar trust company
agreements, purchase orders and contracts for goods and services, except
in the ordinary course of business consistent with past practices;
. enter into any agreement resulting in the imposition of any mortgage or
pledge of its assets or the creation of any lien, charge or encumbrance
on any of its assets;
. incur any material obligation or liability, absolute or contingent,
except in the ordinary course of business or pursuant to existing
contracts;
. take any action which would prevent compliance with any of the conditions
of the merger agreement; or,
. pre-pay long term indebtedness.
Conditions to Completion of the Merger
BOK Financial and Bank of Tanglewood are required to complete the merger
only if a number of conditions are satisfied or waived including, among others:
. Bank of Tanglewood's shareholders approve the merger agreement in
accordance with the National Bank Act;
. the representations, warranties and covenants made by both parties and
contained in the merger agreement are materially true at the closing as
though such representations, warranties and covenants were also made at
closing;
. the Federal Reserve Board, the Office of the Comptroller of the Currency
and other required regulatory authorities have approved the merger of
Bank of Tanglewood and TW Interim National bank, as well as the merger of
Bank of Tanglewood into Bank of Texas, N.A. in accordance with the Bank
Holding Company Act and the National Bank Act and the applicable
regulations;
. the registration statement respecting the BOK Financial shares to be
issued in the merger shall be declared effective;
. the shares of BOK Financial common stock and any shares of BOK Financial
common stock issuable pursuant to the benchmark price protection rights
or stock options shall have been approved for listing on NASDAQ, subject
to official notice of the issuance;
47
. the parties have performed and complied with, in all material respects,
all of their respective obligations under the merger agreement which were
to be performed or complied with prior to or on the closing date;
. there has been no material adverse change in the business or financial
condition of BOK Financial and Bank of Tanglewood shall not have suffered
any material adverse change in its financial condition, assets,
liabilities, businesses or properties;
. Bank of Tanglewood shall have entered into employment agreements and
non-competition/non-solicitation agreements with certain officers of Bank
of Tanglewood; and
. three executive officers of Bank of Tanglewood shall have executed a
waiver pursuant to which each officer waived specified payments to be
made to him pursuant to his respective Phantom Stock Agreement.
Termination
Bank of Tanglewood and BOK Financial may, by mutual agreement, terminate the
merger agreement at any time, even after the shareholders of Bank of Tanglewood
have approved the merger. In addition, either party may terminate the merger
agreement if (i) the conditions to closing have not been fulfilled on or prior
to closing, (ii) the merger has not been consummated on or before December 31,
2002 or (iii) the merger agreement has been materially breached.
Amendment and Waiver
The merger agreement may be amended or supplemented in writing before the
effective time of the merger by BOK Financial and Bank of Tanglewood except as
otherwise provided by law.
48
PROPOSAL II--VOTING ON EXECUTIVE PAYMENTS
Bank of Tanglewood has various compensation agreements and plans to provide
compensation to its officers and employees. These include the Bank of
Tanglewood 1996 Stock Option Plan, pursuant to which many bank officers and
employees received an award of options to purchase common stock, and the
Phantom Stock Agreements between the bank and 11 of its officers. A change of
control of the bank, such as the merger, causes rights under the plan and
agreements to mature or vest at the time of the change of ownership, rather
than pursuant to the normal vesting schedule provided for in the various
agreements.
Federal income tax law provides that certain "payments" (which may include
the value of the early vesting of options) made to executives as a result of a
change of ownership of the bank (such as the merger) may be characterized as
"parachute payments", which results in the loss of the tax deduction by Bank of
Tanglewood with respect to amounts in excess of a defined base amount and
subjects such executives to a 20% excise tax on the excess amount. In general,
a "parachute payment" is a compensatory payment that is triggered by a change
of control of the payor if the aggregate present value of all such payments is
at least equal to three times the amount of the recipient's average annual
compensation during the five years preceding the change of control (the "base
amount"). The payments will not be characterized as "parachute payments",
however, if (1) the executives waive their right to receive a portion of the
payments which is sufficient to reduce the payments below three times the base
amount; (2) receipt by the executives of the waived amount is contingent upon
the approval by the holders of more than 75% of the outstanding shares of Bank
of Tanglewood common stock (not including shares of such executives and certain
other shareholders related to the executives); and (3) such approval is
obtained.
Three executives (Messrs. Greer, Jochetz and Tidwell) are eligible to
receive certain payments upon the consummation of the merger that would
constitute parachute payments. To avoid the adverse tax consequences of such
payments, the three executives have waived their rights to receive a portion of
such amounts ($277,805 in total) and made the payment of this amount subject to
shareholder approval. The amount of the payment each executive has waived
reduces their respective payments due to the change of ownership to a level
where there are no excise taxes or lost corporate deductions.
The amount that each executive is entitled to receive under their respective
Phantom Stock Agreements, the estimated value attributable to the early vesting
as a result of the merger calculated under the parachute payment rules and the
minimum amount that each has waived is indicated in the table below. The amount
actually waived could be more, based upon the effective date of the merger,
published IRS interest rates in effect at that time and other factors that
affect the parachute payment calculations. It is not anticipated, however, that
actual amounts waived will be significantly larger than the amounts set forth
in the table:
Value of Phantom Estimated
Stock Payable to Value of Phantom Stock
Executive Executive Early Vesting Payment Waived
--------- ---------------- ------------- --------------
Robert G. Greer...... $333,100 $272,079 $ 29,979
Richard W. Jochetz... $666,200 $544,155 $146,564
James L. Tidwell, Jr. $532,960 $435,324 $101,262
49
In addition to their Phantom Stock Agreements, the executives (as well as a
number of other Bank of Tanglewood employees) hold options to purchase Bank of
Tanglewood stock. Most of these options are already vested. However, some of
the options are not yet vested, but will become vested at the effective date of
the merger. The executives' options which will vest early allow the executives
to purchase shares of Bank of Tanglewood stock at a price of $15 per share. The
table below indicates, for each executive, the number of options that will vest
early as a result of the merger, the estimated value of those options and the
estimated value attributable to the early vesting as calculated under the
parachute payment rules:
Number of Options that Estimated Value of Estimated
Vest Early Due to Options that Vest Early Value of Early
Executive Merger Due to Merger Vesting
--------- ---------------------- ----------------------- --------------
Robert G. Greer...... 1,560 $ 78,502 $ 9,626
Richard W. Jochetz... 2,600 $130,836 $16,042
James L. Tidwell, Jr. 1,560 $ 78,502 $ 9,626
If the executives had not waived their right to a portion of the payments,
the approximate parachute payments and the approximate amounts that would be
disallowed as a corporate tax deduction and would be subject to the 20% excise
tax for each executive is indicated in the following table:
Approximate Amount Subject to
Executive Approximate Parachute Payment Disallowance and 20% Excise Tax
--------- ----------------------------- -------------------------------
Robert G. Greer...... $282,000 $196,000
Richard W. Jochetz... $560,000 $419,000
James L. Tidwell, Jr. $445,000 $328,000
Certain officers of Bank of Tanglewood not listed above will receive
payments under their respective Phantom Stock Agreements and have options that
will vest early as a result of the merger. However, the value of the early
vesting of options and Phantom Stock payments is not sufficient to constitute a
"parachute payment" and, therefore, approval of the shareholders is not
required to avoid adverse tax consequences.
The Board of Directors (with Messrs. Greer, Jochetz and Tidwell abstaining)
unanimously recommends that you vote to approve the executive payments in the
amount of $277,805 and requests that you execute and return the proxy
indicating your approval of such payments. Approval of these payments will not
affect the value or number of shares of BOK Financial common stock you will
receive in the merger.
50
COMPARISON OF RIGHTS OF SHAREHOLDERS OF BANK OF TANGLEWOOD
AND BOK FINANCIAL
As a result of the merger, the holders of Bank of Tanglewood common stock
will become holders of BOK Financial common stock. The rights of the
shareholders of BOK Financial will be governed by applicable Oklahoma law,
including the Oklahoma General Corporation Act, and by BOK Financial's articles
of incorporation and bylaws. Bank of Tanglewood shareholders will cease to be
governed by the National Bank Act and the articles of association and bylaws of
Bank of Tanglewood.
The following summarizes the material differences between the rights of BOK
Financial shareholders and Bank of Tanglewood shareholders. The following
summaries do not purport to provide a complete description of the specific
rights of BOK Financial shareholders under Oklahoma law and BOK Financial's
certificate of incorporation and bylaws, as compared with the rights of Bank of
Tanglewood's shareholders under the National Bank Act and related regulations
and Bank of Tanglewood's articles of association and bylaws. These summaries
are qualified in their entirety by reference to the governing corporate
instruments of BOK Financial and Bank of Tanglewood to which shareholders are
referred and the applicable Oklahoma law and the National Bank Act, as amended,
and regulations of the Office of the Comptroller of the Currency.
Bank of Tanglewood BOK Financial
------------------ -------------
Capitalization: Bank of Tanglewood's BOK Financial's Amended
Articles of Association and Restated Certificate
authorize the issuance of of Incorporation
up to 1,500,000 shares of authorizes the issuance
common stock, par value of up to 3,500,000,000
$5.00. shares of capital stock,
of which 2,500,000,000
shares are common stock,
$0.00006 par value, and
1,000,000,000 shares are
preferred stock, $0.00005
par value.
Corporate governance: The rights of Bank of The rights of BOK
Tanglewood shareholders Financial shareholders
are governed by the are governed by Oklahoma
National Bank Act, as corporate law and the
amended; the regulations Amended and Restated
of the Office of the Certificate of
Comptroller of the Incorporation and bylaws
Currency; unless of BOK Financial.
inconsistent with the
foregoing or bank safety
and soundness, the laws
of the state of Texas;
and the Articles of
Association and bylaws of
Bank of Tanglewood.
Classification of the Bank of Tanglewood has 10 BOK Financial currently
Board of Directors: directors, all of whom has 24 directors. BOK
are elected annually. Financial's bylaws
Bank of Tanglewood does provide that it may have
not have a classified between one and 25
board of directors. directors, the number to
be determined by the vote
of the shareholders at
the annual meeting, or at
a special meeting called
for such purpose. Like
Bank of Tanglewood, BOK
Financial does not have a
classified board of
directors.
51
Bank of Tanglewood BOK Financial
------------------ -------------
Election of Directors: Bank of Tanglewood BOK Financial
shareholders are allowed shareholders are not
to cumulate their votes allowed to cumulate their
in the election of votes in the election of
directors; each share of directors; each
Bank of Tanglewood stock outstanding share of
may be voted for as many common stock entitles the
individuals as there are holder to one vote.
directors to be elected.
Directors are elected by
a plurality of the votes
cast by the holders
entitled to vote at the
meeting; and the
president of a national
bank must be a member of
the board.
Removal of Directors: The National Bank Act The bylaws of BOK
does not specifically Financial provide that
provide for the removal the entire board of
of a bank director by directors, or any
shareholders; however, it individual director, may
provides certain be removed from office,
qualifications that with or without cause, by
directors must fulfill to a vote of a majority of
be eligible to serve. The the outstanding shares
Comptroller of the entitled to vote at any
Currency has taken the annual, regular or
position that a director special meeting of the
can be removed for cause shareholders.
or failure to satisfy the
statutory qualifications.
Vote required for The affirmative vote of a When a quorum is present,
certain shareholder majority of all votes the vote of the holders
actions: cast at a shareholders' of a majority of the
meeting at which a quorum shares entitled to vote,
is present shall be the present in person or
act of the shareholders. represented by proxy,
Unless the National Bank shall decide any question
Act provides for brought before such
different vote, the meeting, unless the
statute provides that the question is one upon
Articles of Association which a different vote is
of the bank may be required by the BOK
amended by the Financial's certificate
affirmative vote of the of incorporation or by
holders of a majority of statute. BOK Financial's
shares outstanding, Amended and Restated
except that any amendment Certificate of
that would increase or Incorporation does not
decrease the common stock currently require more
requires the affirmative than a majority vote for
vote of the holders of any corporate action
two-thirds of the shares unless otherwise required
outstanding. Any proposal under Oklahoma law. A
to merge, consolidate or majority of the
liquidate the bank would outstanding shares of the
require the affirmative corporation entitled to
vote of the holders of vote, represented in
two-thirds of the person or by proxy,
outstanding shares. constitute a quorum at a
52
Bank of Tanglewood BOK Financial
------------------ -------------
Shareholder The National Bank Act Pursuant to the BOK
actions without a does not provide that Financial bylaws, any
meeting: shareholders may act by actions required to be
written consent without taken at a meeting of the
convening a shareholders' shareholders, or any
meeting; the Comptroller other action which may be
of the Currency allows taken at a meeting of the
national banks that are shareholders, may be
wholly owned by a bank taken without a meeting
holding company to act by if a consent in writing
a written consent of the is signed by the holders
sole shareholder. of outstanding shares
having not less than the
minimum number of votes
that would be necessary
to authorize or take such
action at a meeting at
which all shares entitled
to vote thereon were
present and voted.
Special meetings Under the Bank of Under BOK Financial's
of shareholders: Tanglewood's Articles of bylaws, special meetings
Association, special of the shareholders, for
meetings of shareholders any purpose or purposes
can only be called by the whatsoever, may be called
Board of Directors or any by the President of the
three or more corporation, the Board of
shareholders owning in Directors or the
the aggregate not less Executive committee, and
than 25% of the stock of shall be called by the
the bank. President at the request
of one or more
shareholders holding not
less than one-fourth of
the voting power of all
the outstanding shares of
the corporation entitled
to vote at the meeting.
Dividends: Holders of common stock Pursuant to the BOK
are entitled to dividends Financial bylaws, the
only if, as and when board of directors may
declared by the Board of declare, and the
Directors. The payment of corporation may pay,
cash dividends is also dividends on its
subject to provisions of outstanding shares in
the National Bank Act and cash, property or its own
certain regulations of shares, subject to
the Comptroller of the Section 1049 of the
Currency which impose Oklahoma General
restrictions on the Corporation Act which
payment of dividends. provides, among other
restrictions, that
dividends may only be
paid out of surplus, or
in the case there is no
such surplus, out of net
profits for the fiscal
year in which the
dividend is declared
and/or the preceding
fiscal year. The payment
of cash dividends is
subject to limitation by
provisions of the Bank
Holding Company Act and
its regulations which
require BOK Financial to
maintain minimal capital
levels.
53
Bank of Tanglewood BOK Financial
------------------ -------------
Limitation of The Articles of The BOK Financial bylaws
liability and Association of the Bank provide for
indemnification: of Tanglewood contain indemnification of
provisions eliminating directors to the fullest
the personal liability of extent authorized by
directors for monetary Oklahoma law. Section
damages under certain 1031 of the Oklahoma
circumstances. The bylaws General General
of the bank, consistent Corporation Act
with Texas law, provide authorizes a corporation
that the bank may to indemnify its
indemnify any director, officers, employees and
officer, employee or agents against expenses,
agent of the bank and including attorneys'
certain other persons as fees, judgments, fines,
and to the fullest extent and amounts paid in
permitted by law and settlement actually and
shall indemnify such reasonably incurred,
persons as and to the whether in civil,
extent required by law. criminal, administrative,
Also, the bank may pay or investigative
expenses incurred by a proceedings, by him or
person that it may her in a manner he or she
indemnify in defending a reasonably believed to be
pending, threatened or in or not opposed to the
completed action, suit or best interests of the
proceeding or any inquiry corporation, and, with
or investigation that respect to any criminal
could lead to such an action or proceeding, had
action, suit or no reasonable cause to
proceeding, in advance of believe his or her
the final disposition of conduct was unlawful.
such action, suit or Such indemnification and
proceeding as authorized limitation of liability
by the directors in each does not apply to:
specific case, in the . any breach of a
manner and to the extent director's duty of
permitted by law. No loyalty;
person shall be . acts or omissions not
indemnified in relation in good faith or which
to any matter as to which involve intentional
indemnification is not be misconduct or a
permitted by law. knowing violation of
the law;
. the payment of
dividends or the
redemption of stock in
violation of the
Oklahoma General
Corporation Act; or
. for any transaction
from which the
director derived an
improper personal
benefit.
Pursuant to statutory and
bylaw provisions, BOK
Financial has purchased
insurance against certain
costs of indemnification
of its officers and
directors.
54
Bank of Tanglewood BOK Financial
------------------ -------------
Appraisal rights: The rights of a Appraisal rights of BOK
shareholder of a national Financial shareholders
bank to dissent from a are governed by Section
transaction such as a 1091 of the Oklahoma
merger or consolidation General Corporation Act.
are governed by the Generally, except for
provisions of the certain cash
National Bank Act as transactions, Section
described under 1091 does not provide
"Dissenters' Rights of appraisal rights for
Appraisal". The stock transactions
applicable provisions of involving shares which
the National Bank Act and are listed on a national
Banking Circular 259 securities exchange. BOK
issued by the Office of Financial common stock,
the Comptroller of the which trades on NASDAQ,
Currency, which describes would not currently be
the process for subject to appraisal
exercising the right to rights unless otherwise
dissent, are attached as provided by Section 1091.
Annex IX hereto.
Preemptive rights: The National Bank Act Neither the Oklahoma
provides that a national General Corporation Act
bank may authorize or may nor the BOK Financial
deny preemptive rights. Amended and Restated
The Articles of Certificate of
Association of Bank of Incorporation or bylaws
Tanglewood deny provide for preemptive
preemptive rights. rights.
Amendment of Certificate The Articles of Under the Oklahoma
of Incorporation Association of the bank General Corporation Act,
or Articles of may be amended by the any amendment to a
Association: affirmative vote of the corporation's certificate
holders of a majority of of incorporation must be
shares outstanding, approved at a special or
except that any amendment annual meeting by a
that would increase or majority of the
decrease the common stock outstanding shares of
requires the affirmative each class entitled to
vote of the holders of vote as a class upon a
two-thirds of the shares proposed amendment,
outstanding. whether or not entitled
to vote by the provisions
of the certificate of
incorporation, if the
amendment would increase
or decrease the aggregate
number of authorized
shares or par value or
adversely affect the
powers, preferences or
special rights of the
shares of such class. BOK
Financial's Amended and
Restated Certificate of
Incorporation does not
contain any special
provisions for dealing
with amendments to its
certificate of
incorporation. Therefore,
BOK Financial's
certificate may be
amended by a majority
vote of the shareholders
in accordance with the
Oklahoma General
Corporation Act.
55
Bank of Tanglewood BOK Financial
------------------ -------------
Amendment of Bylaws: Bank of Tanglewood's BOK Financial's bylaws
bylaws may be amended, provide that they may be
altered or repealed at amended by a majority
any regular meeting of vote of a quorum of the
the board of directors by members of the board of
a vote of a majority of directors at any annual,
the total number of regular or special
directors. meeting duly convened
after notice to the
directors setting out the
purpose of the meeting,
subject to the power of
the shareholders to alter
or repeal such bylaws;
provided, however, the
board of directors shall
not adopt or alter any
bylaw fixing the number,
qualifications,
classifications or terms
of office, but any such
bylaw may be adopted or
altered only by a
majority vote of a quorum
of the shareholders.
Anti-Takeover Provisions: Bank of Tanglewood's BOK Financial's Amended
Articles and Bylaws do and Restated Certificate
not contain provisions of Incorporation
which the directors authorizes its board of
consider to have an directors to issue
anti-takeover effect. preferred stock, with or
without shareholder
approval, which could
have dividend,
redemption, liquidations,
conversion, voting or
other rights that could
adversely affect the
voting power or other
rights of holders of BOK
Financial common stock.
56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BANK OF TANGLEWOOD
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Bank of Tanglewood analyzes the major elements of its balance
sheets and statements of income. This section should be read in conjunction
with Bank of Tanglewood's audited financial statements and accompanying notes
as of December 31, 2001 and 2000 and for each of the two years then ended and
its unaudited interim financial statements as of and for the six months ended
June 30, 2002 and 2001 which are attached to this proxy statement-prospectus.
Overview
Net earnings available to common shareholders for the six months ended June
30, 2002 were $1,631,211 or $1.49 per share fully diluted compared with
$904,227 or $0.86 per share fully diluted for the six months ended June 30,
2001, an increase of 80%. The increase was primarily due to increased loan
volume which was funded by increased deposits. Bank of Tanglewood posted
returns on average assets of 1.37% and 1.04% for the six months ended June 30,
2002 and 2001, respectively. The returns on average assets for the years ended
December 31, 2001, 2000 and 1999 were 1.00%, 0.79% and 0.62%, respectively.
Returns on average equity were 20.04% and 13.47% for the six months ended June
30, 2002 and 2001, respectively, and for the years ended December 31, 2001,
2000 and 1999 were 14.10%, 9.80% and 6.30%, respectively.
Total assets at June 30, 2002 were $234.3 million compared with $250.2
million at December 31, 2001, a 6% decrease. This decrease was primarily due to
a $35.0 million decrease in investment securities. Total assets at December 31,
2001, 2000 and 1999 were $250.2 million, $155.5 million and $122.1 million,
respectively. Increases in total assets, primarily in loans and investment
securities, resulted from an increase in deposits during each of these periods.
Total loans increased to $134.0 million at June 30, 2002, from $119.0 million
at December 31, 2001, an increase of $15.0 million or 13%. Total loans at
December 31, 2001, 2000 and 1999 were $119.0 million, $82.2 million and $63.2
million, respectively. Increases in loans reflect business development efforts
and the opening of a new banking facility in 1997 and new banking locations in
1999 and 2001. Total deposits at June 30, 2002 were $204.7 million compared
with $222.0 million at December 31, 2001, an 8% decrease. Total deposits at
December 31, 2000 and 1999 were $139.0 million and $104.9 million,
respectively. Deposits, similar to loans, reflect growth from business
development efforts and new banking facilities. Shareholders' equity was
$17.2 million at June 30, 2002 compared with $15.7 million at December 31,
2001, an increase of $1.5 million or 10%. Shareholders' equity at December 31,
2000 and 1999 was $11.9 million and $10.5 million, respectively.
Results of Operations
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of Bank of
Tanglewood's earnings. Interest rate fluctuations, as well as changes in the
amount and type of earning assets and liabilities, combine to affect net
interest income. Bank of Tanglewood's net interest income is affected by
changes in the amount and mix of interest-earning assets and interest-bearing
liabilities, referred to as a "volume change." It is also affected by changes
in yields earned on interest-earning assets and rates paid on interest-bearing
deposits and other borrowed funds, referred to as a "rate change."
Net interest income was $5.2 million for the six months ended June 30, 2002,
compared with $3.5 million for the six months ended June 30, 2001, an increase
of $1.7 million or 49%. The increase in net interest income resulted primarily
from growth in average earning assets to $225.2 million for the six months
ended June 30, 2002, from $165.7 million for the six months ended June 30,
2001, an increase of $59.5 million or 36%.
Net interest income totaled $8.0 million in 2001 compared with $5.3 million
in 2000 and $3.6 million in 1999, increases of $2.7 million or 52% and $1.7
million or 47%, respectively, primarily due to growth in interest income
57
in 2001 and 2000 of $3.2 million and $3.4 million, respectively. The increase
in 2001 compared with 2000 was partially offset by an increase in interest
expense of $486,000. Bank of Tanglewood had net interest margins of 4.22%,
4.14% and 3.75% and net interest spreads of 3.49%, 3.19% and 2.87% for 2001,
2000, and 1999, respectively. Notwithstanding market interest rate decreases by
the Federal Reserve totaling 275 basis points in 2001, the net interest margin
increased 8 basis points during that year. The increase was primarily due to a
$62.9 million increase in interest-earning assets and a decrease in the average
rate paid on interest-bearing liabilities, which offset the 102 basis point
decrease in the yield on interest-earning assets.
The following tables set forth for the periods indicated an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding, the interest
earned or paid on such amounts, and the average rate earned or paid. The tables
also set forth the net interest margin on average total interest-earning assets
for the same periods. Bank of Tanglewood had no nonaccruing loans during each
of the periods indicated.
Six Months Ended June 30,
----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
----------- -------- -------- ----------- -------- --------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans.................................... $129,778 $4,144 6.44% $ 87,062 $3,768 8.73%
Securities............................... 95,134 2,918 6.13 72,975 2,452 6.72
Federal funds sold....................... -- -- -- -- -- --
Interest-bearing deposits in other
financial institutions................. 297 3 1.70 5,615 144 5.09
-------- ------ -------- ------
Total interest-earning assets............ 225,209 7,065 6.30 165,652 6,364 7.72
------ ------
Less allowance for loan losses........... 1,299 978
-------- --------
Total interest-earning assets, net of
allowance.............................. 223,910 164,674
Noninterest-earning assets.................. 16,058 10,543
-------- --------
Total assets............................. $239,968 $175,217
======== ========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 24,540 $ 102 0.84% $ 16,086 $ 166 2.08%
Savings and money market accounts........ 90,417 781 1.74 67,875 1,395 4.14
Time deposits............................ 45,573 767 3.39 43,585 1,204 5.57
Federal funds purchased and other
borrowings............................. 19,131 200 2.07 4,454 97 4.33
-------- ------ -------- ------
Total interest-bearing liabilities....... 179,661 1,850 2.07 132,000 2,862 4.37
------ ------
Noninterest-bearing liabilities:
Demand deposits.......................... 43,066 28,894
Other liabilities........................ 834 783
-------- --------
Total liabilities........................ 223,561 161,677
Shareholders' equity........................ 16,407 13,540
-------- --------
Total liabilities and shareholders'
equity................................. $239,968 $175,217
======== ========
Net interest income......................... $5,215 $3,502
====== ======
Net interest spread......................... 4.23% 3.35%
Net interest margin......................... 4.65% 4.24%
--------
(1) Annualized
58
Years Ended December 31,
-------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Average Interest Average Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans........................ $ 98,449 $ 7,767 7.89% $ 72,616 $ 6,657 9.17% $ 50,153 $4,191 8.36%
Securities................... 84,054 5,542 6.59 51,997 3,497 6.72 42,523 2,545 5.99
Federal funds sold........... -- -- -- 265 14 5.42 2,876 139 4.83
Interest-bearing deposits
in other financial
institutions................ 8,322 279 3.35 3,038 189 6.23 648 35 5.41
-------- ------- -------- ------- -------- ------
Total interest-earning
assets...................... 190,825 13,588 7.12 127,916 10,357 8.10 96,200 6,910 7.18
------- ------- ------
Less allowance for loan
losses...................... 1,040 783 237
-------- -------- --------
Total interest-earning
assets, net of
allowance................... 189,785 127,133 95,963
Noninterest-earning
assets....................... 11,944 8,570 6,303
-------- -------- --------
Total assets................. $201,729 $135,703 $102,266
======== ======== ========
Liabilities and Shareholders'
Equity
Interest-bearing liabilities:
Interest-bearing demand
deposits.................... $ 17,890 $ 315 1.76% $ 12,375 $ 340 2.75% $ 8,262 $ 221 2.67%
Savings and money
market accounts............. 82,303 2,724 3.31 58,806 2,895 4.92 46,608 1,998 4.29
Time deposits................ 44,179 2,215 5.01 27,882 1,620 5.81 18,697 941 5.03
Federal funds
purchased and
other borrowings........... 8,458 287 3.39 3,872 200 5.18 3,060 145 4.75
-------- ------- -------- ------- -------- ------
Total interest-bearing
liabilities................. 152,830 5,541 3.63 102,935 5,055 4.91 76,627 3,305 4.31
------- ------- ------
Noninterest-bearing
liabilities:
Demand deposits.............. 33,635 21,184 15,285
Other liabilities............ 873 647 373
-------- -------- --------
Total liabilities............ 187,338 124,766 92,285
Shareholders' equity.......... 14,391 10,937 9,981
-------- -------- --------
Total liabilities and
shareholders' equity........ $201,729 $135,703 $102,266
======== ======== ========
Net interest income........... $ 8,047 $ 5,302 $3,605
======= ======= ======
Net interest spread........... 3.49% 3.19% 2.87%
Net interest margin........... 4.22% 4.14% 3.75%
59
The following tables present the dollar amount of changes in interest income
and interest expense for the major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase (decrease)
related to outstanding balances and the volatility of interest rates:
Six Months Ended June 30,
2002 vs. 2001
---------------------------
Increase (Decrease)
Due to Change In
------------------
Volume Rate Total
------ ------- -------
(Dollars in thousands)
Interest-earning assets:
Loans.................................................... $1,849 $(1,473) $ 376
Securities............................................... 738 (272) 466
Federal funds sold....................................... -- -- --
Interest-bearing deposits in other financial institutions (134) (7) (141)
------ ------- -------
Total increase (decrease) in interest income.......... 2,453 (1,752) 701
------ ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits......................... 87 (151) (64)
Savings and money market accounts........................ 463 (1,077) (614)
Time deposits............................................ 55 (492) (437)
Federal funds purchased and other borrowings............. 315 (212) 103
------ ------- -------
Total increase (decrease) in interest expense......... 920 (1,932) (1,012)
------ ------- -------
Increase in net interest income.......................... $1,533 $ 180 $ 1,713
====== ======= =======
Years Ended December 31,
------------------------------------------------------
2001 vs. 2000 2000 vs. 1999
-------------------------- --------------------------
Increase (Decrease) Increase (Decrease)
Due To Change In Due To Change In
------------------ -------------------
Volume Rate Total Volume Rate Total
------ ------- ------ ------ ---- ------
(Dollars in thousands)
Interest-earning assets:
Loans.................................................... $2,369 $(1,259) $1,110 $1,878 $588 $2,466
Securities............................................... 2,154 (109) 2,045 568 383 951
Federal funds sold....................................... (14) -- (14) (126) 2 (124)
Interest-bearing deposits in other financial institutions 329 (239) 90 129 25 154
------ ------- ------ ------ ---- ------
Total increase (decrease) in interest income...... 4,838 (1,607) 3,231 2,449 998 3,447
------ ------- ------ ------ ---- ------
Interest-bearing liabilities:
Interest-bearing demand deposits......................... 152 (176) (24) 110 9 119
Savings and money market accounts........................ 1,156 (1,327) (171) 523 374 897
Time deposits............................................ 947 (352) 595 462 217 679
Federal funds purchased and other borrowings............. 237 (151) 86 39 16 55
------ ------- ------ ------ ---- ------
Total increase (decrease) in interest expense..... 2,492 (2,006) 486 1,134 616 1,750
------ ------- ------ ------ ---- ------
Increase in net interest income................... $2,346 $ 399 $2,745 $1,315 $382 $1,697
====== ======= ====== ====== ==== ======
60
Years Ended December 31,
1999 vs. 1998
--------------------------
Increase (Decrease)
Due to Change In
------------------
Volume Rate Total
------ ----- ------
(Dollars in thousands)
Interest-earning assets:
Loans.................................................... $1,681 $(159) $1,522
Securities............................................... 530 (192) 338
Federal funds sold....................................... (157) (20) (177)
Interest-bearing deposits in other financial institutions 10 (1) 9
------ ----- ------
Total increase (decrease) in interest income...... 2,064 (372) 1,692
------ ----- ------
Interest-bearing liabilities:
Interest-bearing demand deposits......................... 75 (27) 48
Savings and money market accounts........................ 456 (180) 276
Time deposits............................................ 253 (69) 184
Federal funds purchased and other borrowings............. 85 2 87
------ ----- ------
Total increase (decrease) in interest expense..... 869 (274) 595
------ ----- ------
Increase (decrease) in net interest income........ $1,195 $ (98) $1,097
====== ===== ======
Provision for Loan Losses
Provisions for loan losses are charged to income to bring the total
allowance for loan losses to a level deemed appropriate by management of Bank
of Tanglewood to absorb loan losses inherent in the loan portfolio based on
such factors as Bank of Tanglewood's historical experience of net charge-offs,
the volume and type of lending conducted by Bank of Tanglewood, the amount of
nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in Bank of Tanglewood's portfolio.
The provision for loan losses for the six months ended June 30, 2002 was
$155,000 compared with $75,000 for the six months ended June 30, 2001. The
increased provision was made in response to the $34.8 million increase in loans
from June 30, 2001 to June 30, 2002. For the six months ended June 30, 2002,
net charge-offs were $6,531. For the years ended December 31, 2001, 2000 and
1999, Bank of Tanglewood recorded provisions for loan losses of $271,900,
$315,600 and $445,000, respectively.
Noninterest Income
Bank of Tanglewood's primary sources of recurring noninterest income are
service charges on deposit accounts and fee income. Noninterest income for the
six months ended June 30, 2002 decreased to $483,000 from $544,000 for the six
months ended June 30, 2001, a decrease of $61,000 or 11%. The decrease was
primarily due to a decrease in mortgage servicing income of $177,000 related to
management's decision to discontinue the mortgage servicing operation as of
September 30, 2001, when it was sold to a third party. The mortgage servicing
operation was discontinued primarily due to the interest rate environment and
the high overhead costs associated with this line of business relative to its
profit opportunities.
Noninterest income for the year ended December 31, 2001 was $1.0 million, an
increase of $664,000 or 182% from $364,000 in 2000. The increase reflects a
$232,000 increase in mortgage servicing income, a $176,000 increase in
investment banking and insurance fee income from Tanglewood Financial Services,
Bank of Tanglewood's wholly-owned financial subsidiary. Noninterest income of
$364,000 in 2000 was $188,000 or 107% greater than noninterest income of
$176,000 in 1999. The increase was primarily due to mortgage servicing income
of $105,000 in 2000 compared from no income from this source in 1999.
61
The following table presents, for the periods indicated, the major
categories of noninterest income:
Six Months
Ended June 30, Years Ended December 31,
-------------- ------------------------
2002 2001 2001 2000 1999
----- ----- ------- ----- -----
(Dollars in thousands)
Service charges on deposit accounts.. $ 69 $ 33 $ 80 $ 46 $ 33
Fee income........................... 222 163 344 172 143
Mortgage servicing income............ 10 187 337 105 --
Investment banking and insurance fees 174 161 219 43 --
Realized gain on assets.............. 8 -- 48 (2) --
---- ---- ------ ---- ----
Total noninterest income.......... $483 $544 $1,028 $364 $176
==== ==== ====== ==== ====
Noninterest Expense
Noninterest expense totaled $3.1 million for the six months ended June 30,
2002 compared with $2.6 million for the six months ended June 30, 2001, an
increase of $519,000 or 20%. The opening of the Memorial location in April 2001
and the opening of the operations center in July 2001 account for a majority of
the increase. For the years ended December 31, 2001, 2000 and 1999, noninterest
expense totaled $5.9 million, $3.9 million and $2.8 million, respectively. The
51% increase in 2001 was primarily the result of additional staff and other
expenses needed to meet loan and deposit growth and the opening of the Memorial
location and operations center and the overhead associated with the mortgage
servicing operation. The 39% increase in 2000 largely reflects the staffing and
other expenses related to opening the West University new building in December
1999. Bank of Tanglewood's efficiency ratios, calculated by dividing total
noninterest expenses by net interest income plus noninterest income, were 65.6%
in 2001, 70.1% in 2000 and 74.7% in 1999.
The following table presents, for the periods indicated, the major
categories of noninterest expense:
Six Months Ended
June 30, Years Ended December 31,
---------------- ------------------------
2002 2001 2001 2000 1999
------- ------ ------- ------ ------
(Dollars in thousands)
Employee compensation and benefits.... $1,591 $1,382 $3,321 $2,303 $1,561
------ ------ ------ ------ ------
Non-staff expenses:
Net bank premises expense.......... 471 387 857 622 545
Office supplies.................... 55 61 135 80 63
Data/Item processing fees.......... 189 150 215 152 106
Mortgage servicing amortization.... -- 112 158 5 --
Legal and professional fees........ 142 72 261 140 132
Marketing.......................... 51 45 61 65 41
FDIC insurance..................... 18 12 27 22 9
Other.............................. 633 410 823 478 328
------ ------ ------ ------ ------
Total non-staff expenses....... 1,559 1,249 2,537 1,564 1,224
------ ------ ------ ------ ------
Total noninterest expenses..... $3,150 $2,631 $5,858 $3,867 $2,785
====== ====== ====== ====== ======
Employee compensation and benefits expense for the six months ended June 30,
2002 was $1.6 million, an increase of $209,000 or 15% compared with $1.4
million for the same period in 2001. The increase was due primarily to
additional staff. The number of full-time equivalent employees was 51 at June
30, 2002 compared with 43 at June 30, 2001, an increase of 19%. Employee
compensation and benefits expense for the years ended December 31, 2001, 2000
and 1999 was $3.3 million, $2.3 million and $1.6 million, respectively. The
$1.0 million increase for the year ended December 31, 2001 results from
additional staffing related to the growth in loans and deposits and the new
locations, and an increase in incentive compensation of $235,000 compared with
incentive compensation in 2000.
Income Taxes
Federal income tax is reported as income tax expense and is influenced by
the amount of taxable income, the amount of tax-exempt income, the amount of
nondeductible interest expense and the amount of other non-deductible expense.
The effective tax rates in 2001, 2000 and 1999 were 31%, 28% and 26%,
respectively.
62
Additionally, the State of Texas imposes a Texas franchise tax. Taxable
income for the income tax component of the Texas franchise tax is the federal
pre-tax income, plus certain officers' salaries, less interest income from
federal securities. Total franchise tax expense was $8,398 in 2001, $26,131 in
2000 and $20,639 in 1999. Such expense was included as a part of other
noninterest expense.
Impact of Inflation
The effects of inflation on the local economy and on Bank of Tanglewood's
operating results have been relatively modest for the past several years. Since
substantially all of Bank of Tanglewood's assets and liabilities are monetary
in nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. Bank of Tanglewood
tries to control the impact of interest rate fluctuations by managing the
relationship between its interest rate sensitive assets and liabilities. See
"-- Financial Condition -- Interest Rate Sensitivity and Liquidity" on page 73.
Financial Condition
Loan Portfolio
Bank of Tanglewood provides a broad range of commercial, real estate and
consumer loan products to small and medium-sized businesses and individuals.
Total loans were $134.0 million at June 30, 2002, an increase of $15.0 million
or 13% from $119.0 million at December 31, 2001. Loan growth occurred primarily
in commercial loans and real estate loans. Loans comprised 62% of total earning
assets at June 30, 2002 compared with 51% at December 31, 2001.
Total loans increased by $36.8 million or approximately 45% to $119.0
million at December 31, 2001 from $82.2 million at December 31, 2000. The
increase was primarily due to active business development efforts and the
addition of business development officers. In 2000, total loans increased by
$19.0 million to $82.2 million at December 31, 2000 from $63.2 million at
December 31, 1999. Total loans were $63.2 million, $38.0 million and $24.8
million at December 31, 1999, 1998 and 1997, respectively, resulting in
increases of $25.2 million, $13.2 million and $22.1 million for each of the
respective period end.
The following table summarizes the loan portfolio of Bank of Tanglewood by
type of loan at the periods indicated:
June 30, 2002 December 31, 2001 December 31, 2000
--------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- ------- -------
(Dollars in thousands)
Commercial and industrial............ $ 32,343 24% $ 26,716 22% $17,883 22%
Real estate:
Construction and land development. 20,888 16 23,322 20 13,935 17
1-4 family residential............ 36,066 27 31,920 27 23,337 28
Commercial mortgages.............. 29,052 22 19,842 17 11,641 14
Consumer/Other.................... 15,661 11 17,189 14 15,411 19
-------- --- -------- --- ------- ---
Total loans................... $134,010 100% $118,989 100% $82,207 100%
======== === ======== === ======= ===
December 31, 1999 December 31, 1998 December 31, 1997
--------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- ------- -------
(Dollars in thousands)
Commercial and industrial............ $ 14,245 22% $ 8,474 22% $ 9,335 38%
Real estate:
Construction and land development. 9,723 15 4,806 13 3,087 12
1-4 family residential............ 15,650 25 9,067 24 5,131 21
Commercial mortgages.............. 12,390 20 9,261 24 3,012 12
Consumer/Other.................... 11,169 18 6,394 17 4,220 17
-------- --- -------- --- ------- ---
Total loans................... $ 63,177 100% $ 38,002 100% $24,785 100%
======== === ======== === ======= ===
63
The primary lending focus of Bank of Tanglewood is to small and medium-sized
businesses. Bank of Tanglewood offers business loans, commercial real estate
loans, equipment loans, working capital loans, term loans, revolving lines of
credit and letters of credit.
Commercial
Bank of Tanglewood's commercial loans are primarily made within its market
area and are underwritten on the basis of the borrower's ability to service
such debt from income. As a general practice, Bank of Tanglewood takes as
collateral a lien on any available real estate, equipment, or other assets
obtained or owned by the borrower and obtains a personal guaranty of the
principals or owners of the borrower. In general, commercial loans involve more
credit risk than residential mortgage loans and commercial mortgage loans and,
therefore, usually yield a higher return. The increased risk derives from the
expectation that commercial loans generally will be serviced principally from
the business' operations, and those operations may not be successful.
Additional risk for commercial loans is due to the type of collateral securing
these loans. As a result of these additional complexities, variables and risks,
commercial loans require more thorough underwriting and servicing than other
types of loans.
In addition to commercial loans secured by real estate, Bank of Tanglewood
makes commercial mortgage loans to finance the purchase of real property, which
generally consists of real estate with completed structures. Commercial
mortgage lending typically involves higher loan principal amounts and the
repayment of loans is dependent, in large part, on sufficient income from the
properties securing the loans to cover operating expenses and debt service. As
a general practice, Bank of Tanglewood requires its commercial mortgage loans
to be secured by well-managed income producing property with adequate margins
and to be guaranteed by responsible parties. Bank of Tanglewood's commercial
mortgage loans are generally secured by first liens on real estate, have fixed
and floating interest rates and amortize over periods up to 20 years with
balloon payments due at the end of one to five years. In underwriting
commercial mortgage loans, consideration is given to the property's operating
history, future operating projections, current and projected occupancy,
location and physical condition. The underwriting analysis also includes credit
checks, appraisals and a review of the financial condition of the borrower(s)
and guarantor(s).
Construction
Bank of Tanglewood makes loans to finance the construction of both
nonresidential and residential properties. Construction loans generally are
secured by first liens on real estate. Bank of Tanglewood conducts periodic
inspections, either directly or through an agent, prior to approval of periodic
draws on these loans. Construction loans involve additional risks attributable
to the fact that loan funds are advanced upon the security of a project under
construction. However, Bank of Tanglewood obtains third party appraisals to
determine the future market value of the project prior to making the loan.
Construction lending often involves the disbursement of substantial funds with
repayment dependent, in part, on the success of the ultimate project. Bank of
Tanglewood obtains the personal guaranty of the principals of the borrower. If
Bank of Tanglewood is forced to foreclose on a project prior to completion, in
order to obtain maximum value of the collateral, it may be required to fund
additional amounts to complete a project and may have to hold the property for
an indeterminate period of time. Bank of Tanglewood has underwriting guidelines
similar to those described above designed to identify what it believes to be
acceptable levels of risks in construction lending.
1-4 Family Residential
Bank of Tanglewood offers a variety of mortgage loan products which
generally are amortized over periods up to 30 years. Loans collateralized by
1-4 family residential real estate generally have been originated in amounts of
no more than 80% of the lower of cost or appraised value. Bank of Tanglewood
requires mortgage title insurance and hazard insurance in the amount of the
loan. As of June 30, 2002, Bank of Tanglewood's one to four family real estate
loan portfolio was $36.1 million. Of this amount, $8.8 million is repriceable
in one year or less and an additional $21.2 million is repriceable from one
year to five years. These high percentages in short-term real estate loans
reflects Bank of Tanglewood's commitment to reducing interest rate risk.
64
Consumer
Bank of Tanglewood also provides a wide variety of consumer loans including
motor vehicle, watercraft, education loans, personal loans (collateralized and
uncollateralized) and deposit account collateralized loans. The terms of these
loans typically range from 12 to 72 months and vary based upon the nature of
collateral and size of loan. As of June 30, 2002, Bank of Tanglewood had no
indirect consumer loans, indicating a preference to maintain personal banking
relationships and strict underwriting standards. Consumer loans entail greater
risk than do residential mortgage loans, particularly in the case of consumer
loans that are unsecured or secured by rapidly depreciating assets such as
automobiles. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment for the outstanding loan
balance. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws may limit the amount which can be
recovered on such loans.
Lending officers are assigned various levels of loan approval authority
based upon their respective levels of experience and expertise. Tanglewood's
strategy for approving or disapproving loans is to follow conservative loan
policies and underwriting practices which include:
. granting loans on a sound and collectible basis;
. investing funds properly for the benefit of shareholders and the
protection of depositors;
. serving the legitimate needs of the community and Bank of Tanglewood's
general market area while obtaining a balance between maximum yield and
minimum risk;
. ensuring that primary and secondary sources of repayment are adequate in
relation to the amount of the loan;
. developing and maintaining adequate diversification of the loan portfolio
as a whole and of the loans within each category; and
. ensuring that each loan is properly documented and, if appropriate,
insurance coverage is adequate.
Bank of Tanglewood's loan review and compliance personnel interact daily
with commercial and consumer lenders to identify potential underwriting or
technical exception variances. In addition, Bank of Tanglewood has placed
increased emphasis on the early identification of problem loans to aggressively
seek resolution of the situations and thereby keep loan losses at a minimum.
Management believes that this strict adherence to conservative loan policy
guidelines has contributed to Bank of Tanglewood's below average level of loan
losses compared to its industry peer group over the past few years.
The contractual maturity ranges of the commercial and industrial and
construction and land development loan portfolio and the amount of such loans
with predetermined interest rates in each maturity range as of December 31,
2001, are summarized in the following table:
December 31, 2001
--------------------------------------
After One
One Year Through After
or Less Five Years Five Years Total
-------- ---------- ---------- -------
(Dollars in thousands)
Commercial and industrial................ $21,988 $4,728 $ -- $26,716
Construction and land development........ 16,718 4,416 2,188 23,322
------- ------ ------ -------
Total.................................... $38,706 $9,144 $2,188 $50,038
======= ====== ====== =======
Loans with a pre-determined interest rate $ 1,066 $2,404 $ 875 $ 4,345
Loans with a floating interest rate...... 37,640 6,740 1,313 45,693
------- ------ ------ -------
Total.................................... $38,706 $9,144 $2,188 $50,038
======= ====== ====== =======
65
Nonperforming Assets
Bank of Tanglewood has several procedures in place to assist it in
maintaining the overall quality of its loan portfolio. Bank of Tanglewood has
established underwriting guidelines to be followed by its officers and also
monitors its delinquency levels for any negative or adverse trends. There can
be no assurance, however, that Bank of Tanglewood's loan portfolio will not
become subject to increasing pressures from deteriorating borrower credit due
to general economic conditions.
Nonperforming assets were $948,000 at June 30, 2002 compared with $814,000
at December 31, 2001, reflecting continued strong asset quality. The ratio of
nonperforming assets to total loans and other real estate was 0.70% at June 30,
2002 and 0.68% at December 31, 2001. There were no nonperforming assets at
December 31, 2000.
Bank of Tanglewood generally places a loan on nonaccrual status and ceases
to accrue interest when loan payment performance is deemed unsatisfactory.
Loans where the interest payments jeopardize the collection of principal are
placed on nonaccrual status, unless the loan is both well-secured and in the
process of collection. Cash payments received while a loan is classified as
nonaccrual are recorded as a reduction of principal as long as doubt exists as
to collection. Bank of Tanglewood is sometimes required to revise a loan's
interest rate or repayment terms in a troubled debt restructuring, however,
Bank of Tanglewood had no restructured loans at June 30, 2002 and December 31,
2001. In addition to an internal loan review, Bank of Tanglewood retains The
Bankers Advantage Group for a semi-annual external review to evaluate the loan
portfolio.
Bank of Tanglewood maintains current appraisals on loans secured by real
estate, particularly those categorized as nonperforming loans and potential
problem loans. In instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrower's overall financial condition is made to
determine the need, if any, for possible write downs or appropriate additions
to the allowance for loan losses. Bank of Tanglewood records other real estate
at fair value at the time of acquisition, less estimated costs to sell.
Bank of Tanglewood has adopted Statement of Financial Accounting Standards
("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan, as amended
by SFAS No. 118, Accounting for Creditors for Impairment of a Loan- Income
Recognition and Disclosures. Under SFAS No. 114, as amended, a loan is
considered impaired based on current information and events, if it is probable
that Bank of Tanglewood will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the loan's observable market price or based on the fair value of the collateral
if the loan is collateral-dependent. The implementation of SFAS No. 114 did not
have a material adverse effect on Bank of Tanglewood's financial statements.
The following table presents information regarding nonperforming assets as
of the dates indicated:
June 30, December 31,
-------- -----------
2002 2001 2000
-------- ----- ----
(Dollars in thousands)
Nonaccrual loans......................................... $ -- $ -- $ --
Accruing loans past due 90 days or more.................. -- 814 --
Restructured loans....................................... -- -- --
Other real estate........................................ 948 -- --
----- ----- ----
Total nonperforming assets........................ $ 948 $ 814 $ --
===== ===== ====
Nonperforming assets to total loans and other real estate 0.70% 0.68% N/A%
===== ===== ====
66
December 31,
-------------------
1999 1998 1997
----- ----- -----
(Dollars in thousands)
Nonaccrual loans......................................... $ -- $ -- $ --
Accruing loans past due 90 days or more.................. -- -- --
Restructured loans....................................... -- -- --
Other real estate........................................ -- -- --
----- ----- -----
Total nonperforming assets........................ $ -- $ -- $ --
===== ===== =====
Nonperforming assets to total loans and other real estate N/A % N/A % N/A %
===== ===== =====
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance for loan losses which it believes is adequate based on the quality
of Bank of Tanglewood's loan portfolio. Based on an evaluation of the loan
portfolio, management presents a quarterly review of the allowance for loan
losses to Bank of Tanglewood's board of directors, indicating any change in the
allowance since the last review and any recommendations as to adjustments in
the allowance. In making its evaluation, management considers the
diversification by collateral type of Bank of Tanglewood's commercial loan
portfolio, the effect of changes in the local real estate market on collateral
values, the results of recent regulatory examinations, the effects on the loan
portfolio of current economic indicators and their probable impact on
borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security and the evaluation of its
loan portfolio by the semi-annual external loan review conducted by The Bankers
Advantage Group. Charge-offs occur when loans are deemed to be uncollectible.
In originating loans, Bank of Tanglewood recognizes that credit losses will
be experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan.
Bank of Tanglewood follows an internal loan review program to evaluate the
credit risk in the loan portfolio. Through the loan review process, Bank of
Tanglewood maintains an internally classified loan list which, along with the
delinquency list of loans, helps management assess the overall quality of the
loan portfolio and the adequacy of the allowance for loan losses. Loans
internally classified as "substandard" or in the more severe categories of
"doubtful" or "loss" are those loans that at a minimum have clear and defined
weaknesses such as a highly-leveraged position, unfavorable financial ratios,
uncertain repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. At June 30, 2002, Bank of Tanglewood had $20,621 of
such loans compared with $1.2 million at June 30, 2001, a 98% decrease. The
decrease reflects the foreclosure of collateral securing a real estate loan in
June 2002 thereby transferring the asset from the loan category to the other
real estate category.
In addition to the internally classified loan list and delinquency list of
loans, Bank of Tanglewood maintains a separate "watch list" which further aids
Bank of Tanglewood in monitoring loan portfolios. Watch list loans show warning
elements where the present status portrays one or more deficiencies that
require attention in the short term or where pertinent ratios of the loan
account have weakened to a point where more frequent monitoring is warranted.
These loans do not have all of the characteristics of a classified loan
(substandard or doubtful) but do show weakened elements as compared with those
of a satisfactory credit. Bank of Tanglewood reviews these loans to assist in
assessing the adequacy of the allowance for loan losses. At June 30, 2002, Bank
of Tanglewood had $1.1 million of "watch list" loans.
In determining the allowance, Bank of Tanglewood segments the loan portfolio
into risk grades ranging from 1 to 7, with grade 1 having the least amount of
risk. Loans are individually analyzed and assigned risk
67
grades based on their past due status, nonaccrual status or any other impaired
characteristic of the loan. Since inception in December 1996, Bank of
Tanglewood has had aggregate net charge-offs of $11,815. Because Bank of
Tanglewood has little historical loss data from which to assess the adequacy of
its allowance, the bank attempts to maintain an allowance of at least 1.0% of
total loans.
Bank of Tanglewood then charges to operations a provision for loan losses to
maintain the allowance for loan losses at an adequate level to absorb losses
inherent in the loan portfolio determined by the foregoing methodology.
Management actively monitors Bank of Tanglewood's asset quality and provides
specific loss allowances when necessary. Loans are charged-off against the
allowance for loan losses when appropriate. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the assumptions used in making the initial
determinations. As of June 30, 2002, the allowance for loan losses amounted to
$1.4 million or 1.02% of total loans.
For the year ended December 31, 2001, there were no net loan charge-offs,
compared with $4,792 in net loan charge-offs or 0.005% of average loans for the
year ended December 31, 2000. During 2001, Bank of Tanglewood recorded a
provision for loan losses of $271,900 compared with $315,600 for 2000. The
decrease in the provision for 2001 is primarily the result of the perceived
quality of the loan portfolio. At December 31, 2001, the allowance for loan
losses totaled $1.2 million, or 1.02% of total loans. At December 31, 2000, the
allowance for loan losses totaled $943,000 or 1.15% of total loans. The
allowance for loan losses totaled $632,000, $187,000 and $97,000 at December
31, 1999, 1998 and 1997, respectively. At December 31, 1999, 1998 and 1997 the
allowance for loan losses as a percentage of total loans was 1.00%, 0.49% an
0.39%, respectively.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
Six Months
Ended
June 30, Years Ended December 31,
---------- --------------------------------------------
2002 2001 2000 1999 1998 1997
---------- -------- ------- ------- ------- -------
(Dollars in thousands)
Average loans outstanding................. $129,778 $ 98,449 $72,616 $50,153 $30,768 $11,239
======== ======== ======= ======= ======= =======
Gross loans outstanding at end of period.. $134,010 $118,989 $82,207 $63,177 $38,002 $24,785
======== ======== ======= ======= ======= =======
Allowance for loan losses at beginning of
period.................................. $ 1,215 $ 943 $ 632 $ 187 $ 97 $ 7
Provision for loan losses................. 155 272 316 445 90 90
Charge-offs:
Commercial and industrial.............. -- -- -- -- -- --
Real estate............................ -- -- -- -- -- --
Consumer............................... 7 1 5 -- -- --
Other.................................. -- -- -- -- -- --
Recoveries:
Commercial and industrial.............. -- -- -- -- -- --
Real estate............................ -- -- -- -- -- --
Consumer............................... -- 1 -- -- -- --
Other.................................. -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Net loan charge-offs...................... 7 -- 5 -- -- --
-------- -------- ------- ------- ------- -------
Allowance for loan losses at end of period $ 1,363 $ 1,215 $ 943 $ 632 $ 187 $ 97
======== ======== ======= ======= ======= =======
Ratio of allowance to end of period loans. 1.02% 1.02% 1.15% 1.00% 0.49% 0.39%
Ratio of net loan charge-offs to average
loans................................... 0.005% N/A 0.007% N/A N/A N/A
Ratio of allowance to end of period
nonperforming loans..................... N/A 149.3% N/A N/A N/A N/A
68
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
June 30, December 31, December 31,
----------------- ----------------- -----------------
2002 2001 2000
----------------- ----------------- -----------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Balance of allowance for loan losses
applicable to:
Commercial and industrial............ $ 327 24% $ 267 22% $208 22%
Real estate:
Construction and land development. 218 16 243 20 160 17
1-4 family residential............ 368 27 328 27 264 28
Commercial mortgage............... 300 22 207 17 132 14
Consumer/other....................... 150 11 170 14 179 19
Unallocated.......................... -- -- -- -- -- --
------ --- ------ --- ---- ---
Total allowance for loan losses...... $1,363 100% $1,215 100% $943 100%
====== === ====== === ==== ===
December 31, December 31, December 31,
----------------- ----------------- -----------------
1999 1998 1997
----------------- ----------------- -----------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Balance of allowance for loan losses
applicable to:
Commercial and industrial............ $139 22% $ 41 22% $37 38%
Real estate:
Construction and land development. 95 15 24 13 12 12
1-4 family residential............ 158 25 45 24 20 21
Commercial mortgage............... 126 20 45 24 12 12
Consumer/other....................... 114 18 32 17 16 17
Unallocated.......................... -- -- -- -- -- --
---- --- ---- --- --- ---
Total allowance for loan losses...... $632 100% $187 100% $97 100%
==== === ==== === === ===
Management believes that the allowance for loan losses at June 30, 2002 is
adequate to cover losses inherent in the loan portfolio as of such date. There
can be no assurance, however, that Bank of Tanglewood will not sustain losses
in future periods, which could be substantial in relation to the size of the
allowance for loan losses at June 30, 2002.
Securities
Bank of Tanglewood uses its securities portfolio to ensure liquidity for
cash requirements, to manage interest rate risk, to provide a source of income,
to ensure collateral is available for municipal pledging requirements and to
manage asset quality. Securities totaled $80.3 million at June 30, 2002, a
decline of $35.0 million from $115.3 million at December 31, 2001. The decline
was primarily due to a sale of $11.6 million of securities prompted by a
decrease in total deposits, and security principal reductions allowed in order
to fund loan growth. At June 30, 2002, securities represented 34% of total
assets compared with 46% of total assets at
69
December 31, 2001. The yield on average securities for the six months ended
June 30, 2002 was 6.26% compared with 6.68% for the same period in 2001. The
average life of the securities portfolio at June 30, 2002 was approximately 4
years and 9 months.
At December 31, 2001, the carrying value of investment securities totaled
$115.3 million, an increase of $56.9 million from $58.4 million at December 31,
2000. The increase was primarily attributable to an increase in deposits. At
December 31, 2001, investment securities represented 46% of total assets
compared with 38% of total assets at December 31, 2000. At December 31, 2000,
the carrying value of investment securities totaled $58.4 million, an increase
of $10.0 million from $48.4 million at December 31, 1999.
The following table summarizes the amortized cost of investment securities
held by Bank of Tanglewood as of the dates shown:
June 30, December 31,
-------- ------------------------
2002 2001 2000 1999
-------- -------- ------- -------
(Dollars in thousands)
U.S. Treasury securities............... $ -- $ -- $ -- $ --
U.S. Government and agencies securities -- -- 10,115 5,000
Mortgage-backed securities............. 75,312 108,435 44,438 35,405
State and political subdivisions....... 3,605 5,650 3,045 7,958
Other.................................. 1,193 853 746 628
------- -------- ------- -------
Total securities.................... $80,110 $114,938 $58,344 $48,991
======= ======== ======= =======
The following table summarizes the contractual maturity of investment
securities on an amortized cost basis and their weighted average yields as of
June 30, 2002:
June 30, 2002
-----------------------------------------------------------------------------
After One After Five
Year but Years but
Within Within Within
One Year Five Years Ten Years After Ten Years
----------- ------------ ------------ -------------
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
------ ----- ------ ----- ------ ----- ------- ----- ------- -----
(Dollars in thousands)
U.S. Treasury securities $ -- -- % $ -- -- % $ -- -- % $ -- -- % $ -- -- %
U.S. Government and
agencies securities.... -- -- -- -- -- -- -- -- -- --
Mortgage-backed
securities............. 2,452 3.79 197 6.48 1,453 6.27 71,210 6.13 75,312 6.06
State and political
subdivisions........... 1,575 8.57(1) 160 11.92(1) 285 11.92(1) 1,585 11.92(1) 3,605 10.45(1)
Other securities........ -- -- 25 7.15 25 7.50 1,143 3.93 1,193 4.07
------ ---- ------ ------- -------
Total securities..... $4,027 5.66% $382 8.80% $1,763 7.20% $73,938 6.26% $80,110 6.26%
====== ==== ====== ======= =======
--------
(1) Fully taxable equivalent
The following table summarizes the carrying value and classification of
securities as of the dates shown:
June 30, December 31,
-------- ------------------------
2002 2001 2000 1999
-------- -------- ------- -------
(Dollars in thousands)
Available-for-sale.. $12,578 $ 34,953 $35,316 $24,686
Held-to-maturity.... 67,731 80,370 23,040 23,739
------- -------- ------- -------
Total securities. $80,309 $115,323 $58,356 $48,425
======= ======== ======= =======
70
The following table summarizes the amortized cost of securities classified
as available-for-sale and their approximate fair values as of the dates shown:
June 30, 2002 December 31, 2001
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gain Loss Value Cost Gain Loss Value
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(Dollars in thousands)
U.S. Treasury
securities........ $ -- $ -- $ -- $ -- $ -- $ -- $-- $ --
U.S. Government
and agencies
securities........ -- -- -- -- -- -- -- --
Mortgage-backed
securities........ 12,380 204 6 12,578 34,568 385 -- 34,953
State and political
subdivisions...... -- -- -- -- -- -- -- --
Other securities... -- -- -- -- -- -- --
------- ---- ---- ------- ------- ---- --- -------
Total.......... $12,380 $204 $ 6 $12,578 $34,568 $385 $-- $34,953
======= ==== ==== ======= ======= ==== === =======
December 31, 2000 December 31, 1999
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gain Loss Value Cost Gain Loss Value
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(Dollars in thousands)
U.S. Treasury
securities........ $ -- $ -- $ -- $ -- $ -- $-- $ -- $ --
U.S. Government
and agencies
securities........ -- -- -- -- -- -- -- --
Mortgage-backed
securities........ 35,304 12 -- 35,316 25,252 -- 566 24,686
State and political
subdivisions...... -- -- -- -- -- -- -- --
Other securities... -- -- -- -- -- -- -- --
------- ---- ---- ------- ------- --- ---- -------
Total.......... $35,304 $ 12 $ -- $35,316 $25,252 $-- $566 $24,686
======= ==== ==== ======= ======= === ==== =======
At the date of purchase, Bank of Tanglewood classifies debt and equity
securities into one of three categories: held-to-maturity, trading or
available-for-sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in debt securities are classified as
held-to-maturity and measured at amortized cost in the financial statements
only if management has the positive intent and ability to hold those securities
to maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading and measured at fair
value in the financial statements with unrealized gains and losses included in
earnings. Investments not classified as either held-to-maturity or trading are
classified as available-for-sale and measured at fair value in the financial
statements with unrealized gains and losses reported, net of tax, in a separate
component of shareholders' equity until realized.
Deposits
Bank of Tanglewood offers a variety of deposit accounts having a wide range
of interest rates and terms. Bank of Tanglewood's deposit accounts consist of
demand, savings, money market and time accounts. Bank of Tanglewood relies
primarily on competitive pricing policies and customer service to attract and
retain these deposits. Bank of Tanglewood does not have or accept any brokered
deposits.
71
At June 30, 2002, demand, money market and savings deposits accounted for
approximately 76% of total deposits, while certificates of deposit made up 24%
of total deposits. Noninterest-bearing demand deposits totaled $44.3 million or
22% of total deposits at June 30, 2002, compared with $47.6 million or 21% of
total deposits at December 31, 2001. The average cost of deposits, including
noninterest-bearing demand deposits, was 1.63% for the six months ended June
30, 2002 compared with 3.56% for the same period in 2001. The decrease in the
average cost of deposits was primarily due to the falling rate environment of
2001.
At June 30, 2002, total deposits were $204.7 million compared with $222.0
million at December 31, 2001, a decrease of $17.3 million or 8%. This decrease
is primarily attributable to the loss of one account of approximately $6
million and the continuing low level of interest rates prompting depositors to
seek alternatives. At December 31, 2001, total deposits increased to $222.0
million from $139.0 million at December 31, 2000, an increase of $83.0 million
or 60%. At December 31, 2000, total deposits increased to $139.0 million from
$104.9 million at December 31, 1999, an increase of $34.1 million or 33%. These
increases are primarily attributable to deposits of new customers. Bank of
Tanglewood's ratio of average noninterest-bearing demand deposits to average
total deposits for years ended December 31, 2001, 2000 and 1999 was 19%, 18%
and 17%, respectively.
The following table presents for the periods indicated the daily average
balances and weighted average rates paid on deposits:
Years Ended December 31,
------------------------------------------
Six Months
Ended
June 30, 2002 2001 2000 1999
------------- ------------- ------------- ------------
Amount Rate Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ---- ------- ----
(Dollars in thousands)
Noninterest-bearing demand $ 43,066 N/A% $ 33,635 N/A% $ 21,184 N/A% $15,285 N/A%
Interest-bearing demand... 24,540 0.84 17,890 1.76 12,375 2.75 8,262 2.67
Savings and money-market.. 90,417 1.74 82,303 3.31 58,806 4.92 46,608 4.29
Time...................... 45,573 3.39 44,179 5.01 27,882 5.81 18,697 5.03
-------- -------- -------- -------
Total deposits........ $203,596 1.63 $178,007 2.95 $120,247 4.04 $88,852 4.30
======== ======== ======== =======
The following table sets forth the amount of Bank of Tanglewood's
certificates of deposit that are $100,000 or greater by time remaining until
maturity:
June 30, 2002
----------------------
(Dollars in thousands)
Three months or less................ $ 7,956
Over three months through six months 11,787
Over six months through one year.... 6,778
Over one year....................... 6,915
-------
Total............................ $33,436
=======
72
Borrowings
Borrowings consist of federal funds borrowed and securities sold under
repurchase agreements. Balances outstanding and effective rates of interest are
shown in the tables below for the periods indicated:
Six Months Ended Years Ended
June 30, December 31,
--------------- -----------------------
2002 2001 2001 2000 1999
------- ------ ------- ------ ------
(Dollars in thousands)
Overnight Funds Borrowed (1):
Ending balance....................................... $ -- $ -- $ -- $ -- $4,950
Daily average balance for the period................. 8,513 756 595 894 469
Maximum outstanding balance at a month-end during the
period............................................. 21,088 4,425 4,425 3,287 4,950
Daily average interest rate for the period........... 1.92% 5.19% 4.72% 6.37% 5.40%
Securities sold under repurchase agreements:
Ending balance....................................... $11,678 $3,649 $11,891 $3,800 $1,438
Daily average balance for the period................. 10,618 3,698 7,863 2,978 1,075
Maximum outstanding balance at a month-end during the
period............................................. 11,678 6,642 5,673 5,224 2,464
Daily average interest rate for the period........... 2.25% 4.23% 3.29% 4.82% 3.89%
Term Note Payable--Federal Home Loan Bank:
Ending balance....................................... $ -- $ -- $ -- $ -- $ --
Daily average balance for the period................. -- -- -- -- 1,516
Maximum outstanding balance at a month-end during the
period............................................. -- -- -- -- 3,000
Daily average interest rate for the period........... N/A N/A N/A N/A 5.08%
--------
(1) Represents borrowings from the Federal Home Loan Bank of Dallas and Bank
One, Texas, N.A.
Bank of Tanglewood has established a $3 million unsecured overnight line of
credit with Bank One, Texas, N.A. In addition, Bank of Tanglewood has the
ability to borrow funds based on its relationship with the Federal Home Loan
Bank of Dallas.
Interest Rate Sensitivity and Liquidity
Bank of Tanglewood's asset liability and funds management policy provides
management with the necessary guidelines for effective funds management, and
Bank of Tanglewood has established a measurement system for monitoring its net
interest rate sensitivity position. Bank of Tanglewood manages its sensitivity
position within established guidelines.
Interest rate risk is managed by the Asset Liability Committee ("ALCO"),
which is composed of senior officers of Bank of Tanglewood, in accordance with
policies approved by Bank of Tanglewood's board of directors. The ALCO
formulates strategies based on appropriate levels in interest rate risk. In
determining the appropriate level of interest rate risk, the ALCO considers the
impact on earnings and capital based on the current outlook on interest rates,
potential changes in interest rates, regional economies, liquidity, business
strategies and other factors. The ALCO meets regularly to review, among other
things, the sensitivity of assets and liabilities to interest rate changes, the
book and market values of assets and liabilities, unrealized gains and losses,
purchase and sale activity, commitments to originate loans, and the maturities
of investments and borrowings. Additionally, the ALCO reviews liquidity, cash
flow flexibility, maturities of deposits and consumer and commercial deposit
activity. Management uses two methodologies to manage interest rate risk: (i)
an analysis of relationships between interest-earning assets and
interest-bearing liabilities; and (ii) an interest rate
73
shock simulation model. Bank of Tanglewood has traditionally managed its
business to control its overall exposure to changes in interest rates.
To effectively measure and manage interest rate risk, Bank of Tanglewood
uses an interest rate simulation model to determine the impact on net interest
income under various interest rate scenarios, balance sheet trends and
strategies. From these simulations, interest rate risk is quantified and
appropriate strategies are developed and implemented. Additionally, duration
and market value sensitivity measures are utilized when they provide added
value to the overall interest rate risk management process. The overall
interest rate risk position and strategies are reviewed by Bank of Tanglewood's
Board of Directors on an ongoing basis.
Bank of Tanglewood manages its exposure to interest rates by structuring its
balance sheet in the ordinary course of business. Bank of Tanglewood does not
currently enter into instruments such as leveraged derivatives, structured
notes, interest rate swaps, caps, floors, financial options, financial futures
contracts or forward delivery contracts for the purpose of reducing interest
rate risk.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or experiences an interest rate change in line with
general market interest rates. The management of interest rate risk is
performed by analyzing the maturity and repricing relationships between
interest-earning assets and interest-bearing liabilities at specific points in
time ("GAP") and by analyzing the effects of interest rate changes on net
interest income over specific periods of time by projecting the performance of
the mix of assets and liabilities in varied interest rate environments.
Interest rate sensitivity reflects the potential effect on net interest income
of a movement in interest rates. A bank is considered to be asset sensitive, or
having a positive GAP, when the amount of its interest-earning assets maturing
or repricing within a given period exceeds the amount of its interest-bearing
liabilities also maturing or repricing within that time period. Conversely, a
bank is considered to be liability sensitive, or having a negative GAP, when
the amount of its interest-bearing liabilities maturing or repricing within a
given period exceeds the amount of its interest-earning assets also maturing or
repricing within that time period. During a period of rising interest rates, a
negative GAP would tend to affect net interest income adversely, while a
positive GAP would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative GAP would tend to result in an
increase in net interest income, while a positive GAP would tend to affect net
interest income adversely. However, it is management's intent to achieve a
proper balance so that incorrect rate forecasts should not have a significant
impact on earnings.
74
The following table sets forth an interest rate sensitivity analysis for
Bank of Tanglewood at June 30, 2002:
Volumes Subject to Repricing Within
-------------------------------------------------
Greater
0-90 91-365 1-3 than
Days Days Years 3 Years Total
-------- -------- ------- ------- --------
(Dollars in thousands)
Interest-earning assets:
Securities(1)................................... $ 10,582 $ 16,989 $32,114 $20,425 $ 80,110
Loans........................................... 82,912 5,823 12,469 32,806 134,010
Federal funds sold.............................. -- -- -- -- --
Due from banks.................................. 3,914 -- -- -- 3,914
-------- -------- ------- ------- --------
Total interest-earning assets................... $ 97,408 $ 22,812 $44,583 $53,231 $218,034
======== ======== ======= ======= ========
Interest-bearing liabilities:
NOW, money market and savings deposits.......... $110,580 $ -- $ -- $ -- $110,580
Certificates of deposit and other time deposits. 13,703 26,971 8,997 186 49,857
Borrowed funds.................................. 11,678 -- -- -- 11,678
-------- -------- ------- ------- --------
Total interest-bearing liabilities.............. $135,961 $ 26,971 $ 8,997 $ 186 $172,115
======== ======== ======= ======= ========
Period GAP......................................... $(38,553) $ (4,159) $35,586 $53,045
Cumulative GAP..................................... $(38,553) $(42,712) $(7,126) $45,919
Period GAP to total assets......................... (16.5)% (1.8)% 15.2% 22.6%
Cumulative GAP to total assets..................... (16.5)% (18.2)% (3.0)% 19.6%
Cumulative interest-earning assets to cumulative
interest-bearing liabilities..................... 71.6% 73.8% 95.9% 126.7%
--------
(1) Projected cash flows regarding mortgage-backed securities.
Bank of Tanglewood's one-year cumulative GAP position at June 30, 2002, was
negative $42.7 million or 18.2% of assets. This is a one-day position that is
continually changing and is not indicative of Bank of Tanglewood's position at
any other time. While the GAP position is a useful tool in measuring interest
rate risk and contributes toward effective asset and liability management, it
is difficult to predict the effect of changing interest rates solely on that
measure, without accounting for alterations in the maturity or repricing
characteristics of the balance sheet that occur during changes in market
interest rates. For example, the GAP position reflects only the prepayment
assumptions pertaining to the current rate environment. Assets tend to prepay
more rapidly during periods of declining interest rates than during periods of
rising interest rates. Because of this and other risk factors not contemplated
by the GAP position, an institution could have a matched GAP position in the
current rate environment and still have its net interest income exposed to
increased rate risk. The ALCO Committee reviews Bank of Tanglewood's interest
rate risk position on a quarterly basis.
Bank of Tanglewood's liquidity is maintained in the form of readily
marketable investment securities, demand deposits with commercial banks, vault
cash and federal funds sold. While the minimum liquidity requirement for banks
is determined by federal bank regulatory agencies as a percentage of deposit
liabilities, the bank's management monitors liquidity requirements as warranted
by interest rate trends, changes in the economy and the scheduled maturity and
interest rate sensitivity of the investment and loan portfolios and deposits.
In addition to the liquidity provided by the foregoing, Bank of Tanglewood has
correspondent relationships with other banks in order to sell loans or purchase
overnight funds should additional liquidity be needed. In addition, Bank of
Tanglewood has the ability to borrow funds based on its relationship with the
Federal Home Loan Bank of Dallas.
Capital Resources
Capital management consists of providing equity to support both current and
future operations. Bank of Tanglewood is subject to capital adequacy
requirements imposed by the OCC. The OCC has
75
adopted risk-based capital requirements for assessing bank capital adequacy.
These standards define capital and establish minimum capital requirements in
relation to assets and off-balance sheet exposure, adjusted for credit risk.
The risk-based capital standards currently in effect are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate relative risk weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
The risk-based capital standards issued by the OCC require all national
banks to have "Tier 1 risk-based capital" of at least 4.0% and "total
risk-based capital" (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted
assets. "Tier 1 capital" generally includes common shareholders' equity and
non-cumulative perpetual preferred stock together with related surpluses,
retained earnings, and minority interests in the equity capital accounts of
consolidated subsidiaries, less deductions for net unrealized losses on
available-for-sale equity securities. "Tier 2 capital" includes the bank's
allowance for loan and lease losses (but only up to a maximum of 1.25% of
risk-weighted assets); cumulative perpetual preferred stock, long-term
preferred stock, convertible preferred stock and any related surplus; hybrid
capital instruments, including mandatory convertible debt securities; and term
subordinated debt and intermediate-term preferred stock (original maturity of
five years or more) and any related surplus. The sum of Tier 1 capital and Tier
2 capital is "total risk-based capital." The foregoing summary is qualified in
its entirety by reference to the applicable regulations.
The OCC has also adopted guidelines which supplement the risk-based capital
guidelines with a minimum ratio of Tier 1 capital to total assets ("leverage
ratio") of 3.0% for institutions that are highly rated (composite 1 under
applicable federal guidelines), and that are not experiencing or anticipating
significant growth. Other banking organizations are required to maintain a
leverage ratio of at least 4.0%.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), each federal banking agency revised its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multifamily mortgages. Also pursuant to FDICIA, the OCC has promulgated
regulations setting the levels at which an insured institution such as the bank
would be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Bank of Tanglewood is classified "well capitalized" for
purposes of the OCC prompt corrective action regulations.
Total shareholders' equity as of June 30, 2002 was $17.2 million, an
increase of $1.5 million or 10% compared with shareholders' equity of $15.7
million at December 31, 2001. The increase was primarily due to net earnings
for the period of $1.6 million.
The following table provides a comparison of Bank of Tanglewood's leverage
and risk-weighted capital ratios as of June 30, 2002 and December 31, 2001 to
the minimum and well-capitalized regulatory standards:
Minimum
Required for To be Well Capitalized
Capital Adequacy Under Prompt Corrective Actual Ratio at Actual Ratio at
Purposes Action Provisions June 30, 2002 December 31, 2001
---------------- ----------------------- --------------- -----------------
Leverage ratio................. 4.00%(1) 5.00% 7.24% 6.40%
Tier 1 risk-based capital ratio 4.00 6.00 12.47 11.22
Total risk-based capital ratio. 8.00 10.00 13.47 12.11
--------
(1) The OCC may require Bank of Tanglewood to maintain a leverage ratio above
the required minimum.
76
BUSINESS OF BANK OF TANGLEWOOD
General
Bank of Tanglewood is a national banking association which opened for
business in December 1996. Bank of Tanglewood offers a diversified range of
commercial banking services for business, industry, public and governmental
organizations and individuals located principally in the Houston and Harris
County, Texas areas.
Bank of Tanglewood services include the usual deposit functions of
commercial banks, safe deposit facilities, commercial and personal banking
services, and the making of commercial and industrial, interim construction,
consumer and real estate loans. When the borrowing needs of a customer exceed
Bank of Tanglewood's lending limit, it participates with other banks in making
the loan. Similarly, Bank of Tanglewood provides other services for its
customers through Bank of Tanglewood's correspondent and other relationships
with other financial institutions.
Bank of Tanglewood's strategy is to concentrate on locally owned small to
medium-sized businesses and individual banking needs of the market areas it
serves. Bank of Tanglewood promotes the bank as "the community bank" of the
Tanglewood, West University and Memorial areas of Houston, serving all aspects
of the market. Bank of Tanglewood's market area is either in or contiguous to
the Tanglewood, West University and Memorial residential areas, since many
residents of the area either own or manage businesses in Houston. This provides
the opportunity to offer banking services to businesses not in the immediate
area but where its ownership or management resides. Additionally, the area's
steady growth of residential developments provides us with access to those
potential customers.
Bank of Tanglewood also has a wholly-owned Texas corporation subsidiary
known as Tanglewood Financial Services Incorporated to serve Bank of Tanglewood
customers' and others' estate planning, insurance and investment needs. It
offers various financial products such as stocks, bonds, mutual funds,
annuities and various forms of insurance.
Employees
As of June 30, 2002, Bank of Tanglewood had 51 full-time equivalent
employees, 16 of whom were officers. Bank of Tanglewood provides medical
insurance and other benefits to our full-time employees. Bank of Tanglewood
employees are not represented by any collective bargaining group. Bank of
Tanglewood considers our relations with our employees to be satisfactory.
Property
Bank of Tanglewood main office facilities are located at 500 Chimney Rock
Road in Houston, Texas. Bank of Tanglewood leases a two-story office building
of approximately 9,000 square feet which was constructed for the bank at that
location. Additionally, Bank of Tanglewood has a five-lane drive-in facility
attached to the building.
The West University office facility is located at 5500 Kirby Drive, Houston,
Texas. The building is owned by Bank of Tanglewood and has approximately 5,200
square feet and an attached five-lane motor bank facility. It is situated on
two adjoining parcels of land, one that is owned by Bank of Tanglewood and one
that is leased under a long-term land lease.
Bank of Tanglewood's Memorial facility is in the Town and Country Village
shopping center. Bank of Tanglewood has a long term ground lease on the
location and owns the newly constructed building and attached motor bank.
77
Legal Proceedings
Bank of Tanglewood from time to time is a party to or otherwise involved in
legal proceedings arising in the normal course of business. Management does not
believe that there is any pending or threatened proceeding against Bank of
Tanglewood which, if determined adversely, would have a material effect on Bank
of Tanglewood's business, financial condition or results of operation.
Competition
The banking business is highly competitive and Bank of Tanglewood's
profitability depends primarily on its ability to compete in its markets. Bank
of Tanglewood competes with other commercial banks, savings banks, savings and
loan associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms, asset-based non-bank lenders
and certain other nonfinancial entities, including retail stores which may
maintain their own credit programs and certain governmental organizations which
may offer more favorable financing than Bank of Tanglewood can.
Many of Bank of Tanglewood's competitors have greater financial strength,
marketing capability and name recognition than Bank of Tanglewood does, and
operate on a statewide, regional or nationwide basis. These institutions are
also likely to have legal loan limits substantially in excess of those that are
maintained by Bank of Tanglewood. In addition, recent developments in
technology and mass marketing have permitted larger companies to market loans
and other products and services more aggressively to Bank of Tanglewood small
business customers. Such advantages may enable Bank of Tanglewood competitors
to realize greater economies of scale and operating efficiencies than Bank of
Tanglewood can. Such institutions can perform certain functions for their
customers, including trust and international banking services, which Bank of
Tanglewood does not offer directly. Although Bank of Tanglewood may offer these
services through correspondent banks or others in the future, the inability to
provide such services directly may be a competitive disadvantage. Further, some
of Bank of Tanglewood's nonbank competitors are not subject to the same
extensive regulations that govern Bank of Tanglewood.
Supervision and Regulation
As a national bank, Bank of Tanglewood is principally supervised, examined
and regulated by the Office of the Comptroller of the Currency. Because Bank of
Tanglewood is a member of the Federal Reserve System and our deposits are
insured by the FDIC, Bank of Tanglewood is also subject to regulation pursuant
to the Federal Reserve Act and the Federal Deposit Insurance Act. The aspects
of Bank of Tanglewood business which are regulated under federal law include
security requirements, reserve requirements, investments, transactions with
affiliates, amounts Bank of Tanglewood may lend to a single customer, business
activities in which Bank of Tanglewood may engage and minimum capital
requirements. Bank of Tanglewood is also subject to applicable provisions of
Texas law insofar as they do not conflict with and are not preempted by federal
law, including laws relating to usury, various consumer and commercial loans
and the operation of branch offices. Such supervision and regulation is
intended primarily for the protection of depositors, the deposit insurance
funds of the FDIC and the banking system as a whole, and not for the protection
of Bank of Tanglewood shareholders or creditors.
The following discussion summarizes some of the laws to which Bank of
Tanglewood is subject. References herein to applicable statutes and regulations
are brief summaries thereof, do not purport to be complete and are qualified in
their entirety by reference to such statutes and regulations.
Capital Adequacy Requirements. The OCC has adopted regulations establishing
minimum requirements for the capital adequacy of national banks. The OCC's
regulations require national banks to have and maintain a "Tier 1 risk-based
capital" ratio of at least 4.0% and a "Total risk-based capital" ratio of at
least 8.0% of total risk-adjusted assets. Total risk-based capital represents
the sum of Tier 1 capital and Tier 2 capital, as those terms are defined in the
regulations. At June 30, 2002 Bank of Tanglewood's Tier 1 risk-based capital
ratio was 12.47% and its total risk-based capital ratio was 13.47%.
78
The OCC also requires national banks to meet a minimum "leverage ratio" of
Tier 1 capital to total assets of not less than 3.0% for a bank that is not
anticipating or experiencing significant growth and is highly rated (i.e., has
a composite rating of 1 on a scale of 1 to 5). Banks that the OCC determines
are anticipating or experiencing significant growth or that are not highly
rated must meet a minimum leverage ratio of 4.0%. At June 30, 2002 Bank of
Tanglewood's leverage ratio was 7.24%.
The OCC may establish minimum capital ratios above those set forth in the
preceding paragraphs if deemed appropriate by the OCC, in its discretion, in
light of the circumstances of a particular bank.
Corrective Measures for Capital Deficiencies. The prompt corrective action
regulations, which were promulgated to implement certain provisions of FDICIA,
also effectively impose capital requirements on national banks, by subjecting
banks with less capital to increasingly stringent supervisory actions. For
purposes of the prompt corrective action regulations, a bank is
"undercapitalized" if it has a total risk-based capital ratio of less than 8%;
a Tier 1 risk-based capital ratio of less than 4%; or a leverage ratio of less
than 4% (or less than 3% if the bank has received a composite rating of 1 in
its most recent examination report and is not experiencing significant growth).
A bank is "adequately capitalized" if it has a total risk-based capital ratio
of 8% or higher; a Tier 1 risk-based capital ratio of 4% or higher; a leverage
ratio of 4% or higher (3% or higher if the bank was rated a composite 1 in its
most recent examination report and is not experiencing significant growth); and
does not meet the criteria for a "well capitalized" bank. A bank is "well
capitalized" if it has a total risk-based capital ratio of 10% or higher; a
Tier 1 risk-based capital ratio of 6% or higher; a leverage ratio of 5% or
higher; and is not subject to any written requirement to meet and maintain any
higher capital level(s). At June 30, 2002, Bank of Tanglewood's capital ratios
were within the regulatory guidelines for a "well capitalized" bank, however,
there is no assurance that Bank of Tanglewood can maintain its capital ratios
at any particular level.
Under the provisions of FDICIA and the prompt corrective action regulations,
for example, an "undercapitalized" bank is subject to a limit on the interest
it may pay on deposits. Also, an undercapitalized bank cannot make any capital
distribution, including paying a dividend (with some exceptions), or pay any
management fee (other than compensation to an individual in his or her capacity
as an officer or employee of the bank). Such a bank also must submit a capital
restoration plan to the OCC for approval, restrict total asset growth and
obtain regulatory approval prior to making any acquisition, opening any new
branch office or engaging in any new line of business. An undercapitalized bank
may also be subject to other, discretionary, regulatory actions. Additional
mandatory and discretionary regulatory actions apply to "significantly
undercapitalized" and "critically undercapitalized" banks. Failure of a bank to
maintain the required capital could result in such bank being declared
insolvent and closed.
Deposit Insurance Assessments. Bank of Tanglewood's deposits are insured by
the FDIC through the Bank Insurance Fund ("BIF") to the extent provided by law
and we must pay assessments to the FDIC for such deposit insurance protection.
The FDIC has implemented a risk-based assessment system under which
FDIC-insured depository institutions pay annual premiums at rates based on
their risk classification. A bank's risk classification is based on its capital
levels and the level of supervisory concern the bank poses to the regulators.
Institutions assigned to higher risk classifications (that is, institutions
that pose a greater risk of loss to their respective deposit insurance funds)
pay assessments of higher rates than institutions that pose a lower risk. A
decrease in the bank's capital ratios or the occurrence of events that have an
adverse effect on the bank's asset quality, management, earnings or liquidity
could result in a substantial increase in deposit insurance premiums paid by
the bank, which would adversely effect the bank's earnings. In addition, the
FDIC can impose special assessments in certain instances. The range of
assessments in the risk-based system is determined by the reserve ratio in the
BIF. The current range of BIF assessments is between 0% and 0.27% of deposits
because the BIF reserve ratio was greater than 1.25% when the ratios were set.
Since then the BIF reserve ratio has fallen below 1.25%, creating the
possibility that the FDIC will raise assessment rates the next time it revises
them in November 2002.
Most banks insured by the BIF, including Bank of Tanglewood, are currently
not paying premiums to the FDIC. However, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 requires, among other
79
things, that banks insured under the BIF pay a portion of the interest due on
bonds that were issued to help shore up the ailing Federal Savings and Loan
Insurance Corporation in 1987. With respect to the assessment of the bond
obligations, the BIF rate is 0.0172% of deposits for the third quarter of 2002
and is adjusted quarterly to reflect changes in the assessment bases of the
respective funds based on quarterly Call Report submissions.
Change in Control. The Change in Bank Control Act and regulations
promulgated by the OCC require that, depending on the particular circumstances,
notice must be furnished to the OCC and not disapproved prior to any person or
group of persons acquiring "control" of a national bank, subject to exemptions
for certain transactions. Control is conclusively presumed to exist if a person
acquires the power to vote, directly or indirectly, 25% or more of any class of
voting securities of the bank. In addition, the term includes the power to
direct the management and policies of the bank. Control is rebuttably presumed
to exist if a person acquires 10% or more but less than 25% of any class of
voting securities and either the bank has registered securities under Section
12 of the Securities Exchange Act of 1934, as amended, or no other person will
own a greater percentage of that class of voting securities immediately after
the transactions. The regulations provide a procedure for challenge of the
rebuttable control presumption.
Bank Holding Company Regulation. Under the Bank Holding Company Act of
1956, as amended, and regulations promulgated thereunder by the Federal
Reserve, no company may acquire control of a bank without prior approval of the
Federal Reserve. The ownership, control or power to vote 25% or more of any
class of voting securities is presumed to be a controlling interest under the
Bank Holding Company Act and, depending on the circumstances, control may exist
below this level. Any company acquiring such control would become a bank
holding company under such act and would be subject to restrictions on its
operations as well as registration, examination and regulation by the Federal
Reserve.
Examinations. The OCC periodically examines and evaluates national banks.
These examinations review areas such as capital adequacy, reserves, loan
portfolio quality and management, consumer and other compliance issues,
investments and management practices. In addition to these regular exams, we
are required to furnish quarterly and annual reports to the OCC. The OCC may
exercise cease and desist or other supervisory powers over a national bank if
its actions represent unsafe or unsound practices or violations of law.
Further, any proposed addition of any individual to the Board of Directors of
the bank or the employment of any individual as a senior executive officer of
the bank, or the change in responsibility of such an officer, will be subject
to 90 days prior written notice to the OCC if the bank is not in compliance
with the applicable minimum capital requirements, is otherwise a troubled
institution or the OCC determines that such prior notice is appropriate for the
bank. The OCC then has the opportunity to disapprove any such appointment.
Although Bank of Tanglewood is subject to extensive regulation, supervision and
examination, such activities do not eliminate and may not lessen its business
risk and may increase its cost of doing business.
Financial Modernization. The Gramm-Leach-Bliley Act, which eliminated the
barriers to affiliations among banks, securities firms, insurance companies and
other financial service providers, permits banks meeting certain criteria to
engage in activities that are financial in nature. The Gramm-Leach-Bliley Act
defines "financial in nature" to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities; and activities that the
Federal Reserve has determined to be closely related to banking.
As a national bank, Bank of Tanglewood may establish a financial subsidiary
and engage, subject to limitations on investment, in activities that are
financial in nature, other than insurance underwriting as principal, insurance
company portfolio investment, real estate development, real estate investment,
annuity issuance and merchant banking activities. To do so, a bank must be well
capitalized, well managed and have a CRA rating of satisfactory or better.
National banks with financial subsidiaries must remain well capitalized and
well managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions. These actions or
restrictions could include divestiture of the financial in nature subsidiary or
subsidiaries.
80
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, Bank of Tanglewood is also subject to certain consumer laws
and regulations that are designed to protect consumers in transactions with
banks. While the list set forth herein is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in Savings Act, the
Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal
Credit Opportunity Act and the Fair Housing Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with customers when taking deposits or
making loans to such customers. Bank of Tanglewood must comply with the
applicable provisions of these consumer protection laws and regulations as part
of its ongoing customer relations.
Instability of Regulatory Structure. Various legislation, such as the
Gramm-Leach-Bliley Act which expanded the powers of banking institutions and
bank holding companies, and proposals to overhaul the bank regulatory system
and limit the investments that a depository institution may make with insured
funds, is from time to time introduced in Congress. As noted above, Bank of
Tanglewood also may be subject to changes in applicable state statutes. Such
legislation may change banking statutes and the environment in which Bank of
Tanglewood operates in substantial and unpredictable ways. Bank of Tanglewood
cannot determine the ultimate effect that the Gramm-Leach-Bliley Act will have,
or the effect that any other potential legislation, if enacted, or implementing
regulations with respect thereto, would have, upon our financial condition or
results of operations. Similarly, proposals to change the accounting treatment
applicable to banks and other depository institutions are frequently raised by
the SEC, the FDIC, the IRS and other appropriate authorities, including, among
others, proposals relating to fair market value accounting for certain classes
of assets and liabilities. The likelihood and impact of any additional future
accounting rule changes and the impact such changes might have on the bank are
impossible to determine.
Expanding Enforcement Authority. One of the major additional burdens
imposed on the banking industry by FDICIA is the increased ability of banking
regulators to monitor the activities of banks and their holding companies. In
addition, the OCC, Federal Reserve and FDIC have extensive authority to police
unsafe or unsound practices and violations of applicable laws and regulations
by depository institutions and their holding companies. For example, the FDIC
may terminate the deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also assess civil
money penalties, issue cease and desist or removal orders, seek injunctions and
publicly disclose such actions. FDICIA and other laws have expanded the
agencies' authority in recent years, and the agencies have not yet fully tested
the limits of their powers.
Monetary Policy. The monetary policies of regulatory authorities, including
the Federal Reserve, have a significant effect on the operating results of
banks and bank holding companies. The Federal Reserve supervises and regulates
the national supply of bank credit. Among the means available to the Federal
Reserve to regulate the supply of bank credit are open market purchases and
sales of U.S. government securities, changes in the discount rate on borrowings
from the Federal Reserve System and changes in reserve requirements with
respect to deposits. These activities are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits on a national basis, and their use may effect interest rates charged
on loans or paid for deposits.
Federal Reserve monetary policies and the fiscal policies of the federal
government have materially effected the operating results of commercial banks
in the past and are expected to continue to do so in the future. Bank of
Tanglewood cannot predict the nature of future monetary and fiscal policies and
the effect of such policies on its future business and earnings.
Privacy Regulation. As a financial institution and in other respects, Bank
of Tanglewood is subject to numerous privacy-related laws and their
implementing regulations. Those laws and the regulations promulgated under
their authority can limit, under certain circumstances, the extent to which
Bank of Tanglewood can disclose non-public personal information that is
specific to a particular person, to affiliated companies and nonaffiliated
third parties. Moreover, Bank of Tanglewood is required to establish and
maintain a comprehensive Information Security Program in accordance with the
Interagency Guidelines Establishing Standards for
81
Safeguarding Customer Information. The program must be designed to: (1) insure
the security and confidentiality of customer information; (2) protect against
any anticipated threats or hazards to the security or integrity of such
information; and (3) protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any
customer.
The USA PATRIOT Act of 2001. The USA PATRIOT Act requires financial
institutions to prohibit correspondent accounts with foreign shell banks,
establish an anti-money laundering program that includes employee training and
an independent audit, follow minimum standards for identifying customers and
maintaining records of the identification information and make regular
comparisons of customers against agency lists of suspected terrorists, their
organizations and money launderers.
82
BENEFICIAL OWNERSHIP OF BANK OF TANGLEWOOD STOCK BY MANAGEMENT AND PRINCIPAL
SHAREHOLDERS OF BANK OF TANGLEWOOD
The following table sets forth certain information as of September 20, 2002
regarding the beneficial ownership of Bank of Tanglewood common stock by (1)
each person who is known by Bank of Tanglewood to own beneficially more than 5%
of the Bank of Tanglewood common stock, (2) each director and executive officer
of Bank of Tanglewood and (3) all directors and executive officers as a group.
Also included is the number of shares and percentage of BOK Financial common
stock to be owned by such persons and by directors and executive officers as a
group upon the exchange of Bank of Tanglewood common stock for BOK Financial
common stock pursuant to the merger. Unless otherwise indicated, based on
information furnished by such shareholders, management of Bank of Tanglewood
believes that each person has sole voting and dispositive power with respect to
all shares of which he is the beneficial owner and the address of such
shareholder is the same as Bank of Tanglewood's address.
Amount/(Percent) Pro Forma Amount/(Percent)
and Nature of and Nature of
Beneficial Ownership of Beneficial Ownership of
Bank of Tanglewood BOK Financial
Name of Beneficial Owner Common Stock(1) Common Stock(2)
------------------------ ----------------------- --------------------------
Directors and Executive Officers
John M. Greer...................... 24,444 42,044
(2.50%) *
Robert G. Greer.................... 33,510(3) 60,321
(3.35%) *
Richard W. Jochetz................. 43,255(4) 78,871
(4.27%) *
Kendall Alan Miller................ 5,850 10,062
* *
Steven M. Morris................... 38,000 65,360
(3.89%) *
Grier P. Patton.................... 11,585 19,927
(1.19%) *
Jeff N. Springmeyer................ 28,423 48,888
(2.91%) *
James L. Tidwell, Jr............... 44,119(5) 78,568
(4.41%) *
William Key Wilde.................. 11,425 19,651
(1.17%) *
Directors and executive officers of
Bank of Tanglewood as a group (9 246,331(6) 423,690
persons)......................... (23.17%) *
--------
* Indicates ownership which does not exceed 1.0%.
(1) The percentage beneficially owned was calculated based on 977,470 shares of
Bank of Tanglewood common stock issued and outstanding as of September 20,
2002 and assumes the exercise by the shareholder or group named in each row
of all options for the purchase of common stock held by such shareholder or
group and exercisable within 60 days.
83
(2) The percentage beneficially owned was calculated based on 53,023,763 shares
of BOK Financial common stock issued and outstanding as of September 17,
2002 and assumes the issuance of (1) 1.72 shares of BOK Financial common
stock in exchange for each share of Bank of Tanglewood common stock (2)
1.72 shares of BOK Financial common stock in exchange for each option to
acquire shares of Bank of Tanglewood common stock in connection with the
merger and (3) includes shares which may issued be pursuant to options
which will vest on the effective date of the merger in the following
amounts: Robert G. Greer--1,560 shares; Richard W. Jochetz--2,600 shares;
and James L. Tidwell, Jr.--1,560 shares. The shares of BOK Financial common
stock to be issued in connection with the exercise of converted stock
options shall occur within 120 days following completion of the merger.
(3) Includes 21,840 shares that may be acquired pursuant to the exercise of
fully vested stock options and includes shares owned by spouse.
(4) Includes 36,400 shares that may be acquired pursuant to the exercise of
fully vested stock options.
(5) Includes 21,840 shares that may be acquired pursuant to the exercise of
fully vested stock options.
(6) For each director and executive officer, the amount of beneficial ownership
includes shares held directly, as well as shares held jointly with family
members, shares held in retirement accounts, held in a fiduciary capacity,
held by certain members of the group members' families, or held by trusts
of which the group member is a trustee or substantial beneficiary, with
respect to which shares the group member may be deemed to have sole or
shared voting and/or investment powers.
84
BUSINESS OF BOK FINANCIAL
BOK Financial was incorporated under the laws of the State of Oklahoma in
1990 and is a bank holding company under the Bank Holding Company Act of 1956.
BOK Financial owns, directly or indirectly, all of the outstanding capital
stock of Bank of Oklahoma, N.A., Bank of Texas, N.A., Bank of Albuquerque,
N.A., Bank of Arkansas, N.A., and BOSC, Inc. BOK Financial is listed on NASDAQ
under the symbol "BOKF." BOK Financial and its subsidiaries have approximately
3,400 full-time equivalent employees at 72 locations in Oklahoma, 21 locations
in Texas, 18 locations in Albuquerque, New Mexico and 3 locations in Arkansas.
At June 30, 2002, BOK Financial had total assets of $11.2 billion, total
deposits of $7.2 billion and total shareholders' equity of $924.4 million.
BOK Financial provides a broad array of financial products and services to
major corporations, middle-market companies, small businesses, retail customers
and other entities, including:
. corporate, small business and consumer lending;
. deposit taking;
. corporate treasury services and cash management;
. mortgage lending and servicing;
. trust and asset management services;
. automated teller machine network services;
. capital markets services; and
. electronic funds transfer.
BOK Financial operates five principal lines of business. As a percentage of
its total revenue for the first six months of 2002, corporate banking
represented 22%, consumer banking represented 13%, mortgage banking represented
20%, trust services represented 8% and regional banking represented 24%. Other
lines of business include the TransFund ATM network and BOSC, Inc., a
securities broker/dealer.
For more information regarding the business of BOK Financial, you should
read BOK Financial's 2001 Annual Report on Form 10-K and quarterly reports on
Forms 10-Q, which are incorporated by reference into this document. See "Where
You Can Find More Information" on page 88.
85
DESCRIPTION OF BOK FINANCIAL CAPITAL STOCK
The following descriptions of BOK Financial capital stock are not complete.
You should also read the BOK Financial Amended and Restated Certificate of
Incorporation, our bylaws and the General Corporation Act of the State of
Oklahoma. We have filed copies of our Certificate of Incorporation and Bylaws
with the SEC. These documents are incorporated by reference into the
registration statement of which this proxy statement-prospectus is a part.
BOK Financial has 3,500,000,000 shares of capital stock authorized, of which
2,500,000,000 shares are common stock, $0.00006 par value, and 1,000,000,000
shares are preferred stock, $0.00005 par value. As of September 17, 2002, BOK
Financial had 53,023,763 shares of common stock issued and outstanding and
250,000,000 shares of preferred stock issued and outstanding as a single series
of Series A Preferred Stock.
Common Stock
Each holder of shares of BOK Financial common stock is entitled to one vote
for each share held on all matters to be voted upon by our shareholders. The
holders of outstanding shares of our common stock are entitled to receive
ratably such dividends out of assets legally available therefore as BOK
Financial board of directors may determine. Upon BOK Financial liquidation or
dissolution, the holders of BOK Financial common stock will be entitled to
share ratably in our assets that are legally available for distribution to
shareholders after payment of liabilities. Holders of outstanding Series A
Preferred Stock are entitled to dividend and/or liquidation preferences.
Holders of other series of preferred stock may likewise be entitled to dividend
and liquidation preferences. In either such case, BOK Financial must pay the
applicable distribution to the holders of BOK Financial preferred stock before
BOK Financial may pay them to the holders of our common stock. Holders of BOK
Financial common stock have no conversion, sinking fund, redemption, preemptive
or subscription rights. In addition, holders of BOK Financial common stock do
not have cumulative voting rights. We cannot further call or assess shares of
BOK Financial common stock.
Series A Preferred Stock
The Series A Preferred Stock has no voting rights under the Amended and
Restated Certificate of Incorporation and under Oklahoma corporate law would
only have the right to vote in the event of a proposed amendment to the
Certificate of Incorporation altering or changing the special rights and
preferences of the Series A Preferred Stock, changing the par value or
increasing or decreasing the number of authorized shares.
The holders of outstanding shares of our Series A Preferred Stock are
entitled to receive cumulative cash dividends at the annual rate of ten percent
of the $0.06 liquidation preference value per share, when and as declared by
our board of directors. Any shares of Series A Preferred Stock may be redeemed
by us at any time, provided that all regulatory requirements are met and all
accrued dividends are paid. Holders of our Series A Preferred Stock may convert
their shares to our common stock at any time at a ratio of 2.61 shares of
common stock for each 100 shares of Series A Preferred Stock. This ratio has
been adjusted to account for the two for one stock split which was issued
February 22, 1999 and also gives effect to the 1 for 100 reverse stock split of
common stock effected December 17, 1991 and the November 18, 1993, November 17,
1994, November 27, 1995, November 27, 1996, November 19, 1997, November 25,
1998, October 18, 1999, May 18, 2001 and May 29, 2002 BOK Financial 3% common
stock dividends payable by the issuance of BOK Financial common stock. Holders
of BOK Financial preferred stock have no sinking fund or preemptive rights.
Preferred Stock
Our board of directors has the authority to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
unissued series of our preferred stock and to fix the number of shares,
dividend rights, conversion or exchange rights, voting rights, redemption
rights, liquidation preferences and sinking funds of any series of our
preferred stock. The authorized shares of our preferred stock will be available
for issuance without further action by our shareholders, unless shareholder
action is required by
86
applicable law or by the rules of a stock exchange on which any series of our
stock may be listed. The holders of our preferred stock will have the right to
vote separately as a class on any proposal involving fundamental changes in the
rights of those holders as provided by the General Business Corporation Act of
the State of Oklahoma.
This authority of our board of directors gives it the power to approve the
issuance of a series of preferred stock that could, depending on its terms,
either impede or facilitate the completion of a merger, tender offer or other
takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights that
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to satisfy an applicable percentage vote
requirement.
If applicable, the terms on which our preferred stock may be convertible
into or exchangeable for our common stock or our other securities will be
described in the applicable Certificate of Determination. The terms will
include provisions as to whether conversion or exchange is mandatory, at the
option of the holder, or at our option, and may include provisions that adjust
the number of shares of our common stock or other securities of ours that the
holders of our preferred stock may receive.
Transfer Agent and Registrar
SunTrust Bank acts as transfer agent and registrar for BOK Financial common
stock and Series A Preferred Stock.
LEGAL AND TAX MATTERS
The validity of the shares of BOK Financial common stock to be issued in the
merger will be passed upon for BOK Financial by Frederic Dorwart, Lawyers,
Tulsa, Oklahoma, counsel to BOK Financial.
Bracewell & Patterson, L.L.P, Houston, Texas, has acted as counsel to Bank
of Tanglewood with respect to the merger and certain tax matters.
EXPERTS
The consolidated financial statements of BOK Financial as of December 31,
2001 and 2000 and for each of the three years in the period ended December 31,
2001 incorporated in this proxy statement-prospectus by reference to the 2001
Annual Report on Form 10-K for the year ended December 31, 2001 have been so
incorporated in reliance on the report of Ernst and Young, LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Bank of Tanglewood as of December
31, 2001 and 2000, and for each of the two years in the period ended December
31, 2001 have been included herein and in the registration statement in
reliance upon the report of Cornelius, Stegent & Price, L.L.P., independent
certified accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
87
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Cornelius, Stegent & Price, L.L.P., current independent
certified accountants of Bank of Tanglewood, expect to be present at the Bank
of Tanglewood special meeting and will be available to respond to appropriate
questions from Bank of Tanglewood shareholders in attendance. Although
Cornelius, Stegent & Price, L.L.P. has stated that it does not intend to make
any statements at the Bank of Tanglewood special meeting, it will have the
opportunity to do so.
OTHER MATTERS
As of the date of this proxy statement-prospectus, the board of directors of
Bank of Tanglewood knows of no matters that will be presented for consideration
at the special meeting of its shareholders other than as described in this
proxy statement-prospectus. However, if any other matters are properly brought
before the Bank of Tanglewood special meeting or any adjournment or
postponement of the special meeting and are voted upon, it is intended that
holders of the proxies will act in accordance with their best judgment unless
otherwise indicated in the appropriate box on the proxy.
WHERE YOU CAN FIND MORE INFORMATION
BOK Financial has filed with the SEC a registration statement on Form S-4
under the Securities Act that registers the issuance of the shares of BOK
Financial common stock in the merger to Bank of Tanglewood shareholders and the
benchmark price protection rights. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
BOK Financial and Bank of Tanglewood. The rules and regulations of the SEC
allow us to omit certain information included in the registration statement
from this document. You may inspect and copy the registration statement at the
addresses below or you may review it on the SEC's website as set forth below.
BOK Financial files reports, proxy statements and other information with the
SEC under the Securities Exchange Act of 1934. You may inspect and copy this
information at the SEC's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website
that contains reports, proxy statements and other information about issuers,
like BOK Financial, who file electronically with the SEC. The address of that
website is www.sec.gov. BOK Financial's common stock is listed on NASDAQ under
the symbol "BOKF".
The SEC allows BOK Financial to incorporate by reference certain information
into this document. This means that the company can disclose important
information to you by referring you to another document filed separately with
the SEC and not included in, or delivered with, this document. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document.
88
This document incorporates by reference the documents listed below that BOK
Financial has previously filed with the SEC. They contain important information
about BOK Financial and its financial condition.
BOK FINANCIAL SEC FILINGS (File No. 000-19341) DESCRIPTION OR PERIOD
---------------------------------------------- ---------------------
Annual Report on Form 10-K filed
March 27, 2002......................................... Year Ended December 31, 2001
Proxy Statement on Schedule 14A (other than the
compensation committee report and the stock performance For BOK Financial's 2002 annual meeting of
chart) filed March 28, 2002............................ shareholders held on April 30, 2002
Quarterly Report on Form 10-Q filed
May 14, 2002........................................... For Three Months Ended March 31, 2002
Quarterly Report on Form 10-Q filed For Three Month and Six Month Periods Ended
August 14, 2002........................................ June 30, 2002
BOK Financial also incorporates by reference any future filings it makes
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this proxy statement-prospectus and before the special meeting. Any
statement contained in this proxy statement-prospectus or in a document
incorporated or deemed to be incorporated by reference in this proxy
statement-prospectus shall be deemed to be modified or superseded to the extent
that a statement contained herein or in any subsequently filed document that
also is, or is deemed to be, incorporated by reference herein modified or
superceded such statement.
You can obtain any of the documents incorporated by reference in this
document through BOK Financial or from the SEC through the SEC's website at the
address described above. Documents incorporated by reference are available from
BOK Financial without charge, excluding any exhibits to those documents unless
the exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference as an exhibit in
this document by requesting them in writing or by telephone from BOK Financial
at the following address:
BOK Financial Corporation
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
(918) 588-6000
Attn: Investor Relations Director
If you would like to request documents, please do so by October 14, 2002 to
receive them before the Bank of Tanglewood special meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail,
or another equally prompt means, within one business day after we receive your
request.
We have not authorized anyone to give you any information or to make any
representation about the merger or our companies that differs from or adds to
the information contained in this document or in the documents BOK Financial
has publicly filed with the SEC. Therefore, if anyone should give you any
different or additional information, you should not rely on it.
If you live in a jurisdiction in which it is unlawful to offer to exchange
or sell, or to ask for offers to exchange or buy, the securities offered by
this document, or to ask for proxies, or if you are a person to whom it is
unlawful to direct such activities, then the offer presented by this document
does not extend to you. The information contained in this document speaks only
as of the date indicated on the cover of this document unless the information
specifically indicates that another date applies.
89
INDEX TO FINANCIAL STATEMENTS
Page
----
Bank of Tanglewood (historical):
Unaudited Consolidated Balance Sheets at June 30, 2002 and 2001....................................... F-1
Unaudited Consolidated Statements of Operations for the six months ended June 30, 2002 and 2001....... F-2
Unaudited Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30,
2002 and 2001....................................................................................... F-3
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001....... F-4
Notes to Unaudited Consolidated Financial Statements for the six months ended June 30, 2002 and
2001................................................................................................ F-5
Independent Auditor's Report.......................................................................... F-15
Audited Consolidated Balance Sheets at December 31, 2001 and 2000..................................... F-16
Audited Consolidated Statements of Operations for the years ended December 31, 2001 and 2000.......... F-17
Audited Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31,
2001 and 2000....................................................................................... F-18
Audited Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000.......... F-19
Notes to Consolidated Financial Statements for the years ended December 31, 2001 and 2000............. F-21
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2002 and 2001
2002 2001
------------ ------------
ASSETS
ASSETS
Cash and cash equivalents
Cash and due from banks -- demand (Note 2)...................... $ 10,341,369 $ 5,747,153
Interest bearing deposits in banks.............................. 3,913,655 1,602,337
------------ ------------
14,255,024 7,349,490
Investment securities (Note 3)...................................... 80,308,721 87,495,112
Loans, net (Notes 4 and 5).......................................... 132,647,172 98,229,516
Bank premises and equipment, net (Note 6)........................... 4,451,161 3,426,880
Accrued interest receivable......................................... 1,055,184 1,038,270
Other assets........................................................ 1,538,260 2,028,049
------------ ------------
Total assets.................................................... $234,255,522 $199,567,317
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing demand deposits................................. $ 44,302,985 $ 31,284,936
Interest bearing demand and time deposits........................... 160,437,224 149,171,388
------------ ------------
Total deposits (Note 7)......................................... 204,740,209 180,456,324
Accrued interest payable............................................ 209,850 279,336
Federal funds purchased and securities sold under agreements to
repurchase........................................................ 11,677,878 3,648,521
Other borrowed funds................................................ -- --
Other liabilities................................................... 446,197 391,272
------------ ------------
Total liabilities............................................... 217,074,134 184,775,453
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Notes 10 and 12)
Common stock, $5 par value; authorized 1,500,000 shares; issued and
outstanding 2002 -- 977,310 shares; 2001 -- 977,160 shares........ 4,886,550 4,885,800
Surplus............................................................. 6,829,150 6,828,400
Retained earnings................................................... 5,334,748 2,583,516
Accumulated other comprehensive income.............................. 130,940 494,148
------------ ------------
Total stockholders' equity...................................... 17,181,388 14,791,864
------------ ------------
Total liabilities and stockholders' equity...................... $234,255,522 $199,567,317
============ ============
The Notes to Unaudited Consolidated Financial Statements are an integral part
of these statements.
F-1
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2002 and 2001
2002 2001
---------- ----------
INTEREST INCOME:
Interest and fees on loans...................... $4,144,019 $3,768,274
Interest on overnight investments............... 1,670 141,867
Interest and dividends on investment securities. 2,919,011 2,453,328
---------- ----------
Total interest income....................... 7,064,700 6,363,469
---------- ----------
INTEREST EXPENSE:
Interest on deposits............................ 1,650,081 2,764,831
Interest--other................................. 199,483 96,923
---------- ----------
Total interest expense...................... 1,849,564 2,861,754
---------- ----------
NET INTEREST INCOME................................ 5,215,136 3,501,715
PROVISION FOR LOAN LOSSES (Notes 4 and 5).......... 155,000 75,000
---------- ----------
5,060,136 3,426,715
---------- ----------
OTHER OPERATING INCOME:
Fees and service charges........................ 483,073 544,435
---------- ----------
Total other operating income................ 483,073 544,435
---------- ----------
OTHER OPERATING EXPENSE:
Salaries and employee benefits.................. 1,591,107 1,381,961
Occupancy expenses.............................. 470,500 387,487
Other operating expenses........................ 1,088,135 861,599
---------- ----------
Total other operating expense............... 3,149,742 2,631,047
---------- ----------
INCOME BEFORE INCOME TAXES......................... 2,393,467 1,340,103
Provision for income taxes (Note 10)............... 762,256 435,876
---------- ----------
NET INCOME......................................... $1,631,211 $ 904,227
========== ==========
Earnings Per Common Share:
Basic Shares Outstanding........................ $ 1.67 $ 0.95
========== ==========
Fully Diluted................................... $ 1.49 $ 0.86
========== ==========
Average Common Stock Equivalent:
Shares Outstanding.............................. 977,273 949,264
Vested Options Outstanding...................... 114,825 100,200
---------- ----------
Total Common Stock Equivalents.............. 1,092,098 1,049,464
========== ==========
The Notes to Unaudited Consolidated Financial Statements are an integral part
of these statements.
F-2
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30, 2002 and 2001
Common Stock Accumulated
------------------ Other
Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------- ---------- ---------- ---------- ------------- -----------
BALANCE AT JANUARY 1, 2001................ 901,200 $4,506,000 $5,719,000 $1,679,289 $ 8,238 $11,912,527
Issuance of stock......................... 75,960 379,800 1,109,400 1,489,200
Comprehensive income......................
Net income for the six months........... -- -- -- 904,227 -- 904,227
Other comprehensive income, net of
tax:
Change in unrealized gain on
securities available-for-sale, net
of deferred income tax expense
of $165,209.......................... -- -- -- -- 485,910 485,910
-----------
Total comprehensive income........... 1,390,137
------- ---------- ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 2001.................. 977,160 4,885,800 6,828,400 2,583,516 494,148 14,791,864
Issuance of stock......................... -- -- -- --
Comprehensive income......................
Net income for the six months........... -- -- 1,120,021 -- 1,120,021
Other comprehensive income, net of
tax:
Change in unrealized gain (loss) on
securities available-for-sale, net
of deferred income tax benefit of
$81,682.............................. (240,242) (240,242)
-----------
Total comprehensive income........... 879,779
------- ---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31,
2001..................................... 977,160 4,885,800 6,828,400 3,703,537 253,906 15,671,643
Issuance of stock......................... 150 750 750 1,500
Comprehensive income......................
Net income for the six months........... -- -- -- 1,631,211 -- 1,631,211
Other comprehensive income, net of
tax:
Change in unrealized gain (loss) on
securities available-for-sale, net
of deferred income tax benefit of
$41,808.............................. -- -- -- -- (122,966) (122,966)
-----------
Total comprehensive income........... 1,508,245
------- ---------- ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 2002.................. 977,310 $4,886,550 $6,829,150 $5,334,748 $ 130,940 $17,181,388
======= ========== ========== ========== ========= ===========
The Notes to Unaudited Consolidated Financial Statements are an integral part
of these statements.
F-3
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 2002 and 2001
2002 2001
------------ ------------
Cash Flows From Operating Activities
Interest received........................................... $ 7,203,849 $ 6,395,883
Fees and commission received................................ 483,073 544,435
Interest paid............................................... (1,883,642) (2,882,183)
Cash paid to suppliers and employees........................ (3,719,835) (3,590,504)
Income taxes paid........................................... (829,277) (631,720)
------------ ------------
Net cash provided by (used in) operating activities..... 1,254,168 (164,089)
------------ ------------
Cash Flows From Investing Activities
Investment securities, net.................................. 34,891,336 (28,652,607)
Increase in loans, net...................................... (15,027,449) (17,040,390)
Equipment purchases, net.................................... (702,934) (330,065)
------------ ------------
Net cash provided by (used in) investing activities..... 19,160,953 (46,023,062)
------------ ------------
Cash Flows From Financing Activities
Issuance of capital stock................................... 1,500 1,489,200
Increase in repurchase agreements, net...................... (213,350) (151,565)
Increase (decrease) in deposits, net........................ (17,216,748) 41,406,658
------------ ------------
Net cash provided by (used in) financing activities..... (17,428,598) 42,744,293
------------ ------------
Net increase (decrease) in cash and cash equivalents........... 2,986,523 (3,442,858)
Cash and cash equivalents, beginning of period................. 11,268,501 10,792,348
------------ ------------
Cash and cash equivalents, end of period....................... $ 14,255,024 $ 7,349,490
============ ============
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks (including cash items in process of clearing),
and federal funds sold. Generally, federal funds are purchased and sold for
one-day periods. Cash flows from loans originated by the Bank and deposits are
reported net.
The Notes to Unaudited Consolidated Financial Statements are an integral part
of these statements.
F-4
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting and Reporting Policies
Nature of Operations:
The Company conducts a full-service commercial banking business from their
principal office in the Tanglewood area of Houston, Texas and branches located
in the West University area and in the Memorial area of Houston, Texas.
In 2001, the Company raised $1,489,200 from a stock offering related to the
branch opening.
During 2000, the Company formed a financial subsidiary in order to serve the
estate planning, insurance and investment needs of its customers. It offers
various financial products such as stocks, bonds, mutual funds, annuities and
various forms of insurance.
Principles of Consolidation:
The consolidated financial statements include the accounts of Bank of
Tanglewood, N. A. ("the Bank") and its wholly-owned subsidiary, Tanglewood
Financial Services Incorporated. These entities are collectively referred to as
"the Company". All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the
determination of the estimated losses on loans, management obtains independent
appraisals for significant collateral.
The Bank's loans are generally secured by specific items of collateral
including real property, consumer assets, and business assets. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent on local economic conditions.
While management uses available information to recognize losses on loans,
further reduction in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change materially in the near term. However,
the amount of the change that is reasonably possible cannot be estimated.
Investment Securities:
Investment securities that are held for short-term resale are classified as
trading securities and carried at fair value.
F-5
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost. The amortization of premium and
accretion of discounts are recognized in interest income using methods
approximating the interest method over the period to maturity.
Debt securities not classified as held-to-maturity or trading are classified
as available-for-sale. Securities available for sale are carried at fair value
with unrealized gains and losses reported in other comprehensive income.
Realized gains (losses) on securities available for sale are included in other
income (expense) and, when applicable, are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on
sales of securities are determined on the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses.
Mortgage-Backed Securities:
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized or accreted using methods approximating the
interest method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Management intends and has the ability to hold such
securities to maturity. Should any be sold, the cost of securities sold is
determined using the specific identification method.
Loans:
Loans are stated at the amount of unpaid principal, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
Allowance for Loan Losses:
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans, economic conditions, and other risks inherent in the
portfolio. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Although
management uses available information to recognize losses on loans, because of
uncertainties associated with local economic conditions, collateral values, and
future cash flows on impaired loans, it is reasonably possible that a material
change could occur in the allowance for loan losses in the near term. However,
the amount of the change that is reasonably possible cannot be estimated. The
allowance is
F-6
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries. Changes in the allowance relating to
impaired loans are charged or credited to the provision for loan losses.
Premises and Equipment:
Land is carried at cost. Other premises and equipment are carried at cost
net of accumulated depreciation. Depreciation is computed using the
straight-line and declining balance methods based principally on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
Other Real Estate:
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value
less estimated selling cost at the date of foreclosure. Any write-downs based
on the asset's fair value at the date of acquisition are charged to the
allowance for loan losses. After foreclosure, these assets are carried at the
lower of their new cost basis or fair values less estimated cost to sell. Costs
of significant property improvements are capitalized, whereas costs relating to
holding property are expensed. The portion of interest costs relating to
development of real estate is capitalized. Valuations are periodically
performed by management, and any subsequent write-downs are recorded as a
charge to operations, if necessary, to reduce the carrying value of a property
to the lower of its cost or fair value less estimated cost to sell.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, and accumulated depreciation for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled. Deferred tax assets and liabilities are reflected at income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. The Company files consolidated income tax returns with its
subsidiary.
Mortgage Servicing Rights:
Capitalized mortgage servicing assets consist of purchased and originated
servicing rights. These rights are amortized in proportion to, and over the
period of, the estimated future net servicing income stream of the underlying
mortgage loans. Mortgage servicing rights are assessed for impairment based on
the fair value of the right and any related derivative contracts. Impairment is
evaluated by stratifying the mortgage servicing rights by interest rate bands.
Fair value is determined considering market prices for similar assets or based
on discounted cash flows using market-based prepayment estimates for similar
coupons as well as incremental direct and indirect costs.
The mortgage servicing operation was discontinued as of September 30, 2001,
when it was sold to a third party.
F-7
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Benefits:
Effective April 1, 1998, the Company adopted a contributory 401(k) profit
sharing plan, covering substantially all employees. The Company's contributions
are determined annually, at the Company's discretion. Total plan expense for
the six months ended June 30, 2002 and 2001 was $32,150 and $23,550,
respectively.
Stock Option Plan:
The Bank has a stock option plan under which 173,000 shares of common stock
are reserved for issuance. Options have been granted to Bank officers and
employees totaling 169,350 shares of common stock at exercise prices ranging
from $10 to $35 per share. These options expire 10 years from the date of
grant; options totaling 2,310 shares have been exercised to date.
Deferred Compensation Plan:
In November, 2001, the Board approved a deferred compensation plan for bank
employees. The plan has an eight year vesting period with vesting occurring 20%
annually beginning the fourth year following the date of award. Awards totaling
65,500 shares have been made at award values of $25 to $35 per share. Award
shares are similar to stock option shares in nature, although they are not
shares of common stock. Award values vary with changes in the market value of
the common stock. No deferred compensation expense was recognized in the six
months ended June 30, 2002 and 2001.
Note 2. Restrictions on Cash and Due from Banks
The Bank is required to maintain reserve funds in cash or on deposit with
the Federal Reserve Bank. The required reserve at June 30, 2002 and 2001, was
$3,251,000 and $995,000, respectively.
Note 3. Investment Securities
Securities classified as held-to-maturity were as follows:
June 30, 2002
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government agency obligations $ -- $ -- $ -- $ --
Mortgage-backed securities........ 62,933,011 1,006,024 17,540 63,921,495
Tax-exempt municipals............. 3,605,000 -- 3,605,000
Other............................. 1,193,050 3,953 -- 1,197,003
----------- ---------- ------- -----------
$67,731,061 $1,009,977 $17,540 $68,723,498
=========== ========== ======= ===========
June 30, 2001
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government agency obligations $ 2,499,774 $ 1,863 $ -- $ 2,501,637
Mortgage-backed securities........ 28,677,523 264,482 105,748 28,836,257
Tax-exempt municipals............. 4,620,000 -- -- 4,620,000
Other............................. 801,250 2,500 -- 803,750
----------- -------- -------- -----------
$36,598,547 $268,845 $105,748 $36,761,644
=========== ======== ======== ===========
F-8
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Securities classified as available-for-sale were as follows:
June 30, 2002
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
Mortgage-backed securities $12,379,265 $204,766 $6,371 $12,577,660
----------- -------- ------ -----------
$12,379,265 $204,766 $6,371 $12,577,660
=========== ======== ====== ===========
June 30, 2001
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
Mortgage-backed securities $50,147,856 $794,310 $45,601 $50,896,565
----------- -------- ------- -----------
$50,147,856 $794,310 $45,601 $50,896,565
=========== ======== ======= ===========
The gains (losses) are reflected in stockholders' equity, net of applicable
deferred income taxes. The deferred income tax assets (liabilities) are
included in other assets and other liabilities.
The amortized cost and estimated market value of debt securities at June 30,
2002, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Maturity Cost Market Value
-------- ----------- ------------
2002-2003. $ 1,745,972 $ 1,747,757
2004-2008. 2,850,974 2,876,749
Thereafter 75,513,381 76,676,653
----------- -----------
Total..... $80,110,327 $81,301,159
=========== ===========
There were $30,553,000 and $21,905,000 investment securities pledged as
collateral on deposits of public funds and repurchase agreements at June 30,
2002 and 2001, respectively.
Note 4. Loans
The composition of net loans is as follows:
2002 2001
------------ -----------
Commerical................... $ 32,342,742 $18,713,505
Real estate:
Construction.............. 20,888,115 18,281,644
Other..................... 65,117,612 44,004,431
Installment consumer......... 10,661,927 11,620,115
Other........................ 4,999,961 6,627,084
------------ -----------
Total loans........... 134,010,357 99,246,779
Allowance for loan losses. (1,363,185) (1,017,263)
------------ -----------
Net loans............. $132,647,172 $98,229,516
============ ===========
There were no nonaccruing loans at June 30, 2002 and 2001.
F-9
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
2002 2001
---------- ----------
Balance, beginning........................ $1,214,716 $ 942,816
Provision charged to operating expense. 155,000 75,000
Recoveries of amounts charged off...... -- --
---------- ----------
1,369,716 1,017,816
Amounts charged off....................... 6,531 553
---------- ----------
Balance, ending........................... $1,363,185 $1,017,263
========== ==========
Note 6. Premises and Equipment
Major classifications of bank premises and equipment are summarized below:
Cost Or Accumulated Net Book
Basis Depreciation Value
---------- ------------ ----------
At June 30, 2002:
Land...................................... $ 688,113 $ -- $ 688,113
Bank premises and leasehold improvements.. 2,612,566 142,245 2,470,321
Furniture and equipment................... 1,811,545 518,818 1,292,727
---------- -------- ----------
Total bank premises and equipment..... $5,112,224 $661,063 $4,451,161
========== ======== ==========
Cost Or Accumulated Net Book
Basis Depreciation Value
---------- ------------ ----------
At June 30, 2001:
Land...................................... $ 688,113 $ -- $ 688,113
Bank premises and leasehold improvements.. 1,860,312 163,414 1,696,898
Furniture and equipment................... 1,430,164 388,295 1,041,869
---------- -------- ----------
Total bank premises and equipment..... $3,978,589 $551,709 $3,426,880
========== ======== ==========
Note 7. Deposits
The composition of deposits is as follows:
2002 2001
------------ ------------
Noninterest bearing--demand.............................................. $ 44,302,985 $ 31,284,936
Interest bearing:
Savings............................................................... 1,763,948 1,030,252
Demand................................................................ 108,816,647 103,974,346
Certificates of deposit............................................... 49,856,629 44,166,790
------------ ------------
$204,740,209 $180,456,324
============ ============
(000's) (000's)
------------ ------------
As of June 30, certificates mature in: Less than one year.............. $ 40,674 $ 40,405
1 through 3 years............................ 8,997 3,762
More than 3 years............................ 186 --
------------ ------------
$ 49,857 $ 44,167
============ ============
F-10
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At June 30, 2002 and 2001, time certificates of deposit in denominations of
$100,000 and more totaled $33,435,602 and $33,117,883, respectively.
Interest expense on time certificates of deposit and other time deposits in
denominations of $100,000 or more amounted to approximately $530,934 and
$881,246 for the six month periods ended June 30, 2002 and 2001.
Note 8. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Bank has outstanding commitments to
extend credit and standby letters of credit, which are not included in the
accompanying consolidated financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit and standby letters of credit is
represented by the contractual or notional amount of those instruments. The
Bank uses the same credit policies in making commitments as it does for
instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amounts represent credit risk were as
follows:
2002 2001
----------- -----------
Commitments to extend credit $35,280,000 $33,300,000
Standby letters of credit... 1,343,087 2,619,062
----------- -----------
$36,623,087 $35,919,062
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The Bank has not been required to perform on any financial guarantees during
the past two years. The Bank has not incurred any losses on its commitments in
either 2002 or 2001.
Note 9. Commitments and Contingent Liabilities
The Company is obligated under various noncancelable lease agreements for
premises and equipment. Net rent expense was $221,705 and $176,156 for the six
months ended June 30, 2002 and 2001.
The Company and the Bank are subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial statements of
the Company.
F-11
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10. Regulatory Matters
Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of June 30, 2002, that the Bank meets all capital
adequacy requirements to which it is subject.
Banks are also subject to certain restrictions on the amount of dividends
that they may declare without prior regulatory approval.
As of June 30, 2002, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------------- -------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------------------- ------- ------------------ ------- -------------------
(000's) (000's) (000's)
As of June 30, 2002:
Total Capital (to Risk Weighted Assets). $17,181 (greater or =)12.57% $10,938 (greater or =)8.00% $13,673 (greater or =)10.00%
Tier 1 Capital (to Risk Weighted Assets) $17,051 (greater or =)12.47% $ 5,469 (greater or =)4.00% $ 8,203 (greater or =) 6.00%
Tier 1 Capital (to Average Assets)...... $17,051 (greater or =) 7.24% $ 9,427 (greater or =)4.00% $11,784 (greater or =) 5.00%
As of June 30, 2001:
Total Capital (to Risk Weighted Assets). $14,792 (greater or =)12.62% $ 9,376 (greater or =)8.00% $11,720 (greater or =)10.00%
Tier 1 Capital (to Risk Weighted Assets) $14,298 (greater or =)12.20% $ 4,688 (greater or =)4.00% $ 7,032 (greater or =) 6.00%
Tier 1 Capital (to Average Assets)...... $14,298 (greater or =) 7.67% $ 7,458 (greater or =)4.00% $ 9,322 (greater or =) 5.00%
Note 11. Federal Income Tax Expense
Federal income taxes were computed as follows:
2002 2001
-------- --------
Tax at statutory rate............. $813,779 $455,635
Effect of tax-exempt interest, net (59,544) (25,720)
Other............................. 8,021 5,961
-------- --------
$762,256 $435,876
======== ========
F-12
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes are reflected in the financial statements based on the
following:
2002 2001
--------- ---------
Deferred tax liabilities--unrealized appreciation on securities $ 67,454 $ 254,561
Deferred tax assets--unamortized startup costs and other....... (1,871) 3,594
Deferred tax assets--loan losses............................... (434,547) (316,771)
--------- ---------
(368,964) (58,616)
Valuation allowance............................................ -- --
--------- ---------
$(368,964) $ (58,616)
========= =========
The valuation allowance did not change during the periods.
Note 12. Related Party Transactions
The Bank's officers, directors and their associates, including corporations
and firms of which they are officers or in which they and/or their families
have an ownership interest, are customers of the Bank. Loans to officers,
directors, and their associates were approximately $3,979,000 and $4,221,000 at
June 30, 2002 and 2001, respectively.
Note 13. Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Bank's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Bank
could have realized in a sales transaction on the dates indicated. The
estimated fair value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes of these financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the
fair value of the entire Bank since a fair value calculation is only provided
for a limited portion of the Bank's assets. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Bank's disclosures and those of other companies may not
be meaningful. The following methods and assumptions were used to estimate the
fair value of the Bank's financial instruments at June 30, 2002 and 2001.
Financial Instruments Valued at Carrying Value. The carrying amounts of
cash and due from banks, interest-bearing deposits with banks, federal funds
sold and resale agreements and loans held for sale approximate their fair
value. The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other borrowed funds maturing within 90 days
approximate their fair values. The carrying amounts of accrued interest
approximate their fair values.
Available-for-Sale and Held-to-Maturity Securities. Fair values for
securities, excluding restricted equity securities, are based on available
quoted market prices. If quoted market prices are unavailable, fair values are
based on quoted market prices of comparable instruments. For unquoted
securities for which no comparable instruments exist, the reported fair value
is estimated on the basis of cost, book or appraised value as deemed
appropriate by management. Available-for-sale securities are carried at their
aggregate fair value.
F-13
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loans. For variable-rate commercial loans that reprice frequently (within a
relatively short time frame) and have no significant change in credit risk,
fair values are based on carrying values. Residential first mortgages are based
on quoted market prices of similar loans. Fair values for certain junior
mortgage loans, consumer installment loans, credit-card loans, and other
consumer loans are estimated using discounted cash flow models. The discount
rates are based on current market interest rates for similar types of loans.
Fair values for commercial real estate and commercial loans that do not reprice
or do not mature within relatively short time frames are estimated using
discounted cash flow analyses. The discount rates used are those currently
being offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted cash
flow analyses or underlying collateral values, where applicable.
Deposits. The fair values for demand deposits and deposits with no defined
maturity are determined to be the amount payable on demand at the reporting
date. The fair values for fixed-maturity deposits are estimated using
discounted cash flow models based on rates currently offered for the relevant
product types with similar remaining maturities.
The carrying amount, the amount at which financial instruments are reported
in the balance sheet, and the estimated fair values of the Bank's financial
instruments are as follows:
June 30,
-----------------------------------
2002 2001
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(000's) (000's) (000's) (000's)
-------- -------- -------- --------
Financial Assets
Cash and due from banks..................................... $ 14,255 $ 14,255 $ 7,349 $ 7,349
Securities available for sale............................... 12,578 12,578 50,896 50,896
Securities held to maturity................................. 67,731 68,723 36,599 36,762
Loans, net of allowance..................................... 132,647 132,647 98,230 98,230
-------- -------- -------- --------
Total financial assets.................................. 227,211 $228,203 193,074 $193,237
======== ========
Nonfinancial Assets............................................ 7,044 6,493
-------- --------
Total assets............................................ $234,255 $199,567
======== ========
Financial Liabilities
Deposits:
Noninterest bearing deposits................................ $ 44,303 $ 44,303 $ 31,285 $ 31,285
Interest bearing demand and time deposits................... 160,437 160,437 149,171 149,171
-------- -------- -------- --------
Total deposits................................................. 204,740 204,740 180,456 180,456
Federal funds purchased and securities sold under agreements to
repurchase................................................... 11,678 11,678 3,649 3,649
Other borrowed funds........................................... -- -- -- --
-------- -------- -------- --------
Total financial liabilities............................. 216,418 $216,418 184,105 $184,105
======== ========
Nonfinancial Liabilities....................................... 656 670
Stockholders' Equity........................................... 17,181 14,792
-------- --------
Total liabilities and stockholders' equity.............. $234,255 $199,567
======== ========
Off-Balance Sheet Financial Instruments:
Loan commitments............................................... $ 35,280 $ 33,300
Letters of credit.............................................. $ 1,343 $ 2,619
F-14
CORNELIUS, STEGENT & PRICE, LLP
--------------------------------------------------------------------------------
24 E. Greenway Plaza, Suite 515 CERTIFIED PUBLIC ACCOUNTANTS
Houston, Texas 77046
Tel (713) 840-9300
Fax (713) 840-0012
Board of Directors
Bank of Tanglewood, N.A.
Houston, Texas
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Bank of
Tanglewood, N.A. and subsidiary as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bank of
Tanglewood, N.A. and subsidiary as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Cornelius, Stegent & Price, LLP
Houston, Texas
February 13, 2002
F-15
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
2001 2000
ASSETS ------------ -----------
ASSETS
Cash and cash equivalents
Cash and due from banks--demand (Note 2)......................... $ 11,124,211 5,611,857
Interest bearing deposits in banks............................... 144,290 5,180,491
------------ -----------
11,268,501 10,792,348
Investment securities (Note 3)..................................... 115,323,023 58,356,595
Loans, net (Notes 4 and 5)......................................... 117,774,723 81,264,126
Premises and equipment, net (Note 6)............................... 3,881,552 3,201,972
Accrued interest receivable........................................ 1,194,333 1,070,684
Other assets....................................................... 761,470 785,960
------------ -----------
Total assets................................................. $250,203,602 155,471,685
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing demand deposits................................ $ 47,646,707 34,219,045
Interest bearing demand and time deposits.......................... 174,310,250 104,830,621
------------ -----------
Total deposits (Note 7)...................................... 221,956,957 139,049,666
Federal funds borrowed and security repurchase agreements.......... 11,891,228 3,800,086
Accrued interest payable........................................... 243,928 299,765
Other liabilities.................................................. 439,846 409,641
------------ -----------
Total liabilities............................................ 234,531,959 143,559,158
------------ -----------
STOCKHOLDERS' EQUITY (Notes 10 and 12)
Common stock, $5 par value; authorized 1,500,000 shares; issued and
outstanding 2001--977,160 shares; 2000--901,200 shares........... 4,885,800 4,506,000
Surplus............................................................ 6,828,400 5,719,000
Retained earnings.................................................. 3,703,537 1,679,289
Accumulated other comprehensive income............................. 253,906 8,238
------------ -----------
Total stockholders' equity................................... 15,671,643 11,912,527
------------ -----------
Total liabilities and stockholders' equity................... $250,203,602 155,471,685
============ ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-16
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000
2001 2000
----------- -----------
INTEREST INCOME:
Interest and fees on loans........................... $ 7,767,043 6,656,766
Interest on federal funds sold....................... -- 14,355
Interest and dividends on investment securities...... 5,820,601 3,685,876
----------- -----------
Total interest income............................ 13,587,644 10,356,997
----------- -----------
INTEREST EXPENSE:
Interest on deposits................................. 5,253,952 4,854,720
Interest on federal funds purchased.................. 28,097 56,888
Interest on repurchase agreements and borrowed funds. 258,950 143,514
----------- -----------
Total interest expense........................... 5,540,999 5,055,122
----------- -----------
NET INTEREST INCOME..................................... 8,046,645 5,301,875
PROVISION FOR LOAN LOSSES (Notes 4 and 5)............... 271,900 315,600
----------- -----------
7,774,745 4,986,275
----------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts.................. 80,176 45,824
Fees and other income................................ 947,514 318,425
----------- -----------
Total other operating income..................... 1,027,690 364,249
----------- -----------
OTHER OPERATING EXPENSE:
Salaries and employee benefits....................... 3,321,271 2,303,081
Occupancy expenses................................... 857,360 622,194
Other operating expenses............................. 1,679,205 941,950
----------- -----------
Total other operating expense.................... 5,857,836 3,867,225
----------- -----------
INCOME BEFORE INCOME TAXES.............................. 2,944,599 1,483,299
Provision for income taxes (Note 11).................... 920,351 409,230
----------- -----------
NET INCOME.............................................. $ 2,024,248 1,074,069
=========== ===========
Earnings Per Common Share:
Basic Shares Outstanding............................. $ 2.10 $ 1.19
=========== ===========
Fully Diluted........................................ $ 1.89 $ 1.08
=========== ===========
Average Common Stock Equivalent:
Shares Outstanding................................... 963,212 900,933
Vested Options Outstanding........................... 106,870 90,430
----------- -----------
Total Common Stock Equivalents................... 1,070,082 991,363
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-17
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000
Accumulated
Common Stock Other
------------------ Retained Comprehensive
Shares Amount Surplus Earnings Income Total
------- ---------- ---------- ---------- ------------- -----------
BALANCE AT
JANUARY 1, 2000............... 900,800 $4,504,000 $5,717,000 $ 605,220 $(373,548) $10,452,672
Comprehensive income
Net income..................... 1,074,069 1,074,069
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income tax
expense of $129,807........ -- -- -- -- 381,786 381,786
-----------
Total comprehensive income...... 1,455,855
Issuance of stock............... 400 2,000 2,000 -- -- 4,000
------- ---------- ---------- ---------- --------- -----------
BALANCE AT
DECEMBER 31, 2000............. 901,200 4,506,000 5,719,000 1,679,289 8,238 11,912,527
Comprehensive income............
Net income..................... 2,024,248 2,024,248
Other comprehensive income,
net of tax:
Change in unrealized gain
(loss) on securities
available-for-sale, net of
deferred income tax
expense of $83,527......... 245,668 245,668
-----------
Total comprehensive
income................... 2,269,916
Issuance of stock............... 75,960 379,800 1,109,400 -- -- 1,489,200
------- ---------- ---------- ---------- --------- -----------
BALANCE AT
DECEMBER 31, 2001............. 977,160 $4,885,800 $6,828,400 $3,703,537 $ 253,906 $15,671,643
======= ========== ========== ========== ========= ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-18
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000
2001 2000
------------ ------------
Cash Flows From Operating Activities
Interest received................................. $ 13,463,995 $ 10,107,860
Fees and commission received...................... 1,027,690 364,249
Interest paid..................................... (5,596,836) (4,947,929)
Cash paid to suppliers and employees.............. (5,464,953) (3,713,268)
Income taxes paid................................. (1,000,000) (356,855)
------------ ------------
Net cash provided by operating activities..... 2,429,896 1,454,057
------------ ------------
Cash Flows From Investing Activities
Investment securities, net........................ (56,720,760) (9,550,084)
(Increase) in loans, net.......................... (36,782,497) (19,034,528)
Equipment purchases, net.......................... (938,119) (322,752)
------------ ------------
Net cash used in investing activities......... (94,441,376) (28,907,364)
------------ ------------
Cash Flows From Financing Activities
Issuance of capital stock......................... 1,489,200 4,000
Increase in repurchase agreements, net............ 8,091,142 (2,587,639)
Increase (decrease) in liabilities to other banks. -- --
Increase in deposits, net......................... 82,907,291 34,186,491
------------ ------------
Net cash provided by financing activities..... 92,487,633 31,602,852
------------ ------------
Net increase in cash and cash equivalents............ 476,153 4,149,545
Cash and cash equivalents, beginning of year......... 10,792,348 6,642,803
------------ ------------
Cash and cash equivalents, end of year............... $ 11,268,501 $ 10,792,348
============ ============
F-19
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
2001 2000
---------- ----------
Net Income...................................................................... $2,024,248 $1,074,069
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities
Depreciation and amortization................................................ 258,539 167,712
Provision for loan losses.................................................... 271,900 315,600
(Increase) in accrued interest receivable.................................... (123,649) (249,137)
(Increase) in other assets................................................... 24,490 (180,752)
Increase (decrease) in accrued interest payable.............................. (55,837) 107,193
(Decrease) in other liabilities.............................................. 30,205 219,372
---------- ----------
Net cash provided by operating activities................................ $2,429,896 $1,454,057
========== ==========
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks (including cash items in process of clearing),
and federal funds sold. Generally, federal funds are purchased and sold for
one-day periods. Cash flows from loans originated by the Bank and deposits are
reported net.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-20
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting and Reporting Policies
Nature of Operations:
The Company conducts a full-service commercial banking business from their
principal office in the Tanglewood area of Houston, Texas and branches located
in the West University area and in the Memorial area of Houston, Texas.
In 2001, the Company raised $1,489,200 from a stock offering related to the
branch opening.
During 2000, the Company formed a financial subsidiary in order to serve the
estate planning, insurance and investment needs of their customers. It offers
various financial products such as stocks, bonds, mutual funds, annuities and
various forms of insurance.
Principles of Consolidation:
The consolidated financial statements include the accounts of Bank of
Tanglewood, N. A. ("the Bank") and its wholly-owned subsidiary, Tanglewood
Financial Services Incorporated. These entities are collectively referred to as
"the Company". All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the
determination of the estimated losses on loans, management obtains independent
appraisals for significant collateral.
The Bank's loans are generally secured by specific items of collateral
including real property, consumer assets, and business assets. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent on local economic conditions.
While management uses available information to recognize losses on loans,
further reduction in the carrying amounts of loans may be necessary based on
changed in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change materially in the near term. However,
the amount of the change that is reasonable possible cannot be estimated.
Investment Securities:
Investment securities that are held for short-term resale are classified as
trading securities and carried at fair value.
F-21
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Securities
held-to-maturity are carried at amortized cost. The amortization of premium and
accretion of discounts are recognized in interest income using methods
approximating the interest method over the period to maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Securities available-for-sale are carried at fair value
with unrealized gains and losses reported in other comprehensive income.
Realized gains (losses) on securities available-for-sale are included in other
income (expense) and, when applicable, are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on
sales of securities are determined on the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses.
Mortgage-Backed Securities:
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Management intends and has the ability to hold such securities to
maturity. Should any be sold, the cost of securities sold is determined using
the specific identification method.
Loans:
Loans are stated at the amount of unpaid principal, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the
term of the loans, using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
Allowance for Loan Losses:
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans, economic conditions, and other risks inherent in the
portfolio. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Although
management uses available information to recognize losses on loans, because
F-22
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
of uncertainties associated with local economic conditions, collateral values,
and future cash flows on impaired loans, it is reasonably possible that a
material change could occur in the allowance for loan losses in the near term.
However, the amount of the change that is reasonably possible cannot be
estimated. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Changes in
the allowance relating to impaired loans are charged or credited to the
provision for loan losses.
Premises and Equipment:
Land is carried at cost. Other premises and equipment are carried at cost
net of accumulated depreciation. Depreciation is computed using the
straight-line and declining balance methods based principally on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
Other Real Estate:
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value
less estimated selling cost at the date of foreclosure. Any write-downs based
on the asset's fair value at the date of acquisition are charged to the
allowance for loan losses. After foreclosure, these assets are carried at the
lower of their new cost basis or fair values less cost to sell. Costs of
significant property improvements are capitalized, whereas costs relating to
holding property are expensed. The portion of interest costs relating to
development of real estate is capitalized. Valuations are periodically
performed by management, and any subsequent write-downs are recorded as a
charge to operations, if necessary, to reduce the carrying value of a property
to the lower of its cost or fair value less cost to sell. The Company had no
other real estate at December 31, 2001 and 2000.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, and accumulated depreciation for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled. Deferred tax assets and liabilities are reflected at income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. The Company files consolidated income tax returns with its
subsidiary.
Mortgage Servicing Rights:
Capitalized mortgage servicing assets consist of purchased and originated
servicing rights. These rights are amortized in proportion to, and over the
period of, the estimated future net servicing income stream of the underlying
mortgage loans. Mortgage servicing rights are assessed for impairment based on
the fair value of the right and any related derivative contracts. Impairment is
evaluated by stratifying the mortgage servicing rights by interest rate bands.
Fair value is determined considering market prices for similar assets or based
on discounted cash flows using market-based prepayment estimates for similar
coupons as well as incremental direct and indirect costs.
The mortgage servicing operation was discontinued as of September 30, 2001,
when it was sold to a third party.
F-23
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Employee Benefits:
Effective April 1, 1998, the Company adopted a contributory 401(k) profit
sharing plan, covering substantially all employees. The Company's contributions
are determined annually, at the Company's discretion. Total plan expense for
the years ended December 31, 2001 and 2000 was $59,186 and $35,290,
respectively.
Stock Option Plan:
The Bank has a stock option plan under which 173,000 shares of common stock
are reserved for issuance. Options have been granted to Bank officers and
employees totaling 168,700 shares of common stock at exercise prices ranging
from $10 to $30 per share. These options expire 10 years from the date of
grant; options totaling 2,160 shares have been exercised to date.
Deferred Compensation Plan:
In November, 2001, the Board approved a deferred compensation plan for bank
employees. The plan has an eight year vesting period with vesting occurring 20%
annually beginning the fourth year following the date of award. Awards totaling
62,500 shares have been made at award values of $25 to $30 per share. Award
shares are similar to stock option shares in nature, although they are not
shares of common stock. Award values vary with changes in the market value of
the common stock. Deferred compensation expense recognized in 2001 was $1,442.
Note 2. Restrictions on Cash and Due from Banks
The Bank is required to maintain reserve funds in cash or on deposit with
the Federal Reserve Bank. The required reserve at December 31, 2001 and 2000,
was $2,658,000 and $839,000, respectively.
Note 3. Investment Securities
Securities held-to-maturity were as follows:
2001
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Government agency obligations $ -- $ -- $-- $ --
Mortgage-backed securities........ 73,866,544 227,909 -- 74,094,453
Tax-exempt municipals............. 5,650,000 -- -- 5,650,000
Other............................. 853,350 2,125 -- 855,475
----------- -------- --- -----------
$80,369,894 $230,034 $-- $80,599,928
=========== ======== === ===========
Securities held-to-maturity were as follows (continued):
2000
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ---------- ------------
U.S. Government agency obligations $10,115,262 $ -- $21,990 $10,093,272
Mortgage-backed securities........ 9,134,225 17,035 9,117,190
Tax-exempt municipals............. 3,045,000 13,635 -- 3,058,635
Other............................. 745,850 1,094 -- 746,944
----------- ------- ------- -----------
$23,040,337 $14,729 $39,025 $23,016,041
=========== ======= ======= ===========
F-24
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Securities available-for-sale were as follows:
2001
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ---------- ------------
U.S. Government agency obligations $ -- $ -- $-- $ --
Mortgage-backed securities........ 34,568,425 384,704 -- 34,953,129
----------- -------- --- -----------
$34,568,425 $384,704 $-- $34,953,129
=========== ======== === ===========
2000
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ---------- ------------
U.S. Government agency obligations $ -- $ -- $-- $ --
Mortgage-backed securities........ 35,303,776 12,482 -- 35,316,258
----------- ------- --- -----------
$35,303,776 $12,482 $-- $35,316,258
=========== ======= === ===========
The gains (losses) are reflected in stockholders' equity, net of applicable
deferred income taxes. The deferred income tax assets (liabilities) are
included in other assets and other liabilities.
The amortized cost and estimated market value of debt securities at December
31, 2001, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Estimated
Maturity Amortized Cost Market Value
-------- -------------- ------------
2002...... $ 3,608,675 $ 3,608,739
2003-2007. 1,801,452 1,820,548
Thereafter 108,724,842 109,320,420
------------ ------------
Total..... $114,134,969 $114,749,707
============ ============
There were $40,508,629 and $17,643,071 investment securities pledged as
collateral on deposits of public funds and repurchase agreements at December
31, 2001 and 2000, respectively.
Note 4. Loans
The composition of net loans is as follows:
2001 2000
------------ -----------
Commercial................. $ 26,714,639 $17,883,411
Real estate:
Construction............ 23,322,777 13,935,544
Other................... 51,762,226 34,978,061
Installment consumer....... 11,300,143 10,035,974
Government guaranteed loans 5,889,654 5,373,952
------------ -----------
Total loans......... 118,989,439 82,206,942
Unearned discount.......... -- --
Allowance for loan losses.. (1,214,716) (942,816)
------------ -----------
Net loans........... $117,774,723 $81,264,126
============ ===========
There were no nonaccruing loans at December 31, 2001 and 2000.
F-25
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 5. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
2001 2000
---------- --------
Balance, beginning........................ $ 942,816 $632,008
Provision charged to operating expense. 271,900 315,600
Recoveries of amounts charged off...... 553 --
---------- --------
1,215,269 947,608
Amounts charged off....................... 553 4,792
---------- --------
Balance, ending........................... $1,214,716 $942,816
========== ========
Note 6. Premises and Equipment
Major classifications of premises and equipment are summarized below:
Cost Or Accumulated Net Book
Basis Depreciation Value
---------- ------------ ----------
At December 31, 2001:
Land...................................... $ 688,113 $ -- $ 688,113
Bank premises and leasehold improvements.. 1,880,013 209,239 1,670,774
Furniture and equipment................... 1,746,537 497,412 1,249,125
Construction-in-progress.................. 273,540 -- 273,540
---------- -------- ----------
Total bank premises and equipment..... $4,588,203 $706,651 $3,881,552
========== ======== ==========
Cost Or Accumulated Net Book
Basis Depreciation Value
---------- ------------ ----------
At December 31, 2000:
Land...................................... $ 688,113 $ -- $ 688,113
Bank premises and leasehold improvements.. 1,719,171 132,271 1,586,900
Furniture and equipment................... 1,224,451 312,721 911,730
Construction-in-progress.................. 15,229 -- 15,229
---------- -------- ----------
Total bank premises and equipment..... $3,646,964 $444,992 $3,201,972
========== ======== ==========
F-26
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 7. Deposits
The composition of deposits is as follows:
2001 2000
------------ ------------
Noninterest bearing--demand.................... $ 47,646,707 $ 34,219,045
Interest bearing:
Savings..................................... 1,276,119 943,364
Demand...................................... 127,533,172 69,566,506
Certificates of deposit..................... 45,500,959 34,320,751
------------ ------------
$221,956,957 $139,049,666
============ ============
(000's) (000's)
------------ ------------
Certificates mature in: Less than one year.... $ 38,772 $ 31,042
1 through 3 years............ 6,729 3,279
More than 3 years............ -- --
------------ ------------
$ 45,501 $ 34,321
============ ============
At December 31, 2001 and 2000, time certificates of deposit in denominations
of $100,000 and more totaled $30,356,146 and $22,991,667, respectively.
Interest expense on time certificates of deposit and other time deposits in
denominations of $100,000 or more amounted to approximately $1,578,606 and
$1,025,694 for the years ended December 31, 2001 and 2000.
Note 8. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Bank has outstanding commitments to
extend credit and standby letters of credit, which are not included in the
accompanying consolidated financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit and standby letters of credit is
represented by the contractual or notional amount of those instruments. The
Bank uses the same credit policies in making commitments as it does for
instruments that are included in the consolidated balance sheet instruments.
Financial instruments whose contract amount represents credit risk were as
follows:
2001 2000
----------- -----------
Commitments to extend credit $35,879,954 $30,522,328
Standby letters of credit... 2,870,807 425,072
----------- -----------
$38,750,761 $30,947,400
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed
F-27
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The Bank has not been required to perform on any financial guarantees during
the past two years. The Bank has not incurred any losses on its commitments in
either 2001 or 2000.
Note 9. Commitments and Contingent Liabilities
The Company is obligated under various noncancelable lease agreements for
premises and equipment. Net rent expense was $375,233 and $296,944 for the
years ended December 31, 2001 and 2000.
The Company and the Bank are subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial statements of
the Company.
Note 10. Regulatory Matters
Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators, that if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines involving quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total risk-based
capital and Tier I capital to risk-weighted assets, and Tier I capital to
adjusted total assets. Management believes, as of December 31, 2001, that the
Bank meets all capital adequacy requirements to which it is subject.
Banks are also subject to certain restrictions on the amount of dividends
that they may declare without prior regulatory approval.
As of December 31, 2001, the Bank was categorized as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank will have to maintain minimum total risk-based, Tier
1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There
are no conditions or events that management believes have changed the Bank's
prompt corrective action category.
F-28
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Bank's actual and required capital amounts and ratios are as follows:
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------------- -------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------------------- ------- ------------------ ------- -------------------
(000's) (000's) (000's)
As of December 31, 2001:
Total Capital (to Risk Weighted Assets). $16,633 (greater or =)12.11% $10,990 (greater or =)8.00% $13,737 (greater or =)10.00%
Tier 1 Capital (to Risk Weighted Assets) $15,418 (greater or =)12.67% $ 5,495 (greater or =)4.00% $ 8,242 (greater or =) 6.00%
Tier 1 Capital (to Average Assets)...... $15,418 (greater or =) 7.92% $ 9,643 (greater or =)4.00% $12,054 (greater or =) 5.00%
As of December 31, 2000:
Total Capital (to Risk Weighted Assets). $12,611 (greater or =)13.69% $ 7,369 (greater or =)8.00% $ 9,211 (greater or =)10.00%
Tier 1 Capital (to Risk Weighted Assets) $11,668 (greater or =)12.67% $ 3,684 (greater or =)4.00% $ 5,527 (greater or =) 6.00%
Tier 1 Capital (to Average Assets)...... $11,668 (greater or =) 7.92% $ 5,891 (greater or =)4.00% $ 7,364 (greater or =) 5.00%
Note 11. Federal Income Tax Expense
Federal income taxes were computed as follows:
2001 2000
---------- ---------
Tax at statutory rate............. $1,001,164 $ 504,322
Effect of tax-exempt interest, net (81,533) (105,856)
Other............................. 720 10,764
---------- ---------
$ 920,351 $ 409,230
========== =========
Deferred income taxes are reflected in the financial statements based on the
following:
2001 2000
--------- ---------
Deferred tax liabilities--unrealized appreciation on securities $ 130,800 $ 4,244
Deferred tax assets--unamortized startup costs................. -- (5,993)
Deferred tax assets--loan losses............................... (383,718) (291,272)
--------- ---------
(252,918) (293,021)
Valuation allowance............................................ -- --
--------- ---------
$(252,918) $(293,021)
========= =========
The valuation allowance did not change during 2001.
Note 12. Related Party Transactions
The Company's officers, directors and their associates, including
corporations and firms of which they are officers or in which they and/or their
families have an ownership interest, are customers of the Bank. Loans to
officers, directors, and their associates were approximately $3,140,000 and
$2,397,000 at December 31, 2001 and 2000, respectively.
F-29
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 13. Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates indicated.
The estimated fair value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes of these financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the
fair value of the entire Company since a fair value calculation is only
provided for a limited portion of the Company's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were
used to estimate the fair value of the Company's financial instruments at
December 31, 2001 and 2000.
Financial Instruments Valued at Carrying Value. The carrying amounts of
cash and due from banks, interest-bearing deposits with banks, federal funds
sold and resale agreements and loans held for sale approximate their fair
value. The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other borrowed funds maturing within 90 days
approximate their fair values. The carrying amounts of accrued interest
approximate their fair values.
Available-for-Sale and Held-to-Maturity Securities. Fair values for
securities, excluding restricted equity securities, are based on available
quoted market prices. If quoted market prices are unavailable, fair values are
based on quoted market prices of comparable instruments. For unquoted
securities for which no comparable instruments exists, the reported fair value
is estimated on the basis of cost, book or appraised value as deemed
appropriate by management. Available-for-sale securities are carried at their
aggregate fair value.
Loans. For variable-rate commercial loans that reprice frequently (within
a relatively short time frame) and have no significant change in credit risk,
fair values are based on carrying values. Residential first mortgages are based
on quoted market prices of similar loans. Fair values for certain junior
mortgage loans, consumer installment loans, credit-card loans, and other
consumer loans are estimated using discounted cash flow models. The discount
rates are based on current market interest rates for similar types of loans.
Fair values for commercial real estate and commercial loans that do not reprice
or do not mature within relatively short time frames are estimated using
discounted cash flow analyses. The discount rates used are those currently
being offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted cash
flow analyses or underlying collateral values, where applicable.
Deposits. The fair values for demand deposits and deposits with no defined
maturity are determined to be the amount payable on demand at the reporting
date. The fair values for fixed-maturity deposits are estimated using
discounted cash flow models based on rates currently offered for the relevant
product types with similar remaining maturities.
F-30
BANK OF TANGLEWOOD, N.A. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The carrying amount, the amount at which financial instruments are reported
in the balance sheet, and the estimated fair values of the Bank's financial
instruments are as follows:
December 31,
---------------------------------------
2001 2000
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
(000's) (000's) (000's) (000's)
-------- ---------- -------- ----------
Financial Assets
Cash and due from banks............................... $ 11,268 $ 11,268 $ 10,792 $ 10,792
Federal funds sold.................................... -- -- -- --
Securities available-for-sale......................... 34,953 34,953 35,316 35,316
Securities held-to-maturity........................... 80,370 80,600 23,040 23,016
Loans, net of allowance............................... 117,775 117,775 81,264 81,264
-------- -------- -------- --------
Total financial assets............................ 244,366 $244,596 150,412 $150,388
======== ========
Nonfinancial Assets...................................... 5,838 5,061
-------- --------
Total assets.......................................... $250,204 $155,473
======== ========
Financial Liabilities
Deposits:
Noninterest bearing deposits.......................... $ 47,647 $ 47,647 $ 34,219 $ 34,219
Interest bearing demand and time deposits............. 174,310 174,310 104,831 104,831
-------- -------- -------- --------
Total deposits........................................... 221,957 221,957 139,050 139,050
Federal funds borrowed and security repurchase agreements 11,891 11,891 3,800 3,800
-------- -------- -------- --------
Total financial liabilities........................... 233,848 $233,848 142,850 $142,850
======== ========
Nonfinancial Liabilities................................. 684 710
Stockholders' Equity..................................... 15,672 11,913
-------- --------
Total liabilities and stockholders' equity............... $250,204 $155,473
======== ========
Off-Balance Sheet Financial Instruments:
Loan commitments......................................... $ 35,880 $ 30,522
Letters of credit........................................ $ 2,871 $ 425
F-31
ANNEX I
AGREEMENT AND PLAN OF MERGER
BOK FINANCIAL CORPORATION,
BANK OF TANGLEWOOD, N. A.,
and
TW INTERIM NATIONAL BANK
May 15, 2002
Amended August 21, 2002
AI-1
Agreement and Plan of Merger
This agreement (the "Merger Agreement") is made as of 15th day of May, 2002
(the "Agreement Date") among the following parties (the "Parties"):
i. BOK Financial Corporation, an Oklahoma corporation ("BOKF");
ii. Bank of Tanglewood, National Association ("Tanglewood"); and,
iii. TW Interim National Bank, a national association ("TW").
In consideration of the mutual covenants contained herein, the adequacy of
which is hereby expressly acknowledged, and intending to be legally bound
hereby, BOKF, Tanglewood, and TW agree as follows:
1. Purpose of this Merger Agreement. The purpose of this Merger Agreement is
as follows:
a. Tanglewood is a national association formed under the National Bank Act
with its principal office in Houston, Texas. Tanglewood is subject to
regulation by the Office of the Comptroller of the Currency ("OCC"). The
capital stock of Tanglewood consists of a single class of 1,500,000
shares common stock of the par value of $5.00 per share (the "Tanglewood
Common Stock").
b. BOKF is a bank holding company organized under the laws of the State of
Oklahoma. BOKF is subject to regulation by the Board of Governors of the
Federal Reserve System ("FRB"). The common stock of BOKF has a par value
of $0.00006 per share (the "BOKF Common Stock") and is traded on the
facilities of NASDAQ under the trading symbol "BOKF".
c. TW shall be an interim national association organized by BOKF for the
purpose of facilitating the transactions contemplated by this Merger
Agreement pursuant to 12 CFR Section 5.33, as hereafter provided.
d. BOKF owns, indirectly through intermediate bank holding companies, all
of the capital stock of Bank of Texas, National Association.
e. The purpose of this Merger Agreement is to set forth the terms and
conditions on which BOKF will acquire all of the issued and outstanding
capital stock of Tanglewood through a merger of Tanglewood into TW.
f. This Merger Agreement shall constitute a plan of merger for corporate
law purposes and for federal income tax purposes under Section
368(a)(2)(D) of the Internal Revenue Code.
2. The Merger. On the terms and conditions hereafter stated:
a. Tanglewood shall be merged into TW (the "Merger").
b. TW shall be the surviving corporation ("Surviving Corporation").
c. The Articles of Incorporation of TW shall be the Articles of
Incorporation of the Surviving Corporation until changed as provided by
law. The initial Articles of Incorporation of TW shall be identical to
the Articles of Incorporation of Tanglewood with only such changes as
are required to reflect the name of TW.
d. The Bylaws of TW shall be the Bylaws of the Surviving Corporation until
changed as provided by law. The initial By-laws of TW shall be identical
to the By-laws of Tanglewood with only such changes as are required to
reflect the name of TW.
e. The officers of Tanglewood shall be the officers of the Surviving
Corporation, until changed as provided by law.
AI-2
f. The directors of Tanglewood shall be the directors of the Surviving
Corporation until changed as provided by law.
g. The Merger shall be effective at the Closing Date (as hereafter defined).
h. Each share of Tanglewood Common Stock issued and outstanding at the
Closing Date shall, automatically and without any action on the part of
the holder thereof, be converted into that number of shares of fully
paid and non-assessable shares of BOKF Common Stock equal to the
Conversion Ratio (as hereafter defined); provided, however, no
fractional shares of BOKF Common Stock shall be issued and, in lieu of
any fractional share to which any person or entity who or which is a
record holder of Tanglewood Common Stock on the Record Date (as
hereafter defined) is entitled, a full share of BOKF Common Stock shall
be issued.
i. Each holder of Tanglewood Common Stock on the Record Date ("Holder")
shall have the right to receive, upon termination of the BOKF Common
Stock Escrow (as hereafter defined in Paragraph 20), her, his or its
share of the Escrow Shares (as hereafter defined) distributable to
Holders upon termination of the BOKF Common Stock Escrow.
3. Determination of Conversion Ratio. The Conversion Ratio ("Conversion
Ratio") shall be determined in the following manner:
a. The Conversion Ratio shall be (A) the BOKF Total Share Number (as
hereafter defined) divided by (B) the Tanglewood Total Share Number (as
hereafter defined).
b. The BOKF Total Share Number shall be (A) Sixty Five Million Dollars
($65,000,000) less Company Transaction Costs (as hereafter defined)
divided by(B) the average of the mid-points between the highest price
and the lowest price at which trades occurred (or, in the event of a
single trade, the price of such trade) for BOKF Common Stock on NASDAQ
on the thirty (30) trading days on which at least one trade actually
occurs (the "BOKF Common Stock Market Value"), immediately preceding the
Closing Date.
c. The Tanglewood Total Share Number shall be the sum of (A) the number of
shares of Tanglewood Common Stock issued and outstanding on the Closing
Date and (B) the number of shares of Tanglewood Common Stock to be
issued pursuant to the Stock Options (as hereafter defined).
d. Company Transaction Costs shall be the sum of all brokerage and
investment advisory fees and commissions (including the cost of any
fairness opinions) incurred by Tanglewood in connection with the Merger
after December 31, 2001 and prior to the Closing Date.
e. The Record Date shall be a date designated by BOKF and shall be not
earlier than ten calendar days, nor later than five calendar days,
preceding the date on which the Closing is expected by BOKF to occur.
4. Tanglewood Stock Option Plan. Reference is hereby made to the Bank of
Tanglewood, National Association 1996 Stock Option Plan ( the "Tanglewood
SOP"). Effective as of the Closing Date BOKF shall assume the Tanglewood SOP
and each option to buy one share of Tanglewood Common Stock pursuant to the
Tanglewood SOP which remains outstanding on the Closing Date (each a "Stock
Option" and collectively, the "Stock Options") shall automatically and
without any action on the part of the holders of the Stock Options (the
"Optionees") be converted into the right to acquire that number of shares of
BOKF Common Stock equal to the Conversion Ratio at the per share price
adjusted to provide the same option profit immediately following the Closing
as before the Closing determined in accordance with the Tanglewood SOP;
provided, however:
a. The Optionees having at least ninety-seven percent (97%) of the Stock
Options and Tanglewood shall agree in writing prior to, and subject to,
consummation of the Closing:
i. The Stock Options shall automatically become BOKF stock options that
do not constitute Incentive Stock Options within the meaning of
section 422 of the Internal Revenue Code;
AI-3
ii. the Stock Options may not be exercised until the Closing has been
consummated; and,
iii. The Stock Options shall either be exercised within one hundred twenty
(120) calendar days following the Closing or the Stock Options shall
terminate.
b. No fractional shares shall be issued in respect of the Stock Options. In
lieu of any fractional share to which any Optionee is entitled, a full
share of BOKF Common Stock shall be issued.
5. BOKF Shares. The shares of BOKF Common Stock to be issued in accordance
with Paragraph 2h and Paragraph 4 are hereafter collectively called the
"BOKF Shares".
6. Delivery of a Portion of the BOKF Shares Into Escrow. A portion of the BOKF
Shares (the "Escrow Shares") shall be delivered to the BOKF Common Stock
Escrow (as hereafter defined in Paragraph 20).
a. The Escrow Shares shall consist of that number of shares of BOKF Common
Stock having a BOKF Common Stock Market Value on the Closing Date of
Seven Hundred Fifty Thousand Dollars ($750,000), adjusted for any
rounding requirements (the "Escrow Shares Number").
b. The number of shares of BOKF Common Stock deliverable into escrow shall
be prorated between Holders (excluding any dissenting shares and based
on the number of shares of Tanglewood Common Stock owned by each Holder)
and the Optionees on the Closing Date, rounded in the case of each
Holder and Optionee up to the nearest whole share.
7. Effect of the Merger. The Merger shall have the following effects:
a. The corporate franchise, existence, rights and liabilities of TW shall
continue unaffected and unimpaired.
b. The corporate franchise, existence, rights and liabilities of Tanglewood
shall be merged into TW and the separate existence of Tanglewood shall
cease.
c. TW shall have and be vested with all of the rights, powers, assets,
property, liabilities and obligations of Tanglewood.
d. The name of TW shall automatically, without any further action, be
changed to Bank of Tanglewood, National Association.
8. BOKF Common Stock Market Value Protection. BOKF shall provide market value
protection respecting the BOKF Shares to the Holders and the Optionees, on
the following terms and conditions (the "Benchmark Price Protection"):
a. BOKF shall pay each Holder and Optionee in respect of each BOKF Share
sold for cash during the Benchmark Period (as hereafter defined) up to
but not exceeding in each Benchmark Period ten percent (10%) of the
total BOKF Shares received by such Holder and/or Optionee, an amount
equal to the deficit between the Benchmark Target Price (as hereafter
defined) and the price at which such BOKF Shares were so sold (the
"Benchmark Payment").
b. Each of the first, second, third, fourth, and fifth anniversary dates of
the Closing shall be a Benchmark Date.
c. Each Benchmark Period shall be the sixty (60) calendar day period
immediately following each Benchmark Date.
d. The Benchmark Target Price shall be the BOKF Common Stock Market Value
on the Closing Date times the applicable Benchmark Price Multiple, as
follows:
Benchmark Price
Benchmark Date Multiple
-------------- ---------------
First..... 1.08
Second.... 1.16
Third..... 1.24
Fourth.... 1.32
Fifth..... 1.40
AI-4
e. As a condition precedent to the obligation of BOKF to make the Benchmark
Payment, each Holder or Optionee shall advise BOKF not later than
seventy-five (75) calendar days following the applicable Benchmark Date
of the number of BOKF Shares sold by such Holder or Optionee, the dates
on which such transactions occurred and the prices at which such BOKF
Shares were sold together with reasonable supporting documentation.
f. Provided the Holder or Optionee has timely given the advice required by
the preceding subparagraph to BOKF, BOKF shall pay the Holder the
Benchmark Payment not later than the ninetieth (90th) calendar day
following the Benchmark Date.
g. BOKF shall make the Benchmark Payment, at BOKF's sole discretion, either
in cash or by the issuance of shares of BOKF Common Stock at the BOKF
Common Stock Market Value determined as of the applicable Benchmark Date
(but not, in any event, exceeding 10,000,000 shares of BOKF Common
Stock); provided, BOKF shall in no event issue any fractional share, but
shall, in lieu of the issuance of a fractional share:
i. Pay cash equal to the BOKF Common Stock Market Value thereof; or,
ii. Round up the fractional share to the next highest whole share.
h. The rights of Holders and Optionees under the Benchmark Price Protection
shall be personal to the Holders and Optionees, shall be non-assignable
and non-transferable (except by operation of law or intestacy), and
shall not be evidenced by any certificate or other indicia.
i. If any BOKF Share is sold at a price less than the lowest price of a
transaction on NASDAQ on the date of sale, the Benchmark Payment shall
be based on a deemed sale price equal to such lowest price of a
transaction on NASDAQ on the date of sale.
j. BOKF Shares delivered into the Escrow shall not be subject to the
Benchmark Price Protection.
9. Organization of TW. Prior to the Closing, BOKF shall organize TW as an
interim national bank on the following terms and conditions:
a. BOKF shall cause TW to be organized in accordance with 12 CFR Section
5.33.
b. BOKF shall own all of the issued and outstanding capital stock of TW.
c. TW shall be organized solely to facilitate the transaction contemplated
by this Merger Agreement.
d. BOKF shall cause TW to execute and deliver this Merger Agreement at such
time as TW may enter into legally valid agreements in accordance with 12
CFR Section 5.33.
10. Representations and Warranties of Tanglewood. Tanglewood hereby represents
and warrants to BOKF that:
a. Incorporation and Corporate Power. Tanglewood is a national banking
association duly organized, validly existing under the laws of the
United States of America and in good standing under the laws of the
State of Texas. Tanglewood has all the corporate power and authority
necessary and required to own its properties and to conduct its
business as such business is now being conducted. Tanglewood is (A) in
material compliance with all applicable provisions of all applicable
federal, state and local statutes, laws, regulations, ordinances and
other requirements of any governmental authorities (including, but not
limited to, whether similar or dissimilar, the National Bank Act and
the filing of all administrative reports and the payment of all fees)
in effect as of the date of this Merger Agreement and (B) shall be in
material compliance therewith at the time of Closing.
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b. Capital. The capital stock of Tanglewood consists of a single class
of common stock having a par value of $5.00 per share, of which
1,500,000 shares are authorized and 977,310 shares are issued and
outstanding as of the Agreement Date.
c. Capitalization of Tanglewood. The Tanglewood Common Stock is validly
issued and outstanding, fully paid and non-assessable except as
provided in the National Bank Act. There are no outstanding
subscriptions, conversion privileges, calls, warrants, options or
agreements obligating Tanglewood to issue, sell or dispose of, or to
purchase, redeem or otherwise acquire any shares of its capital stock
(collectively, "options and rights") except options to acquire 169,350
shares of Tanglewood Common Stock pursuant to the Stock Options. None
of the Tanglewood Common Stock has been issued or disposed of in
violation of any preemptive rights of any shareholder nor in violation
of any agreement to which Tanglewood was or is a party. Tanglewood has
no subsidiaries and does not own, nor have the right or obligation to
acquire, any shares of equity securities of any corporation, limited
liability company, partnership or other business entity or venture
except as set forth in Exhibit 10c hereto.
d. Non-Violation of Other Agreements. The execution and delivery of this
Merger Agreement, and the compliance with its terms and provisions
(including the execution and delivery of any document required to be
executed hereby) will not breach any material agreement, lease, or
obligation by which it is bound.
e. Financial Statements. Tanglewood has delivered to BOKF, or will have
delivered to BOKF prior to the Closing as soon as future financial
statements are available, copies of the following ("Financial
Statements"):
i. Consolidated Financial Statements (Audited) for Tanglewood as of
December 31, 1999, 2000, and 2001;
ii. Financial Statements (Unaudited) for Tanglewood, as of each month
after December 31, 2001 and prior to the second month preceding
the month in which the Closing occurs;
iii. Financial Statements (Unaudited) for Tanglewood for the month
preceding the month in which the Closing occurs if available.
The Financial Statements described in Paragraph 10e(i) (A) have been
prepared in accordance with generally accepted accounting principles,
consistently applied except as may be indicated in the footnotes thereto
and (B) fairly reflect in all material respects the financial condition
and results of operations for the indicated periods. The Financial
Statements described in Paragraphs 10e(ii and iii) (A) have been or will
have been prepared in accordance with generally accepted accounting
principles and (B) fairly reflect or will fairly reflect in all material
respects the financial condition and results of operations for the
periods indicated, subject to normal year-end adjustments and the
omission of footnotes.
f. Material Liabilities. Tanglewood has no material liabilities
(including, but not limited to, whether similar or dissimilar,
liabilities or obligations for taxes, whether due or to become due)
except:
i. Those fully reflected or reserved against, or otherwise disclosed,
in the Financial Statements;
ii. Those incurred with due care since March 31, 2002 in the normal
course of business consistent with past practices; and,
iii. Those specifically disclosed in Exhibit 10f to this Merger
Agreement.
g. Conduct of Business Prior to Closing. Except as set forth in Exhibit
10g to this Merger Agreement, since March 31, 2002, and until the
Closing of this transaction, (A) Tanglewood has
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carried on and will carry on its business only in the ordinary and
normal course consistent with past practices and (B) has not and will
not, without the prior consent of BOKF:
i. Incur any material liabilities, commitments or obligations,
contingent or otherwise, or dispose of any of its assets, except
in the ordinary course of its business consistent with past
practices and for the purpose of carrying on the business as a
going concern;
ii. Incur any bank or other institutional debt, or enter into any
agreement for the borrowing of money, except borrowing of federal
funds or borrowing from the Federal Home Loan Bank by Tanglewood
consistent with past practices;
iii. Suffer any material adverse change in the financial condition,
assets, liabilities, business or property of Tanglewood; and,
iv. Make any material change in the manner in which business is
conducted (including, without limitation, branch relations, branch
closings, and any material change in products offered to
customers).
h. Tax Returns/Reports. Tanglewood has duly filed all tax reports and
returns required to be filed by it and has duly paid all taxes and
other charges claimed to be due from it by federal, state and local
taxing authorities. No waivers of the statute of limitation have been
issued with respect to unaudited years. Tanglewood has no knowledge of
any facts which could reasonably be expected to result in a material
deficiency with respect to unaudited tax returns which would result in
a material adverse effect on Tanglewood.
i. Contracts and Commitments.
i. A list of all contracts and commitments, other than credit and
lending, deposit or borrowing transactions entered into in the
ordinary course of business by Tanglewood which are material to
the business, operations or financial condition of Tanglewood as
of this date, is set forth on Exhibit 10i. For the purpose of
Exhibit 10i, materiality shall mean those contracts and
commitments (including a series of related contracts or
commitments) for which payment or other consideration to be
furnished by any party is more than $25,000 a year or $100,000
over the remaining life of the contract.
ii. Except as set forth on Exhibit 10i, Tanglewood has in all material
respects performed and is performing all contractual and other
obligations required to be performed by it with respect to such
contracts.
j. Litigation. Except as set forth in Exhibit 10j, there is not pending,
or, to Tanglewood's knowledge, threatened, any claim, litigation,
proceeding, order of any court or governmental agency, or governmental
investigation or inquiry to which Tanglewood is a party or which
involves its business operations, any of its property or any property
leased by it which, individually or in the aggregate:
i. May reasonably result in any material adverse change in the
financial condition, business, prospects, assets, properties or
operations of Tanglewood; or,
ii. May reasonably involve the expenditure of more than a total of
$25,000 in legal fees or costs.
k. Brokerage Fees. Tanglewood has not incurred nor will it incur,
directly or indirectly, any liability for brokerage, finder's,
financial advisor's or agent's fees or commissions by virtue of any
commitment made by it in connection with this Merger Agreement or any
transaction contemplated hereby, except as described in Exhibit 10k.
l. Required Corporate Action. The execution, delivery and consummation
of this Merger Agreement has been duly and validly authorized by the
board of directors of Tanglewood and will at the time of Closing have
been duly and validly authorized by the board of directors of
Tanglewood, subject to its fiduciary duties, and the shareholders of
Tanglewood, subject to the receipt of the requisite vote of the
shareholders, in accordance with the requirements of the National Bank
Act and all other applicable law.
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m. Authorized Execution. This Merger Agreement has been duly executed
and delivered by duly authorized officers of Tanglewood. Assuming this
Merger Agreement is a valid and binding agreement of BOKF, this Merger
Agreement constitutes the legal, valid and binding agreement and
obligation of Tanglewood enforceable against it in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
moratorium, receivership, and other similar laws affecting the rights
of creditors generally and general equitable principles and subject to
required regulatory and shareholder approvals.
n. Title to Assets; Encumbrances. Tanglewood has good and valid title
(with respect to fee real estate, good and valid title shall mean such
title as may be insured on standard title insurance forms with no
exceptions materially and adversely affecting the value or use of the
fee real estate) to its assets, and in each case subject to no
mortgage, pledge, lien, security interest, conditional sale agreement,
or other encumbrance of any nature whether similar or dissimilar,
except:
i. Such encumbrances which are purchase money security interests
entered into in the ordinary course of business consistent with
past practice reflected on its books and records;
ii. Lessors' interests in leased tangible real and personal property
reflected on its books and records;
iii. Such encumbrances for taxes and assessments as are not yet due and
payable;
iv. Encumbrances as do not materially detract from the value or
interfere with the use or operation of the asset subject thereto;
and,
v. Encumbrances respecting repossessed and foreclosed assets acquired
in satisfaction of debt previously contracted.
o. Employees. Except as set forth on Exhibit 10o, none of the employees
of Tanglewood is employed under any employment contract (oral or
written) or is the beneficiary of any compensation plan (oral or
written) or is entitled to any payment from Tanglewood by reason of
this Merger Agreement or the Merger and there are no employment
contracts, management contracts, consulting agreements, union
contracts, labor agreements, pension plans, profit sharing plans or
employee benefit plans to which Tanglewood is a party or by which it
is bound. All Tanglewood plans subject to the Employee Retirement
Income Security Act, including the Bank of Tanglewood 401(k)
Retirement Plan and all group health and welfare plans (collectively
the 'Plans"), are in full compliance with all material requirements of
the Plans and with the Employee Retirement Income Security Act and the
regulations promulgated pursuant thereto.
p. Environmental Laws. To Tanglewood's knowledge, the use and operation
of all real property owned or leased by Tanglewood is in material
compliance with all applicable environmental laws. For purposes of
this paragraph, environmental laws are those federal and Texas
statutes, rules and regulations adopted to protect the environment by
controlling, or by imposing liabilities with respect to, emissions,
discharges and releases of hazardous substances and pollutants.
q. Loan Portfolio. Except as to any breach that would not have a
material adverse effect on the financial position of Tanglewood, (i)
all loans and discounts shown on the Financial Statements at December
31, 2001 or which were entered into after December 31, 2001, but
before the Closing Date were and will be made in all material respects
for good, valuable and adequate consideration in the ordinary course
of business of Tanglewood, in accordance in all material respects with
sound banking practices, and are not subject to any material known
defenses, setoffs or counterclaims, including without limitation any
such as are afforded by usury or truth in lending laws, except as may
be provided by bankruptcy, insolvency or similar laws or by general
principles of equity; (ii) the notes or other evidences of
indebtedness evidencing such loans and all forms of pledges, mortgages
and other collateral documents and security agreements are and will
be, in all material respects, enforceable (to Tanglewood's knowledge),
valid, true and genuine and what they purport to be; and
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(iii) Tanglewood has complied and will prior to the Closing Date
comply with all laws and regulations relating to such loans, or to the
extent there has not been such compliance, such failure to comply will
not materially interfere with the collection of any such loan. For the
purposes of this Paragraph, the term "enforceable" shall not mean that
the borrower or other obligor has the financial ability to pay a loan
or that the collateral is sufficient in value to result in payment of
the loan secured thereby.
r. Zoning and Related Laws. To Tanglewood's knowledge, all real property
owned or leased by Tanglewood and the use thereof complies with all
applicable laws, ordinances, regulations, orders or requirements,
including without limitation, building, zoning and other laws, except
as to any violations which would not have a material adverse effect on
the financial condition of Tanglewood.
s. Compliance with Law. Tanglewood has all licenses, franchises, permits
and other governmental authorizations that are legally required to
enable it to conduct its businesses in all material respects and is in
compliance with all applicable laws and regulations except to the
extent that the failure to so comply could not have a material adverse
effect on Tanglewood.
t. Agreements with Regulatory Agencies. Tanglewood is not subject to any
cease-and-desist or other order issued by, or a party to any written
agreement or memorandum of understanding with or a party to any
commitment letter or similar undertaking to, or subject to any order
or directive, or a recipient of any extraordinary supervisory letter
from, and has not adopted any board resolutions at the request of
(each a "Regulatory Agreement") any regulatory agency that materially
restricts the conduct of its business or that in any manner relates to
its capital adequacy, its credit policies, its management or its
business, nor has Tanglewood been advised by any regulatory agency
that it is considering issuing or requesting any Regulatory Agreement.
u. Tanglewood has obtained the agreements from Optionees holding
eighty-five percent (85%), and will have as of the Closing obtained
the agreements from Optionees holding ninety-seven percent (97%), of
the Stock Options as required by the provisions of Paragraph 4.
v. No payment to be made in connection with this Merger Agreement and/or
the Merger is an excess parachute payment within the meaning of
Section 280G of the Internal Revenue Code.
w. Survival and Independence of Representations and Warranties. The
representations and warranties of Tanglewood made in this Merger
Agreement shall survive the Closing hereof notwithstanding any
investigation or knowledge of BOKF; provided BOKF shall give notice to
Agent (as hereafter defined) of any claim of a breach of any such
representations and warranties on or before December 31, 2003 (the
"Claim Notice Deadline"); and, provided further, the sole remedy for a
breach of such representations and warranties shall be a claim against
the Escrow Shares. Each of the representations and warranties of
Tanglewood set forth in this Merger Agreement is a separate and
independent representation and warranty, shall be cumulative of and in
addition to all other warranties and representations made herein, and
shall not limit or be interpreted to be in derogation of any other
representation or warranty made herein. Any disclosure made on any
Exhibit hereto shall be applicable to the entire Merger Agreement and
not just one representation or warranty.
11. Representations and Warranties of BOKF. BOKF represents and warrants to
Tanglewood that:
a. Incorporation and Corporate Power. BOKF is a corporation duly
organized, validly existing and in good standing under the laws of
Oklahoma. BOKF has all the corporate power and authority necessary and
required to consummate the transactions contemplated by this Merger
Agreement and to own its properties and to conduct its business as
such business is now being conducted. BOKF or one of its subsidiaries
owns all the issued and outstanding shares of capital stock of each
BOKF subsidiary. No equity securities of any BOKF subsidiary is or may
be required to be issued to any person other than BOKF. Each BOKF
subsidiary is either a corporation or a bank and is duly
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organized, validly existing and in good standing under the laws of the
jurisdiction in which it incorporated or organized and has the
corporate power and authority to own or lease its properties and
assets and to carry on its business as is now being conducted.
b. Non-Violation of Other Agreements. The execution and delivery of this
Merger Agreement, and compliance with its terms and provisions by BOKF
and the execution of any document required to be executed by BOKF,
will not:
i. Violate, conflict with or result in the breach of its certificate
of incorporation or bylaws or any of the terms, conditions or
provisions of any agreement or instrument to which BOKF is a
party, or by which BOKF is bound;
ii. Result in the creation or imposition of any lien, charge,
encumbrance or restriction of any nature whatever upon any of the
property, contracts or business of BOKF; or
iii. Require the consent of any party to a contract with BOKF in order
to keep the contract enforceable.
c. Required Corporate Action. The execution, delivery, and consummation
of this Merger Agreement by BOKF has been duly and validly authorized
by the board of directors of BOKF. The approval of the shareholders of
BOKF is not required. This Merger Agreement has been duly executed and
delivered by duly authorized officers of BOKF. Assuming this Merger
Agreement is a valid and binding obligation of Tanglewood, this Merger
Agreement constitutes a legal, valid and binding agreement and
obligation of BOKF enforceable against BOKF in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
moratorium, receivership, and other similar laws affecting the rights
of creditors generally, general equitable principles and subject to
required regulatory approvals.
d. Brokerage Fees. BOKF has not incurred nor will it incur, directly or
indirectly, any liability for brokerage, finder's, financial advisor's
or agent's fees or commissions by virtue of any commitment made by
BOKF in connection with this Merger Agreement or any transaction
contemplated hereby. BOKF has no knowledge that any party has asserted
any claim of such nature against BOKF.
e. Issuance of BOKF Shares. The issuance and delivery of the BOKF Shares
and any shares constituting the Benchmark Payment have been duly
authorized by all necessary corporate actions on the part of BOKF. The
BOKF Shares and any shares constituting the Benchmark Payment, when
issued and delivered in accordance with this Merger Agreement, shall
be duly authorized, validly issued and outstanding, fully paid and
non-assessable, and free and clear of all liens, claims, and
encumbrances.
f. Litigation. There is no suit, proceeding or investigation pending or,
to the knowledge of BOKF threatened against BOKF which questions the
validity of this Merger Agreement or the right of BOKF to enter into
this Merger Agreement or to consummate the transactions contemplated
hereby.
g. Reports and Financial Statements. BOKF has previously furnished
Tanglewood with, or there has been made available to Tanglewood, true
and complete copies of its (a) Annual Reports on Form 10-K for the
fiscal years ended December 31, 2000 and December 31, 2001, as filed
with the Securities and Exchange Commission (the "Commission"), (b)
proxy statements related to all meetings of its shareholders (whether
annual or special) since December 31, 1999, and (c) all other reports
or registration statements filed by BOKF with the Commission since
December 31, 1999, except for preliminary material (in the case of
clause (c) above) and except for registration statements on Form S-8
relating to employee benefit plans and annual reports on Form 11-K
with respect to such plans, which are all the documents that BOKF was
required to file with the Commission since December 31, 1999 (the
documents in clauses (a) through (c) being referred to herein
collectively as the "BOKF SEC Reports").
i. All BOKF SEC Reports were properly and timely filed with the
Commission and any applicable securities exchange or market and
its self regulatory organization. As of their respective dates,
the BOKF SEC Reports complied as to form in all material respects
with the
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requirements of the Securities Act (as hereafter defined) or the
Exchange Act (as hereafter defined), as the case may be, and the
rules and regulations of the Commission thereunder applicable to
the BOKF SEC Reports. As of their respective dates, the BOKF SEC
Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ii. The audited consolidated financial statements and unaudited
interim financial statements of BOKF included in the BOKF SEC
Reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and
regulations of the Commission with respect thereto. The financial
statements included in the BOKF SEC Reports (i) have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein
or in the notes thereto); (ii) present fairly, in all material
respects, the financial position of BOKF and its subsidiaries as
of the dates thereof and the results of their operations and cash
flows for the periods then ended subject in the case of the
unaudited interim financial statements, to normal year-end
adjustments, any other adjustments described therein and the fact
that certain information and notes have been condensed or omitted
in accordance with the Exchange Act and the rules promulgated
thereunder, and (iii) are in all material respects in accordance
with the books of account and records of BOKF and its subsidiaries.
h. Absence of Certain Changes or Events. Except as disclosed in the BOKF
SEC Reports, since December 31, 2001 until the Closing Date, there has
not been any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in
the ordinary course of business) which, alone or in the aggregate, has
had, or would reasonably be expected to have, a material adverse
effect on BOKF.
i. Survival and Independence of Representations and Warranties. The
representations and warranties of BOKF made in this Merger Agreement
shall not survive the Closing hereof; provided, however, the
indemnification obligations of 11j hereof shall survive the Closing
indefinitely. Each of the representations and warranties of BOKF set
forth in this Merger Agreement is a separate and independent
representation and warranty, shall be cumulative of and in addition to
all other warranties and representations; and shall not limit any
other representation or warranty made herein.
j. BOKF Indemnification. BOKF shall indemnify the present and future
directors, officers and employees of Tanglewood (the "Indemnified
Parties") to the fullest extent to which such Indemnified Parties
would be entitled under the Articles of Association and Bylaws of
BOKF. BOKF shall cause Tanglewood to purchase at the Closing "tail
coverage" under the existing Tanglewood directors and officers
liability policy or a comparable BOKF policy for three (3) years
following the Closing. BOKF shall ensure that the foregoing
indemnification rights, as well as the limitations of liability
existing in favor of an Indemnified Party in Tanglewood's Articles of
Association, shall, with respect to claims arising from facts or
events that occurred before the Closing Date survive the Closing Date
and continue in full force and effect. If BOKF or any of its
successors or assigns shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or shall
transfer or convey all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in
each case, BOKF or any successor or assign shall take no action to
impair the rights provided in this paragraph.
k. Tax and Regulatory Matters. Neither BOKF nor any affiliate thereof has
taken or agreed to take any action, and BOKF has no knowledge of any
fact or circumstance that is reasonably likely to (i) prevent the
transactions contemplated hereby, including the Merger, from
qualifying as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code or (ii) materially
AI-11
impede or delay receipt of any consent of regulatory authorities
referred to in Section 12.f of this Merger Agreement or otherwise
prevent consummation of the transactions contemplated hereby or delay
the Closing beyond the date set forth in Section 15 of this Merger
Agreement.
l. Compliance With Law. BOKF has all licenses, franchises, permits and
other governmental authorizations that are legally required to enable
it to conduct its businesses in all material respects and is in
compliance with all applicable laws and regulations except to the
extent that the failure to so comply could not have a material adverse
effect on BOKF.
12. Covenants.
a. Full Access. In order that BOKF shall have the full opportunity to
make such investigations as it shall reasonably desire concerning
Tanglewood and its businesses and affairs, Tanglewood shall, to the
extent allowed by law:
i. Give BOKF, its employees, counsel, accountants and other
authorized representatives, as necessary to conduct the
investigation and whose names shall have been provided to (and
approved by) Tanglewood, full access, upon reasonable notice to
Tanglewood and at reasonable times without unduly interfering with
the conduct of business by Tanglewood throughout the period up to
the Closing, to all of the facilities, properties, books,
contracts and records of Tanglewood;
ii. Authorize its accountants to give BOKF full access to the
accountant's records, including work papers; and,
iii. Furnish to BOKF during that period all additional financial,
operating and other information concerning Tanglewood and its
business affairs, as BOKF may reasonably request and which
Tanglewood shall have available or can reasonably make available.
iv. All information provided pursuant to this subparagraph shall be
subject to the provisions of Paragraph 12g.
b. Conduct of Business Prior to the Closing Date. From the Agreement Date
until the Closing Date, Tanglewood shall (except as may be first
approved in writing by BOKF or as is otherwise permitted or
contemplated in this Merger Agreement):
i. Maintain its corporate existence in good standing;
ii. Maintain the general character of its business and conduct its
business only in the ordinary and usual manner consistent with
past practices;
iii. Maintain proper business and accounting records generally in
accordance with past practices;
iv. Maintain its properties (except repossessed and foreclosed assets
acquired in satisfaction of debts previously contracted) in normal
repair and condition, normal wear and tear and damage due to fire
or other unavoidable casualty excepted;
v. Preserve its business organizations intact, use its reasonable
efforts to maintain satisfactory relationships with suppliers,
customers and others having business relations with it whose
relationships it believes are desirable to maintain, and use its
reasonable efforts to procure the willingness of all of the
personnel employed by it immediately prior to the execution of
this Merger Agreement who are material to the success of its
business to continue in its employ on substantially the same terms
and conditions as those on which such personnel were employed
immediately prior to the execution of this Merger Agreement;
vi. Maintain in full force and effect insurance comparable in amount
and in scope of coverage to that now maintained by it on the date
hereof;
vii. Except as otherwise disclosed in this Merger Agreement, perform
all of its obligations under all material contracts, leases and
agreements relating to or affecting its assets, properties and
businesses; and,
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viii. Comply in all material respects with and perform all obligations
and duties imposed upon it by federal, state and local laws, and
all rules, regulations and orders imposed by federal, state or
local governmental authorities, except as may be contested by it
in good faith by appropriate proceedings.
c. Tanglewood Prohibited Actions Prior to the Closing Date. From the
Agreement Date until the Closing Date, Tanglewood shall not (except as
otherwise permitted by this Merger Agreement or as requested or
approved by BOKF which approval shall be deemed given unless BOKF
shall specifically deny such approval in writing within five (5) Tulsa
business days (except it shall be two business days in the case of
clause (ii)(1) below) after receiving a request for approval from
Tanglewood):
i. Incur any indebtedness for borrowed money or incur any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
ii. make any extension of credit or any loans to, guarantee the
obligations of, or make any additional investments in, any other
person, corporation or joint venture (whether an existing customer
or a new customer) except:
(1) Extensions of credit, loans and guarantees (i) less than
$1,000,000 per transaction or (ii) less than $500,000 with
existing Tanglewood customers having existing credit of Five
Hundred Thousand Dollars ($500,000) or more made by Tanglewood
in the usual and ordinary course of its banking business,
consistent with prior practices and policies;
(2) Legal investments by Tanglewood in the usual and ordinary
course of its banking business consistent with prior practices
and policies;
(3) Borrowings from the Federal Home Loan Bank, the Federal
Reserve Bank, deposit liabilities, and federal funds
transactions by Tanglewood in the ordinary course of business
consistent with past practices.
iii. Make any:
(1) material change, except in the ordinary and usual course of
business, in its assets (including, but not limited to, any
change in the composition of such assets so as to materially
alter the proportion of cash) or liabilities; or,
(2) material commitment for any capital expenditures, excluding
expenditures for repairs and remodeling in the ordinary and
usual course of business; or,
(3) sale or other disposition of any material capital asset other
than for fair value in the ordinary course of business;
iv. Make any change in its Articles of Association or Bylaws;
v. Except for the Stock Options, authorize any shares of its capital
stock for issuance, issue any shares of any previously authorized
but unissued capital stock or grant, issue or make any option or
commitment relating to its capital stock;
vi. Enter into any letter of intent or agreement to sell any of its
material assets, except in the normal and ordinary course of its
business, or acquire, be acquired by, or merge, consolidate or
reorganize with any person, firm or corporation;
vii. Declare or pay any dividend, make any other distribution or
payment or set aside any amount for payment with respect to any
shares of its capital stock or directly or indirectly, redeem,
purchase or otherwise acquire any shares of its capital stock or
make any commitment relating thereto;
viii. make any increase in the compensation payable or to become payable
to any of its directors, officers or employees (including, without
limitation, any bonus or incentive payment or agreement), (b) make
or enter into any written employment contract or any bonus, stock
AI-13
option, profit sharing, pension, retirement or other similar
payment or arrangement, or (c) make any payment to any person,
except in the usual and ordinary course of business or except as
required by an existing agreement set forth in the Exhibits
hereto; provided, however:
(1) Tanglewood shall, notwithstanding any other provision of this
Merger Agreement, prior to Closing make payment pursuant to
those certain Bank of Tanglewood N.A. Phantom Stock Agreements
heretofore entered into between Tanglewood and certain Holders
(as defined in said agreements) at a value of $58.31 per
Tanglewood Phantom share, including the payments referred to
in paragraph 12e hereof if approved by the Tanglewood
shareholders as provided in paragraph 12e (which payment
Tanglewood represents will, when made, constitute full and
final payment of all sums due or which could become due under
such agreements);
(2) Tanglewood may pay up to $740,000 in accordance with the
written agreements required by the provisions of Paragraph 4;
and,
(3) Tanglewood may pay bonuses prior to Closing pursuant to the
monthly bonus pool accrual heretofore made by Tanglewood prior
to Closing consistent with past practices.
ix. Make any material change in its banking, safe deposit or power of
attorney arrangements;
x. Enter into any trust, escrow, agency and similar trust company
agreements, purchase orders and contracts for goods and services,
except in the ordinary course of business consistent with past
practices;
xi. Enter into any agreement resulting in the imposition of any
mortgage or pledge of its assets or the creation of any lien,
charge or encumbrance on any of its assets;
xii. Incur any material obligation or liability, absolute or
contingent, except in the ordinary course of business or pursuant
to existing contracts described in this Merger Agreement;
xiii. Take any action which would prevent compliance with any of the
conditions of this Merger Agreement; or,
xiv. Pre-pay long term indebtedness.
d. Vote for Merger. Tanglewood shall use its reasonable efforts to cause
the Merger to be approved by the shareholders of Tanglewood in
accordance with applicable law and consummated in accordance with the
terms of this Merger Agreement.
e. Section 280G Vote. Tanglewood shall submit for approval by its
shareholders pursuant to the Proxy Statement (as hereafter defined)
such amounts of the payments referred to in paragraph 12c(viii)(1) as
would eliminate any excess parachute payment, which amounts shall be
paid only if approved by the Tanglewood shareholders in a manner
meeting the requirements of Section 280G(b)(5)(B) of the Internal
Revenue Code.
f. Regulatory Approval. BOKF shall diligently file and pursue (a) all
regulatory applications required in order to consummate the Merger and
the merger of Tanglewood into Bank of Texas, National Association,
including but not limited to the necessary applications for prior
approval of the FRB and OCC on or before the thirtieth (30th) calendar
day following the Agreement Date and (b) thereafter promptly file any
required supplements or amendments thereto. All applications,
supplements, and amendments shall be substantially complete when
filed. BOKF shall deliver to Tanglewood and its counsel a copy of all
such filings, as filed, within three (3) business days after the
filing thereof. Although all such filings shall be the responsibility
of BOKF, BOKF shall nevertheless advise and consult with Tanglewood on
an ongoing basis with respect to the filings and all matters and
events related thereto. BOKF shall inform and make available to
Tanglewood from time to time all matters relating to the filings and
the regulatory approvals. BOKF shall diligently proceed with
reasonable deliberate speed to obtain all such approvals. If any
regulatory application
AI-14
required to be filed by BOKF should be finally denied or disapproved
by the respective regulatory authority, then BOKF shall immediately
give notice to Tanglewood and this Merger Agreement shall thereupon
terminate. However, it is understood that a request for additional
information or undertaking by the applicant, as a condition for
approval, shall not be deemed to be a denial or disapproval so long as
the applicant can reasonably be expected to provide the requested
information or undertaking. In the event an application is denied
pending an appeal, petition for review, or similar such act on the
part of the applicant, then the application will be deemed denied
unless the applicant promptly and diligently prepares and files such
appeal and continues the appellate process for the purposes of getting
the necessary approval.
g. Confidentiality. Prior to the Closing, BOKF shall keep all
information disclosed to BOKF (its employees, counsel, accountants,
and other authorized representatives) by Tanglewood (or its
representatives) respecting Tanglewood (or its customers, vendors,
businesses, and the like) confidential and shall make no use of such
information except to conduct the due diligence investigation
contemplated by this Merger Agreement, the regulatory applications
contemplated by this Merger Agreement, and to consummate the
transactions contemplated hereby. BOKF shall not use such information
to obtain a competitive advantage in connection with any customer of
Tanglewood. In the event this Merger Agreement is terminated for any
reason BOKF (its agents, officers, directors, employees and counsel)
shall (i) return all copies of all information and documents obtained
from Tanglewood and its representatives, (ii) thereafter keep all such
information confidential and not make use of any such information to
obtain a competitive advantage in connection with any customer of
Tanglewood, and (iii) shall not solicit for employment, whether
directly or indirectly, any of the employees, officers or directors of
Tanglewood.
h. BOKF Prohibited Action Prior to Closing. From the Agreement Date
until the Closing Date, BOKF shall not take any action which would
prevent compliance with any of the conditions of this Merger
Agreement. BOKF shall not, and shall cause its subsidiaries not to,
make or agree to make any acquisition, or take any other action, that
adversely affects its ability to consummate the transactions
contemplated by this Merger Agreement and will otherwise continue to
conduct its business operations and shall cause the operations of its
subsidiaries to be conducted in a manner consistent with past
operating practices.
i. Election of Director. Subject to and upon consummation of the Merger,
BOKF shall cause Robert G. Greer to be elected an advisory director of
BOKF and, thereafter, in due course to be nominated for election as a
voting director of BOKF at the next annual meeting of shareholders.
Subject to and upon consummation of the Merger, BOKF shall cause
Robert G. Greer to be elected a director of Bank of Texas, National
Association at the Closing Date.
j. Disclosure. Neither BOKF, nor Tanglewood, nor any representative of
the Parties, shall make any public disclosure concerning this Merger
Agreement or the Merger contemplated herein without the mutual consent
of each of the other parties hereto to the timing and content of the
disclosure; provided, however, the parties hereto may make any
disclosure (i) necessary to maintain compliance with applicable
federal or state laws or regulations, (ii) required in connection with
the making of any application necessary to effect the Merger, or (iii)
as contemplated by the next following subparagraph respecting
Tanglewood shareholder approval.
k. Tanglewood Shareholder Approval. Tanglewood, acting through its Board
of Directors, shall, in accordance with applicable law:
i. Duly call, give notice of, convene and hold a meeting of its
shareholders on a date mutually selected by BOKF and Tanglewood
(the "Shareholders Meeting") for submission of this Merger
Agreement and the Merger for approval of such shareholders as is
required by the National Bank Act;
AI-15
ii. Subject to its fiduciary duties to the shareholders of Tanglewood,
Tanglewood shall cause the Joint Proxy Statement/Prospectus (as
hereafter defined) to be delivered to the Tanglewood shareholders
in connection with a meeting of such shareholders to approve the
Merger and shall include in the Proxy Statement (as defined below)
the recommendation of its Board of Directors that the shareholders
of Tanglewood vote in favor of the approval and adoption of the
Merger Agreement and the Merger; and,
iii. Cause the Joint Proxy Statement/Prospectus to be mailed to the
shareholders of Tanglewood as soon as practicable, and take such
other action as is reasonably necessary to obtain approval of the
Merger Agreement and the Merger from its shareholders. The letter
to shareholders, notice of meeting, Joint Proxy
Statement/Prospectus and form of proxy to be distributed to
shareholders in connection with the Merger and the Merger
Agreement shall be in form and substance reasonably satisfactory
to BOKF.
l. No Solicitation. Prior to the Closing Date, unless this Merger
Agreement is sooner terminated, Tanglewood shall not directly or
indirectly (i) solicit or encourage inquiries or proposals with
respect to the merger of Tanglewood or the sale of any of the shares
of Tanglewood or other material asset(s) of Tanglewood from any party
other than BOKF, or (ii) merge with any party or sell any of the
shares of Tanglewood or material asset(s) of Tanglewood to any party
except as set forth in this Merger Agreement. Notwithstanding the
foregoing, if Tanglewood is in compliance with (i) above, Tanglewood
may have discussions and negotiations with another person regarding a
merger or share or asset sale if the board of directors of Tanglewood,
after consultation with its counsel and financial advisor, determines
in good faith that the failure to take such actions could constitute a
breach of the fiduciary duties of the Tanglewood board of directors,
provided that Tanglewood promptly advises BOKF of such discussions.
Further, nothing herein shall prohibit the board of directors of
Tanglewood from complying with applicable rules and regulations of the
Commission or other regulatory authority with respect to any such
other proposals.
m. Employee Benefits and Contracts. Following the Closing Date, BOKF
shall provide generally to officers and employees of Tanglewood, who
at or after the Closing Date become employees of BOKF or one of its
subsidiaries ("Continuing Employees"), employee benefits under
employee benefit plans (other than stock option or other plans
involving the potential issuance of BOKF Common Stock except as set
forth in this Paragraph), on terms and conditions which when taken as
a whole are substantially similar to those currently provided by BOKF
to its similarly situated officers and employees. For purposes of
participation and vesting (but not accrual of benefits) under such
employee benefit plans, (i) service under any qualified defined
benefit plans of Tanglewood shall be treated as service under BOKF's
qualified defined benefit plans, (ii) service under any qualified
defined contribution plans of Tanglewood shall be treated as service
under BOKF's qualified defined contribution plans, and (iii) service
under any other employee benefit plans of Tanglewood shall be treated
as service under any similar employee benefit plans maintained by
BOKF. BOKF shall cause the BOKF welfare benefit plans that cover the
Continuing Employees after the Closing Date to (i) waive any waiting
period and restrictions and limitations for preexisting conditions or
insurability, and (ii) cause any deductible payments made by the
Continuing Employees under Tanglewood's medical benefit plan to be
credited to such Continuing Employees under the BOKF self-funded
medical benefit plans, so as to reduce the amount of any deductible
payable by the Continuing Employees under the BOKF self-insured
medical plans. The continued coverage of the Continuing Employees
under the employee benefit plans maintained by Tanglewood and/or any
Tanglewood subsidiary immediately prior to the Closing Date during a
transition period shall be deemed to provide the Continuing Employees
with benefits that are no less favorable than those offered to other
employees of BOKF and its subsidiaries, provided that after the
Closing Date there is no material reduction (determined on an overall
basis) in the benefits provided under the Tanglewood employee benefit
plans. Unless otherwise modified in writing, BOKF also shall cause
Tanglewood and its subsidiaries to honor all employment, severance,
consulting and other compensation contracts
AI-16
disclosed in Exhibit 10.o hereto between Tanglewood and any current or
former director, officer or employee thereof, and all provisions for
vested benefits or other vested amounts earned or accrued through the
Closing Date under the Tanglewood benefit plans. BOKF shall be
responsible for the fees related to the termination of the Tanglewood
benefit plans.
13. Conditions Precedent to Closing by BOKF. The obligation of BOKF to
consummate and close the Merger is conditioned upon each and all of the
following:
a. The representations, warranties and covenants of Tanglewood made in
this Merger Agreement shall be materially true at the Closing as
though such representations, warranties and covenants were also made
at the Closing.
b. The FRB, OCC and any other required regulatory authorities shall have
approved the Merger in accordance with the Bank Holding Company Act
and the National Bank Act and the applicable regulations pursuant
thereto and any other applicable statutes and regulations.
c. The OCC shall have approved the merger of Tanglewood into Bank of
Texas, National Association.
d. The Registration Statement (as hereafter defined) shall have become
effective.
e. The shareholders of Tanglewood shall have approved the Merger in
accordance with the National Bank Act.
f. Tanglewood shall have performed and complied with, in all material
respects, all of its obligations under this Merger Agreement which are
to be performed or complied with by it prior to or on the Closing Date.
g. Tanglewood shall not have suffered any material adverse change in its
financial condition, assets, liabilities, businesses or properties.
h. Tanglewood shall have entered into employment agreements and/or
non-competition agreements and/or non-solicitation agreements (subject
to consummation of the Merger) in form and content satisfactory to
BOKF with those individuals listed in Exhibit 13h.
i. Tanglewood shall have entered into amendments to the respective
Phantom Stock Agreements of the individuals listed on Exhibit 13i
providing for the waiver of rights to payments pursuant to Section 3
and Section 5 of the respective Phantom Stock Agreements that would
otherwise vest on the dates set forth on such Exhibit for the
respective individuals (which amendments Tanglewood shall use its best
efforts to obtain) and shall have entered into agreements with all
individuals with whom Tanglewood has entered such Phantom Stock
Agreements in which such individuals acknowledge that payments made
pursuant to Section 3 of the Phantom Stock Agreements extinguish the
right to receive any payments pursuant to Section 5 of the Phantom
Stock Agreements.
In the event any one or more of these conditions shall not have been
fulfilled prior to or at the Closing, BOKF may terminate this Merger
Agreement by written notice to Tanglewood, in which event neither party
shall have any further obligation or liability to the other except the
obligations of BOKF set forth in Paragraph 11d (respecting Brokers Fees)
and Paragraph 12g (respecting Confidentiality) and the obligations of
Tanglewood set forth in Paragraph 10k (respecting Brokers Fees). BOKF shall
be entitled to waive, to the extent permitted by law, compliance with any
one or more of the conditions, representations, warranties or covenants in
whole or in part.
14. Conditions Precedent to Closing by Tanglewood. The obligation of
Tanglewood to consummate and close the Merger is conditioned upon each and
all of the following:
a. The representations, warranties and covenants of BOKF made in this
Merger Agreement shall be true at the Closing as though such
representations, warranties and covenants were also made at the
Closing.
AI-17
b. BOKF shall have performed and complied, in all material respects, with
all of its obligations under this Merger Agreement which are to be
performed or complied with prior to or at the Closing.
c. The FRB, OCC and any other required regulatory authorities shall have
approved the Merger in accordance with the Bank Holding Company Act
and the National Bank Act and the applicable regulations pursuant
thereto and any other applicable statutes and regulations.
d. The shareholders of Tanglewood shall have approved the Merger in
accordance with the National Bank Act.
e. There shall have been no material adverse change in the business or
financial condition of BOKF.
f. The Registration Statement shall have become effective.
g. Tanglewood shall have received a letter from Hovde Financial, Inc.
dated not more than five days prior to the date of the Proxy Statement
to the effect that, in the opinion of such firm, the merger
consideration is fair to the shareholders of Tanglewood from a
financial point of view.
h. The BOKF Shares and any shares of BOKF Common Stock constituting the
Benchmark Payment shall have been approved for listing on NASDAQ,
subject to official notice of issuance.
i. Tanglewood shall have received a written opinion from Bracewell &
Patterson, L.L.P., in a form reasonably satisfactory to Tanglewood
(the "Tax Opinion"), dated the date of the Closing Date,
substantially to the effect that (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) no gain or loss will be recognized by
holders of Tanglewood Common Stock who exchange all of their
Tanglewood Common Stock solely for BOKF Common Stock pursuant to
the Merger (except with respect to any cash received in lieu of a
fractional share interest in BOKF Common Stock and except to the
extent that the value of the Benchmark Price Protection is taxable
as boot), (iii) the tax basis of the BOKF Common Stock received by
holders of Tanglewood Common Stock who exchange all of their
Tanglewood Common Stock solely for BOKF Common Stock in the Merger
will be the same as the tax basis of the Tanglewood Common Stock
surrendered in exchange for the BOKF Common Stock (reduced by an
amount allocable to a fractional share interest in BOKF Common
Stock for which cash is received and the fair market value of any
boot and increased by the amount of gain recognized), and (iv) the
holding period of the BOKF Common Stock received by holders who
exchange all of their Tanglewood Common Stock solely for BOKF
Common Stock in the Merger will be the same as the holding period
of the Tanglewood Common Stock surrendered in exchange therefor
provided that such Tanglewood Common Stock is held as a capital
asset at the Closing Date. In rendering such Tax Opinion, such
counsel shall be entitled to rely upon representations of officers
of Tanglewood and BOKF reasonably satisfactory in form and
substance to such counsel.
Tanglewood shall be entitled to waive, to the extent allowed by law,
compliance with any one or more of the conditions, representations,
warranties or covenants in whole or in part. In the event any one or more
of these conditions shall not have been fulfilled prior to or at the
Closing, Tanglewood may terminate this Merger Agreement by notice to BOKF,
in which event no party shall have any further obligation or liability to
the other, except the obligations of BOKF set forth in Paragraph 11d
(respecting Brokers Fees) and Paragraph 12g (respecting Confidentiality)
and the obligations of Tanglewood set forth in Paragraph 10k (respecting
Brokers Fees).
15. Closing. The Closing ("Closing" or "Closing Date") of the transactions
contemplated by this Merger Agreement shall take place on the later of
October 1, 2002 or five (5) Tulsa business days following the first day on
which (i)BOKF can lawfully consummate the Merger under the Bank Holding
Company Act and the National Bank Act and the applicable regulations
thereunder and under other applicable laws and (ii) Bank of Texas, National
Association and TW can merge under the National Bank Act and the applicable
regulations thereunder and under other applicable laws. In any event, if
the Closing Date does
AI-18
not occur on or before December 31, 2002 then either BOKF or Tanglewood may
by notice to the other, terminate this Merger Agreement, provided such
notice is given on or before December 16, 2002. The Closing shall be held
at 12:00 Noon on the Closing Date at the offices of Tanglewood or at such
other time and place as BOKF and Tanglewood may agree. At the Closing,
BOKF, TW, and Tanglewood shall execute and deliver all of the documents and
take all other actions which are contemplated by the terms hereof.
a. Without limiting the generality of this Paragraph of this Merger
Agreement, Tanglewood shall take all those actions, not theretofore
taken, which this Merger Agreement contemplates are to be taken prior
to or at the Closing.
b. Without limiting the generality of this Paragraph of this Merger
Agreement, BOKF shall:
i. Deliver to the Exchange Agent (as hereafter provided) shares of
BOKF Common Stock equal to the BOKF Total Share Number less the
Escrow Shares;
ii. Deliver to the Escrow Agent shares of BOKF Common Stock equal to
the Escrow Shares;
iii. Cause appropriate evidences of the Merger to be filed in
accordance with applicable law; and,
iv. Take all those actions, not theretofore taken, which this Merger
Agreement contemplates are to be taken prior to or at the Closing.
16. Provisions Respecting BOKF Shares. BOKF and Tanglewood shall cooperate and
promptly prepare, and BOKF shall file, at its cost, with the Commission as
soon as practicable, a Registration Statement (the "Registration
Statement") on Form S-4 (the "Form S-4) under the Securities Act of 1933
(the "Securities Act") with respect to the BOKF Shares and, if registration
is required with respect thereto, the BOKF Benchmark Price Protection, and
shares of BOKF Common Stock which may be issued pursuant to the Benchmark
Price Protection (the "BOKF Prospectus"), a portion of which Registration
Statement will also serve as the proxy statement of Tanglewood (the "Proxy
Statement" and, together with the Prospectus, the "Joint Proxy
Statement/Prospectus") with respect to the Merger. The Parties shall cause
the Joint Proxy Statement/Prospectus and the Form S-4 to comply as to form
in all material respects with the applicable provisions of the Securities
Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules
and regulations thereunder. BOKF shall use all reasonable efforts, and
Tanglewood shall cooperate with BOKF, to have the Form S-4 declared
effective by the Commission as promptly as practicable after the filing
thereof (including, without limitation, responding to any comments received
from the Commission with respect thereto) and to keep the Form S-4
effective as long as is necessary to consummate the Merger and the
transactions contemplated thereby. Each of Tanglewood and BOKF shall, as
promptly as practicable, provide to the other copies of any written
comments received from the Commission with respect to the Joint Proxy
Statement/Prospectus or the Form S-4 and advise the other of, in light of
the circumstances under which they were made, not misleading. any oral
comments with respect to the Joint Proxy Statement/Prospectus or the Form
S-4 received from the Commission. BOKF shall use its best efforts to
obtain, prior to the Closing Date, approval of the Form S-4, all necessary
state securities law or "Blue Sky" permits or approvals required to carry
out the transactions contemplated by this Agreement and shall pay all
expenses incident thereto. BOKF agrees that none of the information
supplied or to be supplied by BOKF for inclusion or incorporation by
reference in the Form S-4 or the Joint Proxy Statement/Prospectus (i) in
the case of the Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof, or (ii) in the case of the
Prospectus and each amendment or supplement thereto, at the time it is
filed or becomes effective, will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading . Tanglewood agrees
that none of the information supplied or to be supplied by Tanglewood for
inclusion or incorporation by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus (i) in the case of the Joint Proxy Statement and each
amendment or supplement thereto, at the time of mailing thereof and at the
time of the shareholders meeting, or, (ii) in the case of the Prospectus or
any amendment or supplement thereto, at the time it is filed or becomes
effective, will
AI-19
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to BOKF will be deemed to have been
supplied by BOKF and information concerning or related to Tanglewood will
be deemed to have been supplied by Tanglewood. No amendment or supplement
to the Joint Proxy Statement/Prospectus will be made by BOKF or Tanglewood
without the approval (not to be unreasonably delayed, withheld or denied)
of the other party. BOKF shall advise Tanglewood, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop
order, or the suspension of the qualification of BOKF Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction.
17. Compliance with the Securities Act. At least 30 days prior to the Closing
Date, Tanglewood will deliver to BOKF a list of names and addresses of
those persons who were, in Tanglewood's reasonable judgment, at the date of
this Agreement, "affiliates" (each such person, an "Affiliate") of
Tanglewood within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act. Tanglewood shall use commercially
reasonable efforts to deliver or cause to be delivered to BOKF, prior to
the Closing Date, from each of the Affiliates of Tanglewood identified in
the foregoing list, an Affiliate Letter in the form attached hereto as
Exhibit 17 (an "Affiliate Letter"), and BOKF shall duly execute the
acknowledgments to any Affiliate Letters so delivered and return a copy of
the acknowledged Affiliate Letter to the delivering Affiliate. BOKF shall
be entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any BOKF Shares to be received by such Affiliates
pursuant to the terms of this Merger Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the BOKF Shares,
consistent with the terms of such Affiliate Letters.
18. Stock Exchange Listing. BOKF shall use its best efforts to list on NASDAQ,
upon official notice of issuance, the BOKF Shares and the shares
constituting part of the Benchmark Payment.
19. Exchange Agent. BOKF shall appoint Bank of New York or such other person
as will be reasonably acceptable to Tanglewood (The "Exchange Agent") to
act as exchange agent hereunder and to make, subject to approval by BOKF
and Tanglewood (provided such approval shall not be unreasonably withheld,
delayed or denied), any computations required to determine the BOKF Total
Share Number, the Tanglewood Total Share Number, and the Escrow Shares.
a. On the Closing Date, BOKF shall deposit with the Exchange Agent, in
trust for the holders of shares of Tanglewood Common Stock,
certificates for shares of BOKF Common Stock representing shares equal
to the BOKF Total Share Number.
b. As soon as practicable after the Closing Date, the Exchange Agent
shall:
i. Mail to each Holder of record on the Record Date (A) a letter of
transmittal in form reasonably acceptable to BOKF and Tanglewood
(which will specify that delivery will be effected, and risk of
loss and title to the Tanglewood Certificates will pass, only upon
actual delivery of the Tanglewood Certificates to the Exchange
Agent) and (B) instructions for use in effecting the surrender of
the Tanglewood Certificates.
ii. Upon surrender for cancellation to the Exchange Agent of a
Tanglewood Certificate, together with such letter of transmittal,
duly executed, the holder of such Tanglewood Certificate shall be
entitled to receive in exchange therefor a certificate
representing that number of BOKF Shares into which the shares of
Tanglewood Common Stock represented by such Tanglewood Certificate
is converted in accordance with Paragraph 2h of this Merger
Agreement.
iii. Distribute to each holder of shares of Tanglewood Common Stock
converted into the right to receive BOKF Shares, upon surrender to
the Exchange Agent for cancellation of one or more certificates
("Tanglewood Certificates") representing shares of Tanglewood
Common Stock, certificates representing the BOKF Shares to which
such holder is entitled under this Merger Agreement.
AI-20
iv. If any certificate representing BOKF Shares is to be issued or
delivered in a name other than that in which the Tanglewood
Certificate surrendered in exchange therefor is registered, it
will be a condition of such exchange that the Tanglewood
Certificate so surrendered will be properly endorsed and otherwise
in proper form for transfer and that the person or entity
requesting such exchange will pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of
certificates for such BOKF Shares in a name other than that of the
registered holder of the Tanglewood Certificate surrendered or
will establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not applicable.
20. The Escrow. An escrow shall be established on the following terms and
conditions (the "Escrow"):
a. The escrow agent shall be Bank of Texas Trust Company, National
Association ("Escrow Agent").
b. The Escrow shall be governed by the standard form of escrow agreement
generally in use by the Escrow Agent (the "Escrow Agreement") a copy
of which is set forth as Exhibit 20.
c. BOKF shall deliver the Escrow Shares to the Escrow Agent at the
Closing.
d. In the event BOKF claims a breach of the representations and
warranties of Tanglewood arising under this Merger Agreement, BOKF
shall give notice of the claim (a "Claim") to the Agent (as hereafter
defined). The notice shall identify the representations and warranties
which BOKF claims have been breached and describe in reasonable detail
the basis of the Claim.
e. In the event BOKF makes a Claim(s) prior to the Claim Notice Deadline,
the Escrow Agent shall continue to hold the Escrow Shares until such
Claim(s) is resolved by (i) the mutual agreement of Agent and BOKF or
(ii) a final adjudication determining the merits of the Claim(s), at
which time the Escrow shall terminate and the Escrow Agent shall pay
(a "Claim Payment") the Claim as mutually agreed or finally
adjudicated (an "Allowed Claim").
f. The Escrow Agent shall make a Claim Payment by delivering to BOKF out
of the Escrow that number of Escrow Shares which is determined by
dividing the amount of the Allowed Claim expressed in dollars by the
BOKF Common Stock Market Value determined on the date of the Claim
Payment.
g. The Escrow shall terminate at the later of the Claim Notice Deadline
or the date on which all timely noticed Claims have been resolved by
mutual agreement or final adjudication and all Allowed Claims, if any,
shall have been paid to BOKF.
h. Upon termination of the Escrow, the Escrow Shares remaining in the
Escrow shall be delivered to the Holders of Tanglewood Common Stock on
the Record Date in accordance with their respective interests,
including interests of the Optionees who have exercised their Stock
Options who shall, for the purposes of this paragraph, be deemed to be
Holders.
i. The rights of the Holders to receive Escrow Shares shall not be
assignable or transferable except by operation of law or by intestacy
or with the approval of BOKF (which approval shall not be unreasonably
withheld, delayed, or denied) and will not be evidenced by any
certificate or other evidence of ownership.
j. BOKF shall pay the fees and costs of the Escrow Agent with respect to
the Escrow.
k. The Agent shall be Richard W. Jochetz. The Holders may by the vote of
a majority in interest and upon notice to BOKF change the agent. The
Agent shall not be deemed a fiduciary of the Holders and shall be
liable to such Holders only for gross negligence or intentional
wrongdoing. The Agent shall vote the Escrow Shares in such manner as
the Agent shall, in her, his or its good faith discretion, determine
advisable.
l. The expenses of the Agent shall be reimbursed out of the Escrow. In
the event of a dispute concerning a Claim, the prevailing party shall
recover its litigation costs (including reasonable fees of counsel and
experts) from BOKF or from the Escrow, as the case may be.
AI-21
m. In the event of any dividend in respect of the Escrow Shares, the
dividend shall be issued into and become a part of the Escrow.
21. Miscellaneous Provisions. The following miscellaneous provisions shall
apply to this Merger Agreement:
a. All notices or advices required or permitted to be given by or
pursuant to this Merger Agreement, shall be given in writing. All such
notices and advices shall be (I) delivered personally, (ii) delivered
by facsimile or delivered by U.S. Registered or Certified Mail, Return
Receipt Requested mail, or (iii) delivered for overnight delivery by a
nationally recognized overnight courier service. Such notices and
advices shall be deemed to have been given (I) the first business day
following the date of delivery if delivered personally or by
facsimile, (ii) on the third business day following the date of
mailing if mailed by U.S. Registered or Certified Mail, Return Receipt
Requested, or (iii) on the date of receipt if delivered for overnight
delivery by a nationally recognized overnight courier service. All
such notices and advices and all other communications related to this
Merger Agreement shall be given as follows:
BOKF and TW:
James Ulrich, Senior Vice President
BOK FINANCIAL CORPORATION
P.O. Box 2300
Tulsa, OK 74192
(918) 588-6135--Telephone
(918) 588-6853--Facsimile
Julrich@bokf.com - Email
and
Frederic Dorwart, Secretary and General Counsel to
BOK Financial Corporation
Old City Hall
124 East Fourth Street
Tulsa, OK 74103
(918) 583-9945--Telephone
(918) 583-8251--Facsimile
Fdorwart@fdlaw.com--Email
Tanglewood:
Robert G. Greer, Chairman of the Board
Richard W. Jochetz, President and Chief Executive Officer
500 Chimney Rock at Woodway
Houston, TX 770560-1229
(713) 226--2900--Telephone
(713) 226--1110- Facsimile
RWJ@bankoftanglewood.com--Email
AI-22
and
Waverly Vest, Esquire
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston TX 77002-2781
(713) 221--1332--Telephone
(713) 221--1212--Facsimile
Wvest@bracepatt.com--Email
or to such other address as the party may have furnished to the other
parties in accordance herewith, except that notice of change of
addresses shall be effective only upon receipt.
b. This Merger Agreement is made and executed in Harris County, Texas and
Tulsa County, Oklahoma.
c. This Merger Agreement shall be subject to, and interpreted by and in
accordance with, the laws (excluding conflict of law provisions) of
the State of Texas and the United States of America.
d. This Merger Agreement is the entire agreement of the parties
respecting the subject matter hereof. There are no other agreements,
representations or warranties, whether oral or written, respecting the
subject matter hereof.
e. No course of prior dealings involving any of the parties hereto and no
usage of trade shall be relevant or advisable to interpret,
supplement, explain or vary any of the terms of this Merger Agreement,
except as expressly provided herein.
f. This Merger Agreement, and all the provisions of this Merger
Agreement, shall be deemed drafted by all of the parties hereto.
g. This Merger Agreement shall not be interpreted strictly for or against
any party, but solely in accordance with the fair meaning of the
provisions hereof to effectuate the purposes and intent of this Merger
Agreement.
h. Each party hereto has entered into this Merger Agreement based solely
upon the agreements, representations and warranties expressly set
forth herein and upon his own knowledge and investigation. Neither
party has relied upon any representation or warranty of any other
party hereto except any such representations or warranties as are
expressly set forth herein.
i. Each of the persons signing below on behalf of a party hereto
represents and warrants that he or she has full requisite power and
authority to execute and deliver this Merger Agreement on behalf of
the parties for whom he or she is signing and to bind such party to
the terms and conditions of this Merger Agreement.
j. This Merger Agreement may be executed in counterparts, each of which
shall be deemed an original. This Merger Agreement shall become
effective only when all of the parties hereto shall have executed the
original or counterpart hereof. This agreement may be executed and
delivered by a facsimile transmission of a counterpart signature page
hereof.
k. In any action brought by a party hereto to enforce the obligations of
any other party hereto, the prevailing party shall be entitled to
collect from the opposing party to such action such party's reasonable
litigation costs and attorneys fees and expenses (including court
costs, reasonable fees of accountants and experts, and other expenses
incidental to the litigation).
l. This Merger Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns.
AI-23
m. Except with respect to the provisions of paragraphs 11i and 11j
(respecting indemnification) and paragraph 20 (respecting the Escrow),
this is not a third party beneficiary contract and no person or entity
other than a party signing this Merger Agreement shall have any rights
under this Merger Agreement.
n. This Merger Agreement may be amended or modified only in a writing
which specifically references this Merger Agreement.
o. This Merger Agreement may not be assigned (including performance by
subcontract) by any party hereto.
p. A party to this Merger Agreement may decide or fail to require full or
timely performance of any obligation arising under this Merger
Agreement. The decision or failure of a party hereto to require full
or timely performance of any obligation arising under this Merger
Agreement (whether on a single occasion or on multiple occasions)
shall not be deemed a waiver of any such obligation. No such decisions
or failures shall give rise to any claim of estoppel, laches, course
of dealing, amendment of this Merger Agreement by course of dealing,
or other defense of any nature to any obligation arising hereunder.
q. The repudiation, breach, or failure to perform any obligation arising
under this Merger Agreement by a party after reasonable notice thereof
shall be deemed a repudiation, breach, and failure to perform all of
such party's obligations arising under this Merger Agreement.
r. Time is of the essence with respect to each obligation arising under
this Merger Agreement. The failure to timely perform an obligation
arising hereunder shall be deemed a failure to perform the obligation.
s. In the event any provision of this Merger Agreement, or the
application of such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, or unenforceable to any
extent for any reason, the remainder of this Merger Agreement, and the
application of such provision to persons or circumstances other than
those as to which it is determined to be invalid, unlawful, or
unenforceable, shall not be affected and shall continue to be
enforceable to the fullest extent permitted by law.
t. All actions taken and documents delivered at the Closing shall be
deemed to have been taken and executed simultaneously and no action
shall be deemed taken nor any document delivered until all have been
taken and delivered.
u. Should the transactions contemplated herein not be consummated because
of a party's breach of this Merger Agreement, in addition to such
damages as may be recoverable at law or equity, the other party shall
be entitled to recover from the breaching party upon demand,
itemization, and documentation, its reasonable outside legal,
accounting, consulting and other out-of-pocket expenses.
22. Certain Definitions. The following terms shall have the meanings ascribed
to them for all purposes of the Merger Agreement:
a. The words "best efforts" means the taking of all reasonable steps to
cause or prevent any event or condition which would have been taken in
similar circumstances by a reasonably prudent business person engaged
in a similar business for the advancement or protection of his own
economic interest in light of the consequences of failure to cause or
prevent the occurrence of such event or condition, but excludes the
initiation of legal proceedings.
b. The words "knowledge" or "known"--An individual shall be deemed to
have "knowledge" of or to have "known" a particular fact or other
matter if (i) such individual is actually aware of such fact or other
matter or (ii) a prudent individual possessing the requisite knowledge
and experience could be expected to discover or otherwise become aware
of such fact or other matter in the course of the
AI-24
performance of his duties. A party to this Merger Agreement shall be
deemed to have "knowledge" of or to have "known" a particular fact or
other matter if any individual who is serving, or who has at any time
served, as a director or executive officer (or in any similar
capacity) of the party has, or at any time had, knowledge of such fact
or other matter.
c. The word "material" for purposes of this Merger Agreement shall be
determined in light of the facts and circumstances of the matter in
question; provided that any specific monetary amount stated in this
Merger Agreement shall determine materiality in that instance.
d. The words "material adverse effect" and "material adverse change"
shall mean, with respect to any person(including the parties to this
Merger Agreement), any effect or change that is material and adverse
to the financial condition, assets, results of operations, earnings,
business, prospects or cash flows of that person or that materially
impairs the ability of any person to consummate the Merger, or any of
the contemplated transactions under the Merger Agreement. Material
adverse effect or change shall not, however, be deemed to include any
effect or change on the referenced person which is caused by (a)
changes in laws and regulations or interpretations thereof that are
generally applicable to the banking or savings industries, (b) changes
in GAAP or regulatory accounting principles that are generally
applicable to the banking or savings industries, (c) expenses incurred
in connection with the transactions contemplated hereby, (d) any other
matters affecting federally insured depository institutions generally,
including without limitation changes in general economic conditions
and changes in interest rates, or (e) actions or omissions of a party
to the Merger Agreement taken with the prior informed written consent
of the other party or parties in contemplation of the transactions
contemplated hereby.
Dated as of the Agreement Date.
BANK OF TANGLEWOOD, NATIONAL ASSOCIATION
By /s/ RICHARD W. JOCHETZ
_______________________________________
Its President and Chief Executive
Officer
BOK FINANCIAL CORPORATION
By /s/ JAMES F. ULRICH
_______________________________________
Its Senior Vice President
TW INTERIM NATIONAL BANK, NATIONAL
ASSOCIATION IN ORGANIZATION
By /s/ JAMES F. ULRICH
_______________________________________
Its President
AI-25
EXHIBIT 17
FORM OF AFFILIATE LETTER
[ ], 2002
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock of Bank of Tanglewood,
National Association ("Bank"), has been advised that as of the date hereof, the
undersigned may be deemed to be an "affiliate" of Bank, as the term "affiliate"
is defined for purposes of paragraph (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act").
The undersigned has been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of May , 2002 (the "Merger Agreement")
among the Bank, BOK Financial Corporation ("BOKF"), and TW Interim Bank,
National Association (the "Merger") and that as a result of the Merger, the
undersigned may receive shares of BOKF in exchange for shares of Tanglewood
Common Stock owned by the undersigned. Capitalized terms used but not defined
herein will have the meanings given them in the Merger Agreement.
1. The undersigned represents, warrants and covenants to BOKF that to the
extent the undersigned receives any shares of BOKF Common Stock pursuant to the
Merger (the "BOKF Shares"), the undersigned:
A. Shall not make any sale, transfer or other disposition of the BOKF
Shares in violation of the Act or the Rules and Regulations.
B. Has read carefully this letter and discussed applicable limitations
upon the ability of the undersigned to sell, transfer or otherwise
dispose of BOKF Shares to the extent the undersigned believed
necessary with counsel of the undersigned.
C. The undersigned has been advised that the issuance of the BOKF Shares
to the undersigned will be registered with the Commission under the
Act on a Registration Statement on Form S-4. However, the undersigned
has also been advised that, since at the time of the approval of the
Merger by the stockholders of Parent, the undersigned may be deemed
to have been an affiliate of the Bank and the distribution by the
undersigned of the BOKF Shares has not been registered under the Act,
the undersigned may be prohibited from selling, transferring or
otherwise disposing of the BOKF Shares unless (i) such sale, transfer
or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with the
volume and other limitations of Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel
reasonably acceptable to BOKF, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
D. Understands that, except as provided in paragraph 2 below, BOKF is
under no obligation to register the sale, transfer or other
disposition of the BOKF Shares by the undersigned or on behalf of the
undersigned under the Act or (except as forth in paragraph 2 below)
to take any other action necessary in order to make compliance with
an exemption from such registration available.
E. Also understands that, unless a registration statement permitting the
sale or other disposition of any or all of the BOKF Shares is
effective, BOKF may give stop transfer instructions to BOKF's
transfer agent with respect to the BOKF Shares and that BOKF reserves
the right to place on the certificates for the BOKF Shares, or any
substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been issued
in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies and may only be sold or otherwise
transferred in compliance with the requirements of Rule 145 or
pursuant to a registration statement under said Act or an
exemption from such registration."
AI-26
F. Also understands that unless the transfer by the undersigned of the
BOKF Shares has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Parent reserves the right
to put the following legend on the certificates issued to transferees
of the undersigned:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 promulgated under the Securities Act of 1933 applies.
The securities have been acquired by the holder not with a view
to, or for resale in connection with, any distribution thereof
within the meaning of Securities Act of 1933 and may not be sold,
pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities
Act of 1933."
G. Execution of this letter should not be considered an admission on the
part of the undersigned that the undersigned is an affiliate of the
Bank as described in the first paragraph of this letter, nor as a
waiver of any rights the undersigned may have to object to any claim
that the undersigned is such an affiliate on or after the date of
this letter.
2. By BOKF's acceptance of this letter, BOKF hereby agrees with the
undersigned as follows:
A. For so long as and to the extent necessary to permit the undersigned
to sell the BOKF Shares pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, BOKF shall (a) use its reasonable
best efforts to (i) file, on a timely basis, all reports and data
required to be filed with the Commission by it pursuant to Section 13
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (ii) furnish to the undersigned upon request a written
statement as to whether BOKF has complied with such reporting
requirements during the 12 months preceding any proposed sale of the
BOKF Shares by the undersigned under Rule 145, and (b) otherwise use
its reasonable efforts to permit such sales pursuant to Rule 145 and
Rule 144. BOKF has filed all reports required to be filed with the
Commission under Section 13 of the Exchange Act during the preceding
12 months.
B. It is understood and agreed that certificates with any legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) one year shall have elapsed
from the date the undersigned acquired the BOKF Shares and the
provisions of Rule 145(d)(2) are then available to the undersigned,
(ii) two years shall have elapsed from the date the undersigned
acquired the BOKF Shares and the provisions of Rule 145(d)(3) are
then applicable to the undersigned, or (iii) BOKF has received either
an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to BOKF, or a "no-action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 144 and Rule 145 under the Act no longer
apply to the undersigned.
C. BOKF will use reasonable efforts to prepare and file a shelf
registration statement (the "Registration Statement") pursuant to
Rule 415 under the Act to permit the sale or other disposition of any
or all of the BOKF Shares in accordance with the intended method of
sale or other disposition elected by the undersigned, and Parent will
use its best efforts to qualify such shares of BOKF Shares under any
applicable state securities laws. Parent will use all reasonable
efforts (i) to cause the Registration Statement to become effective
on or before the Closing Date, (ii) to obtain all consents or waivers
of other parties which are required therefor, and (iii) to keep the
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by the undersigned for a
period ending two years from the Closing Date, or for such shorter
period that will terminate when all shares of BOKF Shares covered by
the Registration Statement have been sold pursuant to the
Registration Statement or otherwise cease to be outstanding. The
offer and sale under the Registration Statement or the obligation of
BOKF to file the Registration Statement and to maintain its
effectiveness may be suspended for one or
AI-27
more periods of time not exceeding 90 calendar days in the aggregate
with respect to such Registration Statement if the Board of Directors
of BOKF will have determined in good faith that the offering and
sales under the Registration Statement, the filing of such
Registration Statement or the maintenance of its effectiveness would
require disclosure of or would interfere in any material respect with
any material financing, acquisition, merger or other transaction
involving BOKF or any of its Subsidiaries or would otherwise require
disclosure of nonpublic information that would materially and
adversely affect BOKF. The Registration Statement prepared and filed
under this paragraph 2.C., and any sale covered thereby, will be at
BOKF's expense except for underwriting discounts or commissions,
brokers' fees and the fees and disbursements of the undersigned's
counsel related thereto. The undersigned will provide all information
reasonably requested by BOKF for inclusion in the Registration
Statement to be filed hereunder. In connection with the registration
pursuant to this paragraph 2.C., the undersigned and BOKF will
provide each other and any underwriter of the offering with customary
representations, warranties, covenants, and rights to indemnification
and contribution.
[Remainder of page intentionally left blank.]
AI-28
Very truly yours,
_____________________________________
Signature
_____________________________________
Print Name
ACCEPTED:
BOK FINANCIAL CORPORATION
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
Dated: ______________________________________
AI-29
Exhibit 20.
ESCROW AGREEMENT
This ESCROW AGREEMENT has been executed this day of , 2002
by and between BOK Financial Corporation ("BOKF"), Bank of Tanglewood, National
Association ("Tanglewood"), and Bank of Texas Trust Company, National
Association, as Escrow Agent (hereinafter called Escrow Agent).
BOK Financial Corporation has deposited in escrow with the Escrow Agent
shares of BOKF Common Stock pursuant to that certain Merger Agreement
among BOKF, Tanglewood, and TW Interim National Bank ("Agreement"). The parties
agree that this escrow shall be administered in accordance with Paragraph 20 of
the Agreement, a true and correct copy of which is attached hereto and
incorporated herein by this reference.
The parties to this Escrow Agreement agree that the following provisions
shall control with respect to the rights duties, liabilities, privileges and
immunities of the Escrow Agent.
e. Other than agreeing to administer this escrow in accordance with
Paragraph 20 of the Agreement, the Escrow Agent is not a party to,
and is not bound by, or charged with notice of, any agreement out of
which this escrow may arise.
f. The Escrow Agent acts hereunder as a depository only, and is not
responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of the subject matter of the
escrow, or any part thereof, or for the form or execution thereof, or
for the identity or authority of any person executing or depositing
it.
g. The Escrow Agent will not render investment advice with respect to
the subject matter of this escrow.
h. In the event the Escrow Agent becomes involved in litigation in
connection with this escrow, the undersigned jointly and severally
agree to indemnify and save the Escrow Agent harmless from all loss,
cost, damages, expenses and attorney's fees suffered or incurred by
the Escrow Agent as a result thereof.
i. The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt,
authorization, power of attorney or other paper or document which the
Escrow Agent in good faith believes to be genuine and what it
purports to be.
j. The Escrow Agent shall not be liable for anything which it may do or
refrain from doing in connection herewith, except its own gross
negligence or willful misconduct.
k. The Escrow Agent may consult with legal counsel in the event of any
dispute or question as to the construction of any of the provisions
hereof or its duties hereunder, and it shall incur no liability and
shall be fully protected in acting in accordance with the opinion and
instructions of such counsel.
l. In the event of any disagreement between any of the parties to this
agreement, or between them or either of any of them and any other
person, resulting in adverse claims or demands being made in
connection with the subject matter of the escrow, or in the event
that the Escrow Agent, in good faith, be in doubt as to what action
it should take hereunder, the Escrow Agent may, at its option, refuse
to comply with any claims or demands on it, or refuse to take any
other action hereunder, so long as such disagreement continues or
such doubt exists, and in any such event, the Escrow Agent shall not
be or become liable in any way or to any person for its failure or
refusal to act, and the Escrow Agent shall be entitled to continue so
to refrain from acting until (i) the rights of all parties shall have
been fully and finally adjudicated by a court of competent
jurisdiction, or (ii) all
AI-30
differences shall have been adjusted and all doubt resolved by
agreement among all of the interested persons, and the Escrow Agent
shall have been notified thereof in writing signed by all such
persons.
m. The rights of the Escrow Agent under this paragraph are cumulative of
all other rights which it may have by law or otherwise.
Executed in Houston, Texas this day of , 2002.
BOK Financial Corporation
By __________________________________
Its: ________________________________
Print Name: _________________________
Bank of Tanglewood, National
Association
By __________________________________
Its: ________________________________
Print Name: _________________________
BANK OF TEXAS TRUST COMPANY, NATIONAL
ASSOCIATION
By __________________________________
Its: ________________________________
Print Name
AI-31
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BOK FINANCIAL CORPORATION, BANK OF TANGLEWOOD, N.A.
AND
TW INTERIM NATIONAL BANK
This Amendment No. 1 (the "Amendment") to that certain Agreement and Plan of
Merger, dated as of May 15, 2002, (the "Agreement"), by and among BOK Financial
Corporation ("BOKF"), an Oklahoma corporation, Bank of Tanglewood, N.A.
("Tanglewood"), a national banking association, and TW Interim National Bank
("TW"), an interim national banking association, is dated as of August 21,
2002. Capitalized terms used in this Amendment and not defined herein have the
same meanings as given in the Agreement.
WHEREAS, BOKF and Tanglewood have previously entered into the Agreement; and
WHEREAS, Paragraph 21.n of the Agreement provides that the Agreement may be
amended by the parties; and
WHEREAS, BOKF and Tanglewood desire to amend the Agreement in the manner
hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment of Agreement. Paragraph 8.g of the Agreement is hereby amended
to read in its entirety as followings:
BOKF shall make the Benchmark Payment, at BOKF's sole discretion, either in
cash or by the issuance shares of BOKF Common Stock at the BOKF Common Stock
Market Value determined as of the applicable Benchmark Date provided,
however, that (A) if BOKF elects to issue shares of BOKF Common Stock at any
one or more Benchmark Dates, the total number of shares of BOKF Common Stock
that BOKF is obligated to issue, for all Benchmark Dates, is limited to
10,000,000 shares, which number of shares shall be appropriately and
equitably adjusted if BOKF at any time changes (or exchanges) the
outstanding shares of BOKF Common Stock by effecting a stock dividend, stock
split, combination of shares, recapitalization, reorganization or
reclassification or similar transaction to maintain a proportionate number
of shares issuable for the Benchmark Payment and (B) BOKF shall in no event
issue any fractional share, but shall, in lieu of the issuance of a
fractional share:
i. Pay cash equal to the BOKF Common Stock Market Value thereof; or
ii. Round up the fractional share to the next highest whole share.
2. Governing Law. All questions concerning the validity, operation and
interpretation of this Amendment and the performance of the obligations imposed
upon the parties hereunder shall be governed by the laws (excluding conflict of
law provisions) of the State of Texas and, to the extent applicable, by the
laws of the United States.
3. Continued Validity. The Agreement, as amended hereby, remains in full
force and effect on and as of the date hereof.
4. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall be deemed to
constitute one and the same instrument.
5. Effective Date. This Amendment shall be effective on and as of August
21, 2002.
AI-32
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Agreement as of August 21, 2002.
BOK FINANCIAL CORPORATION
By: /s/ JAMES F. ULRICH
-----------------------------
Name:.
Title: Senior Vice President
BANK OF TANGLEWOOD, N.A.
By: /s/ RICHARD W. JOCHETZ
-----------------------------
Name: Richard W. Jochetz
President and Chief Executive
Title: Officer
TW INTERIM NATIONAL BANK
By: /s/ JAMES F. ULRICH
-----------------------------
Name:
Title: Senior Vice President
AI-33
ANNEX II
BANK OF TANGLEWOOD, N.A.
PHANTOM STOCK AGREEMENT
This Agreement ("Agreement") is made and entered into effective as of
November 28, 2001 (the "Effective Date") by and between Bank of Tanglewood, a
National banking association (the "Bank") and Richard W. Jochetz (the "Holder").
WHEREAS, the Holder is a key employee of the Bank, and the Bank desires to
provide to the Holder certain Phantom Common Stock of the Bank ("Phantom
Stock") upon the terms and conditions set forth in this Agreement;
NOW THEREFORE in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Award of Phantom Stock. The Bank hereby awards 20,000 shares of
Phantom Stock to the Holder with a current value of $25.00 per share (the
"Award Value").
2. Vesting of Phantom Stock. The Holder shall become vested in twenty
percent (20%) of the shares of Phantom Stock awarded to the Holder pursuant to
this Agreement upon the fourth (4th) anniversary of the Effective Date, and
shall be become vested in an additional twenty percent (20%) of the shares of
Phantom Stock awarded to the Holder pursuant to this Agreement upon each of the
four successive anniversaries of the Effective Date thereafter.
3. Cash Payment Upon Change in Control. Provided that the value of a share
of issued and outstanding common stock of the Bank ("Common Stock") as of the
date of a Change in Control of the Bank (as defined in Section 4 below) exceeds
the Award Value, the Holder shall be entitled to receive a cash payment from
the Bank in an amount equal to the product of (i) the number of shares
(including vested and nonvested shares) of Phantom Stock awarded to the Holder
pursuant to this Agreement, multiplied by (ii) the value of a share of Common
Stock as of the date of the Change in Control of the Bank, as determined by the
Bank in its sole discretion, less the Award Value. This amount, if any, shall
be payable in quarterly or other convenient installments and over such period
of time determined by the Bank based upon the financial position of the Bank,
but in no event, shall the full amount to be paid hereunder be paid over more
than a twenty-four month period.
4. Change in Control. For purposes of this Agreement, a Change in Control
of the Bank means any of the following: (i) any consolidation or merger of the
Bank in which the Bank is not the continuing or surviving entity or pursuant to
which shares of the Common Stock would be converted into cash, securities or
other property, other than a merger of the Bank in which the holders of the
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving entity immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Bank; (iii) any sale or exchange or other transfer (in one transaction or a
series of related transactions) of fifty-one percent (51%) of the issued and
outstanding stock of the Bank; or (iv) the Bank's first offering of Common
Stock to the public that is registered under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission.
5. Cash Payment Upon Termination of Employment.
a. Except as provided in Section 5(b) below, provided that the value of
a share of Common Stock as of the date of the termination of the Holder's
employment with the Bank (the "Termination Date") exceeds the Award Value,
the Holder shall be entitled to receive a cash payment from the Bank in an
amount equal to the product of (i) the number of vested shares of Phantom
Stock awarded to the Holder pursuant to this Agreement, multiplied by (ii)
the value of a share of Common Stock as of the Termination Date, as
determined by the Bank in its sole discretion, less the Award Value. This
amount, if any, shall be payable in quarterly or other convenient
installments and over such period of time determined by the Bank based upon
the financial position of the Bank, but in no event, shall the full amount
to be paid hereunder be paid over
AII-1
more than a twenty-four month period. In the event the Holder's employment
with the Bank is terminated due to the death of the Holder, any amount
payable under this Section 5(a) shall be paid to the Holder's heirs,
beneficiaries, devisees or estate.
b. Notwithstanding anything stated in Section 5(a) above to the
contrary, if the Holder's employment with the Bank is terminated by the Bank
for Cause (as defined below), the Holder shall forfeit all rights and
benefits under this Agreement and shall have no further right to receive any
amount which would otherwise become payable hereunder. Furthermore, upon
termination of Holder's employment with the Bank for Cause, this Agreement
shall be automatically terminated without further obligation or benefit to
either party. For purposes of this Section 5(b), termination for Cause shall
mean the termination of the Holder's employment with the Bank for any of the
following reasons:
i. violation of any law, regulation or governmental or judicial
order governing the Bank or its services;
ii. Holder's conviction of, or plea of nolo contendere to, any felony;
iii. Holder's material violation of any of the Bank's written
personnel policies;
iv. any material false, fraudulent or dishonest act, statement or
omission, or other defalcation, by the Holder;
v. any act, statement or omission by the Holder which materially
injures the business or reputation of the Bank; or
vi. any tort, committed or threatened, by the Holder in the course of
his employment directed at the Bank or any of its employees,
agents, invitees or customer.
6. Capital Adjustments. If, at any time while this Agreement is in effect,
there is any increase or decrease in the number of shares of Common Stock
resulting from (1) the declaration or payment of a stock dividend, (2) any
recapitalization resulting in a stock split-up, combination or exchange of
shares of Common Stock, or (3) other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Bank,
an appropriate adjustment shall be made in the number of shares of Phantom
Stock awarded pursuant to this Agreement in the same proportion as the
adjustment to the number of the shares of Common Stock. The calculation of any
adjustment to the number of shares of Phantom Stock pursuant to this Section 6
shall be made at the sole and absolute discretion of the Bank.
The issuance by the Bank of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with a sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Bank convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to the number of shares of Phantom
Stock awarded pursuant to this Agreement.
7. Recapitalization, Merger, and Consolidation. The existence of this
Agreement shall not affect in any way the right or power of the Bank or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Bank's capital structure and its
business, or any merger or consolidation of the Bank, or any issue of bonds,
debentures, preferred or preference stocks ranking prior to or otherwise
affecting the Common Stock or the rights thereof (or any rights, options, or
warrants to purchase same), or the dissolution or liquidation of the Bank, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
8. Miscellaneous
a. Limitation of Rights. Nothing in this Agreement shall be construed
to: (i) give the Holder any rights whatsoever with respect to shares of
Common Stock; (ii) limit in any way the right of the Bank to terminate the
Holder's employment with the Bank at any time; or (iii) be evidence of any
agreement or understanding, expressed or implied, that the Bank will employ
the Holder in any particular position, or at any particular rate of
remuneration, or for any particular period.
AII-2
b. Nonalienation of Benefits. No right or benefit under this Agreement
shall be subject to anticipation, alienation, sale assignment, pledge,
encumbrance, or charge and any attempt by the Holder to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void.
Additionally, no right or benefit under this Agreement shall in any manner
be liable for or subject to the debts, contracts, liabilities, or torts of
the Holder. If the Holder shall become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit
hereunder, then such right or benefit shall, at the discretion of the Bank,
cease and terminate.
c. Subordination. The obligations of the Bank under this Agreement
shall be subordinate to any obligations of the Bank to any third party and
the Holder shall execute an acknowledgement of such subordination at any
time upon request by the Bank.
d. Tax Withholding. The Bank shall have the right to deduct from all
amounts paid hereunder any Federal, state, or local taxes required by law to
be withheld with respect to such payments.
e. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the Bank.
f. Headings. Headings of sections hereof are inserted for convenience
and reference only and do not constitute part of this Agreement and shall
not be used in construing the provisions of this Agreement.
g. Severability. The provisions of this Agreement are severable, and in
the event that any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect
the other provisions of this Agreement.
h. Texas Law to Apply. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL OBLIGATIONS HEREUNDER
SHALL BE PERFORMABLE AT THE OFFICES OF THE BANK IN HOUSTON, HARRIS COUNTY,
TEXAS.
i. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior discussions, negotiations, and agreements with respect
to the subject matter hereof.
j. Amendment. This Agreement may not be modified, altered, discharged,
enlarged, or amended except by an agreement in writing executed by both the
Bank and the Holder.
k. Notices. Any notice required or permitted to be given hereunder
shall be in writing, shall be effective only upon receipt, and shall be
personally delivered or sent by fax or certified mail, return receipt
requested, postage prepaid, and addressed to the parties as follows:
Bank: Bank of Tanglewood
500 Chimney Rock
Houston, TX 77056
Holder: Richard Jochetz
13111 Indian Creek
Houston, TX 77079
Either party may change its address for purpose of notices under this
Agreement by giving notice of such changed address to the other party.
l. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
AII-3
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officer, and the Holder, to evidence his consent and approval
of all the terms hereof, has duly executed this Agreement effective as of the
Effective Date.
BANK
BANK OF TANGLEWOOD, N.A.
/S/ ROBERT G. GREER
------------------------------------
Robert G. Greer
Chairman
ATTEST
/S/ JAMES L. TIDWELL, JR.
------------------------------------
James L. Tidwell, Jr.
Executive Vice President
HOLDER
/S/ RICHARD W. JOCHETZ
------------------------------------
Richard W. Jochetz
AII-4
ANNEX III
BANK OF TANGLEWOOD, N.A.
PHANTOM STOCK AGREEMENT
This Agreement ("Agreement") is made and entered into effective as of
November 28, 2001 (the "Effective Date") by and between Bank of Tanglewood, a
National banking association (the "Bank") and Robert G. Greer (the "Holder").
WHEREAS, the Holder is a key employee of the Bank, and the Bank desires to
provide to the Holder certain Phantom Common Stock of the Bank ("Phantom
Stock") upon the terms and conditions set forth in this agreement;
NOW THEREFORE in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Award of Phantom Stock. The Bank hereby awards 10,000 shares of Phantom
Stock to the Holder with a current value of $25.00 per share (the "Award
Value").
2. Vesting of Phantom Stock. The Holder shall become vested in twenty
percent (20%) of the shares of Phantom Stock awarded to the Holder pursuant to
this Agreement upon the fourth (4th) anniversary of the Effective Date, and
shall be become vested in an additional twenty percent (20%) of the shares of
Phantom Stock awarded to the Holder pursuant to this Agreement upon each of the
four successive anniversaries of the Effective Date thereafter.
3. Cash Payment Upon Change in Control. Provided that the value of a share
of issued and outstanding common stock of the Bank ("Common Stock") as of the
date of a Change in Control of the Bank (as defined in Section 4 below) exceeds
the Award Value, the Holder shall be entitled to receive a cash payment from
the Bank in an amount equal to the product of (i) the number of shares
(including vested and nonvested shares) of Phantom Stock awarded to the Holder
pursuant to this Agreement, multiplied by (ii) the value of a share of Common
Stock as of the date of the Change in Control of the Bank, as determined by the
Bank in its sole discretion, less the Award Value. This amount, if any, shall
be payable in quarterly or other convenient installments and over such period
of time determined by the Bank based upon the financial position of the Bank,
but in no event, shall the full amount to be paid hereunder be paid over more
than a twenty-four month period.
4. Change in Control. For purposes of this Agreement, a Change in Control
of the Bank means any of the following: (i) any consolidation or merger of the
Bank in which the Bank is not the continuing or surviving entity or pursuant to
which shares of the Common Stock would be converted into cash, securities or
other property, other than a merger of the Bank in which the holders of the
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving entity immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction or series
of related transactions) of all or substantially all of the assets of the Bank;
(iii) any sale or exchange or other transfer (in one transaction or a series of
related transactions) of fifty-one percent (51%) of the issued and outstanding
stock of the Bank; or (iv) the Bank's first offering of Common Stock to the
public that is registered under the Securities Act of 1933, as amended, with
the Securities and Exchange Commission.
5. Cash Payment Upon Termination of Employment.
a. Except as provided in Section 5(b) and Section 5(c) below, provided
that the value of a share of Common Stock as of the date of the termination
of the Holder's employment with the Bank (the "Termination Date") exceeds
the Award Value, the Holder shall be entitled to receive a cash payment from
the Bank in an amount equal to the product of (i) the number of vested
shares of Phantom Stock awarded to the Holder pursuant to this Agreement,
multiplied by (ii) the value of a share of Common Stock as of the
Termination Date, as determined by the Bank in its sole discretion, less the
Award Value. This amount, if any, shall be payable in quarterly or other
convenient installments and over such period of time determined by the Bank
based upon the financial position of the Bank, but in no event, shall the
full amount to be paid
AIII-1
hereunder be paid over more than a twenty-four month period. In the event
the Holder's employment with the Bank is terminated due to the death of the
Holder, any amount payable under this Section 5(a) shall be paid to the
Holder's heirs, beneficiaries, devisees or estate.
b. Notwithstanding anything stated in Section 5(a) above to the
contrary, if the Holder's employment with the Bank is terminated by the Bank
for Cause (as defined below), the Holder shall forfeit all rights and
benefits under this Agreement and shall have no further right to receive any
amount which would otherwise become payable hereunder. Furthermore, upon
termination of Holder's employment with the Bank for Cause, this Agreement
shall be automatically terminated without further obligation or benefit to
either party. For purposes of this Section 5(b), termination for Cause shall
mean the termination of the Holder's employment with the Bank for any of the
following reasons:
i. violation of any law, regulation or governmental or judicial
order governing the Bank or its services;
ii. Holder's conviction of, or plea of nolo contendere to, any felony;
iii. Holder's material violation of any of the Bank's written
personnel policies;
iv. any material false, fraudulent or dishonest act, statement or
omission, or other defalcation, by the Holder;
v. any act, statement or omission by the Holder which materially
injures the business or reputation of the Bank; or
vi. any tort, committed or threatened, by the Holder in the course of
his employment directed at the Bank or any of its employees,
agents, invitees or customer.
c. Notwithstanding anything stated in Section 5(a) above to the
contrary, in the event that the Holder's employment with the Bank is
terminated due to the retirement of Holder and the Holder is seventy (70)
years of age or older at the time of retirement, the Holder shall be
entitled to receive a cash payment from the Bank in an amount equal to the
product of (i) the number of shares (including vested and nonvested shares)
of Phantom Stock awarded to the Holder pursuant to this Agreement,
multiplied by (ii) the value of a share of Common Stock as of the date of
the Holder's retirement, as determined by the Bank in its sole discretion,
less the Award Value. This amount, if any, shall be payable in quarterly or
other convenient installments and over such period of time determined by the
Bank based upon the financial position of the Bank, but in no event, shall
the full amount to be paid hereunder be paid over more than a twenty-four
month period. In the event that the value of a share of Common Stock as of
the date of the Holder's retirement does not exceed the Award Value, no
payment shall be made to the Holder pursuant to this Section 5(c).
6. Capital Adjustments. If, at any time while this Agreement is in effect,
there is any increase or decrease in the number of shares of Common Stock
resulting from (1) the declaration or payment of a stock dividend, (2) any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock, or (3) other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Bank,
an appropriate adjustment shall be made in the number of shares of Phantom
Stock awarded pursuant to this Agreement in the same proportion as the
adjustment to the number of the shares of Common Stock. The calculation of any
adjustment to the number of shares of Phantom Stock pursuant to this Section 6
shall be made at the sole and absolute discretion of the Bank.
The issuance by the Bank of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with a sale or upon the exercise of rights or warrants tot subscribe
therefor, or upon conversion of shares or obligations of the Bank convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to the number of shares of Phantom
Stock awarded pursuant to the Agreement.
AIII-2
7. Recapitalization, Merger, and Consolidation. The existence of this
Agreement shall not affect in any way the right or power of the Bank or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganizations, or other changes in the Bank's capital structure and its
business, or any merger or consolidation of the Bank, or any issue of bonds,
debentures, preferred or preference stocks ranking prior to or otherwise
affecting the Common Stock or the rights thereof (or any right, options, or
warrants to purchase same), or the dissolution or liquidation of the Bank, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
8. Miscellaneous.
a. Limitation of Rights. Nothing in this Agreement shall be construed
to: (i) give the Holder any rights whatsoever with respect to shares of
Common Stock; (ii) limit in any way the right of the Bank at any time; or
(iii) be evidence of any agreement or understanding, expressed or implied,
that the Bank will employ the Holder in any particular position, or at any
particular rate of remuneration, or for any particular period.
b. Nonalienation of Benefits. No right or benefit under this Agreement
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge and any attempt by the Holder to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void.
Additionally, no right or benefit under this Agreement shall in any manner
be liable for or subject to the debts, contracts, liabilities, or torts of
the Holder. If the Holder shall become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit
hereunder, then such right or benefit shall, at the discretion of the Bank,
cease and terminate.
c. Subordination. The obligations of the Bank under this Agreement
shall be subordinate to any obligations of the Bank to any third party and
the Holder shall execute an acknowledgment of such subordination at any time
upon request by the Bank.
d. Tax Withholding. The Bank shall have the right to deduct from all
amounts paid hereunder any Federal, state, or local taxes required by law to
be withheld with respect to such payments.
e. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the Bank.
f. Headings. Headings of sections hereof are inserted for convenience
and reference only and do not constitute part of this Agreement and shall
not be used in construing the provisions of this Agreement.
g. Severability. The provisions of this Agreement are severable, and in
the event that any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect
the other provisions of this Agreement.
h. Texas Law to Apply. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL OBLIGATIONS HEREUNDER
SHALL BE PERFORMABLE AT THE OFFICES OF THE BANK IN HOUSTON, HARRIS COUNTY,
TEXAS.
i. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior discussions, negotiations, and agreements with respect
to the subject matter hereof.
j. Amendment. This Agreement may not be modified, altered, discharged,
enlarged, or amended except by an agreement in writing executed by both the
Bank and the Holder.
AIII-3
k. Notices. Any notice required or permitted to be given hereunder
shall be in writing, shall be effective only only upon receipt, and shall be
personally delivered or sent by fax or certified mail, return receipt
requested, postage prepaid, and addressed to the parties as follows:
Bank: Bank of Tanglewood
500 Chimney Rock
Houston, TX 77056
Attn: James L. Tidwell, Jr.
Fax No. (713) 266-1110
Holder:
---------------------------
---------------------------
Fax No.____________________
Either party may change its address for purpose of notices under this
Agreement by giving notice of such changed address to the other party.
l. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officer, and the Holder, to evidence his consent and approval
of all the terms hereof, has duly executed this Agreement effective as of the
Effective Date.
BANK
BANK OF TANGLEWOOD, N.A.
/s/ RICHARD W. JOCHETZ
-------------------------
Richard W. Jochetz
President & CEO
ATTEST
/s/ JAMES L. TIDWELL, JR.
--------------------------
James L. Tidwell, Jr.
Executive Vice President
HOLDER
/s/ ROBERT G. GREER
-------------------------
Robert G. Greer
AIII-4
ANNEX IV
BANK OF TANGLEWOOD, N.A.
PHANTOM STOCK AGREEMENT
This Agreement ("Agreement") is made and entered into effective as of
November 28, 2001 (the "Effective Date") by and between Bank of Tanglewood, a
National banking association (the "Bank") and James L. Tidwell, Jr. (the
"Holder").
WHEREAS, the Holder is a key employee of the Bank, and the Bank desires to
provide to the Holder certain Phantom Common Stock of the Bank ("Phantom
Stock") upon the terms and conditions set forth in this Agreement;
NOW THEREFORE in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Award of Phantom Stock. The Bank hereby awards 16,000 shares of Phantom
Stock to the Holder with a current value of $25.00 per share (the "Award
Value").
2. Vesting of Phantom Stock. The Holder shall become vested in twenty
percent (20%) of the shares of Phantom Stock awarded to the Holder pursuant to
this Agreement upon the fourth (4th) anniversary of the Effective Date, and
shall be become vested in an additional twenty percent (20%) of the shares of
Phantom Stock awarded to the Holder pursuant to this Agreement upon each of the
four successive anniversaries of the Effective Date thereafter.
3. Cash Payment Upon Change in Control. Provided that the value of a share
of issued and outstanding common stock of the Bank ("Common Stock") as of the
date of a Change in Control of the Bank (as defined in Section 4 below) exceeds
the Award Value, the Holder shall be entitled to receive a cash payment from
the Bank in an amount equal to the product of (i) the number of shares
(including vested and nonvested shares) of Phantom Stock awarded to the Holder
pursuant to this Agreement, multiplied by (ii) the value of a share of Common
Stock as of the date of the Change in Control of the Bank, as determined by the
Bank in its sole discretion, less the Award Value. This amount, if any, shall
be payable in quarterly or other convenient installments and over such period
of time determined by the Bank based upon the financial position of the Bank,
but in no event, shall the full amount to be paid hereunder be paid over more
than a twenty-four month period.
4. Change in Control. For purposes of this Agreement, a Change in Control
of the Bank means any of the following: (i) any consolidation or merger of the
Bank in which the Bank is not the continuing or surviving entity or pursuant to
which shares of the Common Stock would be converted into cash, securities or
other property, other than a merger of the Bank in which the holders of the
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving entity immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Bank; (iii) any sale or exchange or other transfer (in one transaction or a
series of related transactions) of fifty-one percent (51%) of the issued and
outstanding stock of the Bank; or (iv) the Bank's first offering of Common
Stock to the public that is registered under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission.
5. Cash Payment Upon Termination of Employment.
a. Except as provided in Section 5(b) below, provided that the value of
a share of Common Stock as of the date of the termination of the Holder's
employment with the Bank (the "Termination Date") exceeds the Award Value,
the Holder shall be entitled to receive a cash payment from the Bank in an
amount equal to the product of (i) the number of vested shares of Phantom
Stock awarded to the Holder pursuant to this Agreement, multiplied by (ii)
the value of a share of Common Stock as of the Termination Date, as
determined by the Bank in its sole discretion, less the Award Value. This
amount, if any, shall be payable in
AIV-1
quarterly or other convenient installments and over such period of time
determined by the Bank based upon the financial position of the Bank, but in
no event, shall the full amount to be paid hereunder be paid over more than
a twenty-four month period. In the event the Holder's employment with the
Bank is terminated due to the death of the Holder, any amount payable under
this Section 5(a) shall be paid to the Holder's heirs, beneficiaries,
devisees or estate.
b. Notwithstanding anything stated in Section 5(a) above to the
contrary, if the Holder's employment with the Bank is terminated by the Bank
for Cause (as defined below), the Holder shall forfeit all rights and
benefits under this Agreement and shall have no further right to receive any
amount which would otherwise become payable hereunder. Furthermore, upon
termination of Holder's employment with the Bank for Cause, this Agreement
shall be automatically terminated without further obligation or benefit to
either party. For purposes of this Section 5(b), termination for Cause shall
mean the termination of the Holder's employment with the Bank for any of the
following reasons:
i. violation of any law, regulation or governmental or judicial
order governing the Bank or its services;
ii. Holder's conviction of, or plea of nolo contendere to, any felony;
iii. Holder's material violation of any of the Bank's written
personnel policies;
iv. any material false, fraudulent or dishonest act, statement or
omission, or other defalcation, by the Holder;
v. any act, statement or omission by the Holder which materially
injures the business or reputation of the Bank; or
vi. any tort, committed or threatened, by the Holder in the course of
his employment directed at the Bank or any of its employees,
agents, invitees or customer.
6. Capital Adjustments. If, at any time while this Agreement is in effect,
there is any increase or decrease in the number of shares of Common Stock
resulting from (1) the declaration or payment of a stock dividend, (2) any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock, or (3) other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Bank,
an appropriate adjustment shall be made in the number of shares of Phantom
Stock awarded pursuant to this Agreement in the same proportion as the
adjustment to the number of the shares of Common Stock. The calculation of any
adjustment to the number of shares of Phantom Stock pursuant to this Section 6
shall be made at the sole and absolute discretion of the Bank.
The issuance by the Bank of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with a sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Bank convertible
into such shares or other securities, shall not affect and no adjustment by
reason thereof shall be made with respect to the number of shares of Phantom
Stock awarded pursuant to this Agreement.
7. Recapitalization, Merger, and Consolidation. The existence of this
Agreement shall not affect in any way the right or power of the Bank or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Bank's capital structure and its
business, or any merger or consolidation of the Bank, or any issue of bonds,
debentures, preferred or preference stocks ranking prior to or otherwise
affecting the Common Stock or the rights thereof (or any rights, options, or
warrants to purchase same), or the dissolution or liquidation of the Bank, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
8. Miscellaneous.
a. Limitation of Rights. Nothing in this Agreement shall be construed
to: (i) give the Holder any rights whatsoever with respect to shares of
Common Stock; (ii) limit in any way the right of the Bank to
AIV-2
terminate the Holder's employment with the Bank at any time; or (iii) be
evidence of any agreement or understanding, expressed or implied, that the
Bank will employ the Holder in any particular position, or at any particular
rate of remuneration, or for any particular period.
b. Nonalienation of Benefits. No right or benefit under this Agreement
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge and any attempt by the Holder to anticipate,
alienate, sell assign, pledge, encumber or charge the same shall be void.
Additionally, no right or benefit under this Agreement shall in any manner
be liable for or subject to the debts, contracts, liabilities, or torts of
the Holder. If the Holder shall become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or benefit
hereunder, then such right or benefit shall, at the discretion of the Bank,
cease and terminate.
c. Subordination. The obligations of the Bank under this Agreement
shall be subordinate to any obligations of the Bank to any third party and
the Holder shall execute an acknowledgement of such subordination at any
time upon request by the Bank.
d. Tax Withholding. The Bank shall have the right to deduct from all
amounts paid hereunder any Federal, state, or local taxes required by law to
be withheld with respect to such payments.
e. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the Bank.
f. Headings. Headings of sections hereof are inserted for convenience
and reference only and do not constitute part of this Agreement and shall
not be used in construing the provisions of this Agreement.
g. Severability. The provisions of this Agreement are severable, and in
the event that any one or more of the provisions of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect
the other provisions of this Agreement.
h. Texas Law to Apply. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL OBLIGATIONS HEREUNDER
SHALL BE PERFORMABLE AT THE OFFICES OF THE BANK IN HOUSTON, HARRIS COUNTY,
TEXAS.
i. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior discussions, negotiations, and agreements with respect
to the subject matter hereof.
j. Amendment. This Agreement may not be modified, altered, discharged,
enlarged, or amended except by an agreement in writing executed by both the
Bank and the Holder.
k. Notices. Any notice required or permitted to be given hereunder
shall be in writing, shall be effective only upon receipt, and shall be
personally delivered or sent by fax or certified mail, return receipt
requested, postage prepaid, and addressed to the parties as follows:
Bank: Bank of Tanglewood
500 Chimney Rock
Houston, TX 77056
Holder: James Tidwell
118 Park Laureate
Houston, TX 77024
Either party may change its address for purpose of notices under this
Agreement by giving notice of such changed address to the other party.
AIV-3
l. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officer, and the Holder, to evidence his consent and approval
of all the terms hereof, has duly executed this Agreement effective as of the
Effective Date.
BANK
BANK OF TANGLEWOOD, N.A.
/s/ RICHARD W. JOCHETZ
--------------------------
Richard W. Jochetz
President & CEO
ATTEST
/s/ ROBERT G. GREER
-------------------------
Robert G. Greer
Chairman
HOLDER
/s/ JAMES L. TIDWELL, JR.
--------------------------
James L. Tidwell, Jr.
AIV-4
ANNEX V
BANK OF TANGLEWOOD, N.A.
500 Chimney Rock Road
Houston, Texas 77056
Re: Phantom Stock Agreement Waiver
Dear Mr. Jochetz:
Under the terms of the Phantom Stock Agreement dated November 28, 2001
between you and Bank of Tanglewood, N.A. (the "Bank"), upon the consummation of
the merger (the "Merger") of the Bank into TW Interim National Bank ("TW")
pursuant to that certain Agreement and Plan of Merger dated May 15, 2002 by and
among the Bank, TW and BOK Financial Corporation, you will be entitled to
receive a cash payment (the "Payment") equal to the product of (i) the number
of shares of Phantom Stock awarded under the Phantom Stock Agreement,
multiplied by (ii) the value of a share of common stock of the Bank as of the
date of the Merger, less the Award Value (as defined in the Phantom Stock
Agreement).
Under the terms of the Agreement and Plan of Merger, however, the Bank is
required to obtain your waiver of a portion of the Payment that you would
otherwise be entitled to receive under the Phantom Stock Agreement.
Furthermore, if the Merger is not consummated (and there is no change in
control of the Bank before then), you would not vest in any of the Payment
until November 28, 2005, and you would not vest in all of the Payment until
November 28, 2009. The amount of the Payment you would vest in at that time
could be less than the amount of the Payment you would otherwise be entitled to
receive upon consummation of the Merger.
Therefore, in order to allow the Merger to be consummated, and to fix the
amount and accelerate timing of the Payment, the Bank and you hereby agree
that, notwithstanding any other agreement, plan, resolution or arrangement to
the contrary, you hereby relinquish all rights to the Payment to the extent
that the Payment relates to 100% of the Phantom Stock shares that, in the
absence of the Merger, would have vested on or about November 28, 2009, plus
10% of the Phantom Stock shares that would have vested on or about November 28,
2008, plus such additional amount, if any, the payment of which would subject
the Payment to the excise tax provided by Section 4999 of the Internal Revenue
Code.
The foregoing waiver, however, is void if the amount waived and relinquished
is approved for payment by the shareholders of the Bank in a manner that meets
the requirements of Section 280G(b)(5)(B) of the Internal Revenue Code.
Agreed and Accepted: BANK OF TANGLEWOOD, N.A.
/s/ RICHARD W. JOCHETZ By: /s/ JAMES L. TIDWELL, JR.
---------------------------------- ----------------------------------
Richard W. Jochetz
Name: James L. Tidwell, Jr.
----------------------------------
Title: EVP/CFO
----------------------------------
AV-1
ANNEX VI
BANK OF TANGLEWOOD, N.A.
500 Chimney Rock Road
Houston, Texas 77056
Re: Phantom Stock Agreement Waiver
Dear Mr. Greer:
Under the terms of the Phantom Stock Agreement dated November 28, 2001
between you and Bank of Tanglewood, N.A. (the "Bank"), upon the consummation of
the merger (the "Merger") of the Bank into TW Interim National Bank ("TW")
pursuant to that certain Agreement and Plan of Merger dated May 15, 2002 by and
among the Bank, TW and BOK Financial Corporation, you will be entitled to
receive a cash payment (the "Payment") equal to the product of (i) the number
of shares of Phantom Stock awarded under the Phantom Stock Agreement,
multiplied by (ii) the value of a share of common stock of the Bank as of the
date of the Merger, less the Award Value (as defined in the Phantom Stock
Agreement).
Under the terms of the Agreement and Plan of Merger, however, the Bank is
required to obtain your waiver of a portion of the Payment that you would
otherwise be entitled to receive under the Phantom Stock Agreement.
Furthermore, if the Merger is not consummated (and there is no change in
control of the Bank before then), you would not vest in any of the Payment
until November 28, 2005, and you would not vest in all of the Payment until
November 28, 2009. The amount of the Payment you would vest in at that time
could be less than the amount of the Payment you would otherwise be entitled to
receive upon consummation of the Merger.
Therefore, in order to allow the Merger to be consummated, and to fix the
amount and accelerate timing of the Payment, the Bank and you hereby agree
that, notwithstanding any other agreement, plan, resolution or arrangement to
the contrary, you hereby relinquish all rights to the Payment to the extent
that the Payment relates to 45% of the Phantom Stock shares that, in the
absence of the Merger, would have vested on or about November 28, 2009, plus
such additional amount, if any, the payment of which would subject the Payment
to the excise tax provided by Section 4999 of the Internal Revenue Code.
The foregoing waiver, however, is void if the amount waived and relinquished
is approved for payment by the shareholders of the Bank in a manner that meets
the requirements of Section 280G(b)(5)(B) of the Internal Revenue Code.
Agreed and Accepted: BANK OF TANGLEWOOD, N.A.
/s/ ROBERT G. GREER By: /s/ JAMES L. TIDWELL, JR.
---------------------------------- ----------------------------------
Robert G. Greer
Name: James L. Tidwell, Jr.
----------------------------------
Title: EVP/CFO
----------------------------------
AVI-1
ANNEX VII
BANK OF TANGLEWOOD, N.A.
500 Chimney Rock Road
Houston, Texas 77056
Re: Phantom Stock Agreement Waiver
Dear Mr. Tidwell:
Under the terms of the Phantom Stock Agreement dated November 28, 2001
between you and Bank of Tanglewood, N.A. (the "Bank"), upon the consummation of
the merger (the "Merger") of the Bank into TW Interim National Bank ("TW")
pursuant to that certain Agreement and Plan of Merger dated May 15, 2002 by and
among the Bank, TW and BOK Financial Corporation, you will be entitled to
receive a cash payment (the "Payment") equal to the product of (i) the number
of shares of Phantom Stock awarded under the Phantom Stock Agreement,
multiplied by (ii) the value of a share of common stock of the Bank as of the
date of the Merger, less the Award Value (as defined in the Phantom Stock
Agreement).
Under the terms of the Agreement and Plan of Merger, however, the Bank is
required to obtain your waiver of a portion of the Payment that you would
otherwise be entitled to receive under the Phantom Stock Agreement.
Furthermore, if the Merger is not consummated (and there is no change in
control of the Bank before then), you would not vest in any of the Payment
until November 28, 2005, and you would not vest in all of the Payment until
November 28, 2009. The amount of the Payment you would vest in at that time
could be less than the amount of the Payment you would otherwise be entitled to
receive upon consummation of the Merger.
Therefore, in order to allow the Merger to be consummated, and to fix the
amount and accelerate timing of the Payment, the Bank and you hereby agree
that, notwithstanding any other agreement, plan, resolution or arrangement to
the contrary, you hereby relinquish all rights to the Payment to the extent
that the Payment relates to 95% of the Phantom Stock shares that, in the
absence of the Merger, would have vested on or about November 28, 2009, plus
such additional amount, if any, the payment of which would subject the Payment
to the excise tax provided by Section 4999 of the Internal Revenue Code.
The foregoing waiver, however, is void if the amount waived and relinquished
is approved for payment by the shareholders of the Bank in a manner that meets
the requirements of Section 280G(b)(5)(B) of the Internal Revenue Code.
Agreed and Accepted: BANK OF TANGLEWOOD, N.A.
/s/ JAMES L. TIDWELL By: /s/ JAMES L. TIDWELL, JR.
---------------------------------- ----------------------------------
James L. Tidwell
Name: James L. Tidwell, Jr.
----------------------------------
Title: EVP/CFO
----------------------------------
AVII-1
ANNEX VIII
September 19, 2002
Board of Directors
Bank of Tanglewood, NA
500 Chimney Rock Road
Houston, TX 77056
Dear Members of the Board:
We understand that Bank of Tanglewood, N. A. ("Tanglewood"), a Texas
corporation, and BOK Financial Corporation ("BOK Financial"), an Oklahoma
corporation, have entered into an Agreement and Plan of Merger (the
"Agreement") dated May 15, 2002, pursuant to which the Board of Directors of
both Tanglewood and BOK Financial have determined that it is in the best
interests of their respective shareholders to enter into a transaction pursuant
to which Tanglewood will be merged with and into TW Interim National Bank, a
wholly-owned subsidiary of BOK Financial (the "Merger"). As set forth in the
Agreement, at the Effective Time of the Merger (as defined in the Agreement)
all of the outstanding shares of Tanglewood stock (including any stock options,
warrants, and rights to acquire stock) shall be converted into the right to
receive merger consideration valued at $65 million. The $65 million merger
consideration includes approximately $450,000 to be paid to Hovde Financial LLC
("Hovde") as Bank of Tanglewood's financial advisor and assumes the issuance to
Tanglewood shareholders of $750,000 in BOK Financial common stock to be placed
into an escrow account to compensate BOK Financial for any breaches in
representations and warranties of Bank of Tanglewood which are discovered
between completion of the merger and December 31, 2003. The $65 million merger
consideration excludes the value of the benchmark price protection rights to be
received pursuant to the merger. The merger consideration to be paid to Bank of
Tanglewood shareholders by BOK Financial is made up of 100% BOK Financial
common stock. In connection with the merger, you have requested our opinion as
to the fairness, from a financial point of view, of the Merger to the
shareholders of Tanglewood.
Hovde, as part of its investment banking business, is continually engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bidding, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. We are familiar with
Tanglewood, having acted as its financial advisor in connection with, and
having participated in the negotiations leading to, the Agreement. We are also
familiar with BOK Financial, through our continued Merger negotiations and due
diligence.
We were retained by Tanglewood to act as its financial advisor in connection
with the Merger. We will receive compensation from Tanglewood in connection
with our services, a significant portion of which is contingent upon the
consummation of the Merger. Tanglewood has agreed to indemnify us for certain
liabilities arising out of our engagement.
During the course of our engagement and for the purposes of the opinion set
forth herein, we have:
(i) reviewed the Agreement;
(ii) reviewed certain historical publicly available business and financial
information concerning Tanglewood and BOK Financial;
(iii) reviewed certain internal financial statements and other financial and
operating data concerning Tanglewood;
(iv) analyzed certain financial projections prepared by the management of
Tanglewood;
(v) conducted meetings with members of the senior management of Tanglewood
for the purpose of reviewing the future prospects of Tanglewood,
including financial forecasts related to Bank of
AVIII-1
Tanglewood's business, earnings, assets, liabilities and the amount
and timing of cost savings and revenue enhancements (the "Synergies")
expected to be achieved as a result of the Merger;
(vi) conducted meetings with members of senior management of BOK Financial
for purposes of reviewing historical financial information related to
BOK Financial's business, earnings, assets and liabilities;
(vii) evaluated the pro forma contribution of Tanglewood's assets,
liabilities, equity and earnings to the pro forma company;
(viii) reviewed the terms of recent merger and acquisition transactions, to
the extent publicly available, involving banks and bank holding
companies that we considered relevant;
(ix) analyzed the pro forma impact of the Merger on the combined company's
earnings per share, consolidated capitalization and financial ratios;
and,
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We also took into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
knowledge of the banking industry and our general experience in securities
valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
Tanglewood and BOK Financial and in the discussions with Tanglewood and BOK
Financial managements. In that regard, we have assumed that the financial
forecasts, including, without limitation, the Synergies and projections
regarding under-performing and non-performing assets and net charge-offs have
been reasonably prepared on a basis reflecting the best currently available
information and judgments and estimates of Tanglewood and BOK Financial and
that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed that such allowances for Tanglewood and
BOK Financial are in the aggregate adequate to cover such losses. We were not
retained to and did not conduct a physical inspection of any of the properties
or facilities of Tanglewood or BOK Financial. In addition, we have not reviewed
individual credit files nor have we made an independent evaluation or appraisal
of the assets and liabilities of Tanglewood or BOK Financial and we were not
furnished with any such evaluations or appraisals.
We have assumed that the Merger will be consummated substantially in
accordance with the terms set forth in the Agreement. We have further assumed
that the Merger will be accounted for as a purchase-of-interests under
generally accepted accounting principles. We have assumed that the Merger is,
and will be, in compliance with all laws and regulations that are applicable to
Tanglewood or BOK Financial. In rendering this opinion, we have been advised by
Tanglewood and BOK Financial and we have assumed that there are no factors that
would impede any necessary regulatory or governmental approval of the Merger
and we have further assumed that, in the course of obtaining the necessary
regulatory and governmental approvals, no restriction will be imposed on BOK
Financial or the surviving corporation that would have a material adverse
effect on BOK Financial or the contemplated benefits of the Merger. We have
also assumed that there would not occur any change in applicable law or
regulation that would cause a material adverse change in the prospects or
operations of BOK Financial or the surviving corporation after the Merger.
Our opinion is based solely upon the information available to us and the
economic, market and other circumstances as they exist as of the date hereof.
Events occurring and information that becomes available after the date hereof
could materially affect the assumptions and analyses used in preparing this
opinion. We have not undertaken to reaffirm or revise this opinion or otherwise
comment upon any events occurring or information that becomes available after
the date hereof.
AVIII-2
This letter is solely for the information of the Board of Directors of
Tanglewood and is not to be used, circulated, quoted or otherwise referred to
for any other purpose, nor is it to be filed with, included in or referred to
in whole or in part in any registration statement, proxy statement or any other
document, except in each case in accordance with our prior written consent
which shall not be unreasonably withheld; provided, however, that we hereby
consent to the inclusion and reference to this letter in any registration
statement, proxy statement, information statement or tender offer document to
be delivered to the holders of Tanglewood Stock in connection with the Merger
if and only if this letter is quoted in full or attached as an exhibit to such
document and this letter has not been withdrawn prior to the date of such
document.
Subject to the foregoing and based on our experience as investment bankers,
our activities and assumptions as described above, and other factors we have
deemed relevant, we are of the opinion as of the date hereof that the merger
consideration as set forth in the Agreement is fair, from a financial point of
view, to the shareholders of Tanglewood.
Sincerely,
/s/ HOVDE FINANCIAL LLC
HOVDE FINANCIAL LLC
AVIII-3
ANNEX IX
12 USCA (S) 215
12 U.S.C.A. (S) 215
Provisions of the National Bank Act
Relating to Rights of Dissenting Shareholders
(S) 215a. Merger of national banks or State banks into national banks
(a) Approval of Comptroller, board and shareholders; merger agreement;
notice; capital stock; liability of receiving association
One or more national banking associations or one or more State banks, with
the approval of the Comptroller, under an agreement not inconsistent with this
subchapter, may merge into a national banking association located within the
same State, under the charter of the receiving association. The merger
agreement shall--
(1) be agreed upon in writing b a majority of the board of directors of
each association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the shareholders
of each such association or State bank owning at least two-thirds of its
capital stock outstanding, or by a greater proportion of such capital stock
in the case of a State bank if the laws of the State where it is organized
so require, at a meeting to be held on the call of the directors, after
publishing notice of the time, place, and object of the meeting for four
consecutive weeks in a newspaper of general circulation published in the
place where the association or State bank is located, or , if there is not
such newspaper, then in the newspaper of general circulation published
nearest thereto, and after sending such notice to each shareholder of record
by certified or registered mail at least ten days prior to the meeting,
except to those shareholders who specifically waive notice, but any
additional notice shall be given to the shareholders of such State bank
which may be required by the laws of the State where it is organized.
Publication of notice may be waived, in cases where the Comptroller
determines that an emergency exists justifying such waiver, by unanimous
action of the shareholders of the association or State banks;
(3) specify the amount of the capital stock of the receiving association,
which shall not be less than that required under existing law for the
organization of a national bank in the place in which it is located and
which will be outstanding upon completion of the merger, the amount of stock
(if any) to be allocated, and cash (if any) to be paid, to the shareholders
of the association or State bank being merged into the receiving
association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the receiving
association.
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares
so held by him when such merger shall be approved by the Comptroller upon
written request made to the receiving association at any time before thirty
days after the date of consummation of the merger, accompanied by the surrender
of his stock certificates.
AIX-1
12 USCA (S) 215
12 U.S.C.A. (S) 215
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected y the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one
selected by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the Comptroller, who shall cause a reappraisal to be made which shall
be final and binding as to the value of the shares of the appellant.
(d) Application to shareholders of merging associations; appraisal by
Comptroller; expenses of receiving association; sale and resale of shares;
State appraisal and merger law
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the receiving association. The value of the shares ascertained
shall be promptly paid to the dissenting shareholders by the receiving
association. The shares of stock of the receiving association which would have
been delivered to such dissenting shareholders had they not requested payment
shall be sold by the receiving association at an advertised public auction, and
the receiving association shall have the right to purchase any of such shares
at such public auction, if it is the highest bidder therefor, for the purpose
of reselling such shares within thirty days thereafter to such person or
persons and at such price not less than par as its board of directors by
resolution may determine. If the shares are sold at public auction at a price
greater than the amount paid to the dissenting shareholders, the excess in such
sale price shall be paid to such dissenting shareholders. The appraisal of such
shares of stock in any State bank shall be determined in the manner prescribed
by the law of the State in such cases, rather than as provided in this section,
if such provision is made in the State law; and no such merger shall be in
contravention of the law of the State under which such bank is incorporated.
The provisions of this subsection shall apply only to shareholders of (and
stock owned by them in) a bank or association being merged in the receiving
association.
(e) Status of receiving association; property rights and interests vested
and held as fiduciary
The corporate existence of each of the merging banks or banking associations
participating in such merger shall be merged into and continued in the
receiving association and such receiving association shall be deemed to be the
same corporation as each bank or banking association participating in the
merger. All rights, franchises, and interests of the individual merging banks
or banking associations in and to every type of property (real, personal, and
mixed) and choses in action shall be transferred to and vested in the receiving
association by virtue of such merger without any deed or other transfer. The
receiving association, upon the merger and without any order or other action on
the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by any one of the merging banks or banking
associations at the time of the merger, subject to the conditions hereinafter
provided.
AIX-2
12 USCA (S) 215
12 U.S.C.A. (S) 215
(f) Removal as fiduciary; discrimination
Where any merging bank or banking association, at the time of the merger,
was acting under appointment of any court as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver, or
committee of estates of lunatics, or in any other fiduciary capacity, the
receiving association shall be subject to removal by a court of competent
jurisdiction in the same manner and to the same extent as was such merging bank
or banking association prior to the merger. Nothing contained in this section
shall be considered to impair in any manner the right of any court to remove
the receiving association and to appoint in lieu thereof a substitute trustee,
executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor
shall any receiving association be removed solely because of the fact that it
is a national banking association.
(g) Issuance of stock by receiving association; preemptive rights
Stock of the receiving association may be issued as provided by the terms of
the merger agreement, free from any preemptive rights of the shareholders of
the respective merging banks.
AIX-3
BC -- 259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
--------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
--------------------------------------------------------------------------------
TO: Chief Executive Officers of National Banks, Deputy Comptrollers
(District), Department and Division Heads, and Examining Personnel
PURPOSE
This Banking Circular informs all national banks of the valuation methods
used by the Office of the Comptroller of the Currency (OCC) to estimate the
value of a bank's shares when requested to do so by a shareholder dissenting to
the conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985, and September 30, 1991 are
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Section 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the OCC. 12 U.S.C.
Section 215 provides these appraisal rights to any shareholder dissenting to a
consolidation. Any dissenting shareholder of a target bank in a merger is also
entitled to these appraisal rights pursuant to 12 U.S.C. Section 215a.
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
--------------------------------------------------------------------------------
Date: March 10, 1992 Page 1 of 4
AIX-4
BC -- 259
BANKING ISSUANCE
--------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
--------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
--------------------------------------------------------------------------------
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair estimate
of the value of a bank's shares. After reviewing the particular facts in each
case and the available information on a bank's shares, the OCC selects an
appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
Market Value
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value available is not well established,
the OCC may use other methods of estimating market value, such as the
investment value and adjusted book value methods.
Investment Value
Investment value requires an assessment of the value to investors of a share
in the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns.
If the state in which the subject bank is located provides a sufficient number
of comparable banks using location, size and earnings patterns as the criteria
for selection, the price/earnings ratios assigned to the banks are applied to
the earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
Adjusted Book Value
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since that value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value, which
investors attribute to shares of similarly situated banking organizations.
--------------------------------------------------------------------------------
Date: March 10, 1992 Page 2 of 4
AIX-5
BC -- 259
BANKING ISSUANCE
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Comptroller of the Currency
Administrator of National Banks
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Type: Banking Circular Subject: Stock Appraisals
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Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payments are not
regular or predictable elements of market value. Consequently, the OCC's
valuation methods do not include consideration of purchase premiums in arriving
at the value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590
(Item 2), banks may provide shareholders a copy of this Banking Circular or
disclose the information in the Banking Circular, including the past results of
OCC appraisals. If the bank discloses the past results of the OCC appraisals,
it should advise shareholders that: (1) the OCC did not rely on all the
information set forth in the chart in performing each appraisal; and, (2) the
OCC's past appraisals are not necessarily determinative of its future
appraisals of a particular bank's shares.
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Date: March 10, 1992 Page 3 of 4
AIX-6
BC -- 259
BANKING ISSUANCE
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Comptroller of the Currency
Administrator of National Banks
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Type: Banking Circular Subject: Stock Appraisals
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APPRAISAL RESULTS
OCC Average Price/
Appraisal Price Book Earnings Ratio
Appraisal Date Value Offered Value of Peer Group
-------------- --------- -------- -------- --------------
1/1/85....................... 107.05 110 178.29 5.3
1/2/85....................... 73.16 NA 66.35 6.8
1/15/85...................... 53.41 60 83.95 4.8
1/31/85...................... 22.72 20 38.49 5.4
2/1/85....................... 30.63 24 34.08 5.7
2/25/85...................... 27.74 27.55 41.62 5.9
4/30/85...................... 25.98 35 42.21 4.5
7/30/85...................... 3,153.10 2,640.00 6,063.66 NC
9/1/85....................... 17.23 21 21.84 4.7
11/22/85..................... 316.74 338.75 519.89 5.0
11/22/85..................... 30.28 NA 34.42 5.9
12/16/85..................... 66.29 77 89.64 5.6
12/27/85..................... 60.85 57 119.36 5.3
12/31/85..................... 61.77 NA 73.56 5.9
12/31/85..................... 75.79 40 58.74 12.1
3/14/86...................... 59.02 200 132.2 3.1
4/21/86...................... 40.44 35 43.54 6.4
5/2/86....................... 15.5 16.5 23.69 5.0
7/3/86....................... 405.74 NA 612.82 3.9
7/31/86...................... 297.34 600 650.63 4.4
8/22/86...................... 103.53 106.67 136.23 NC
12/26/86..................... 16.66 NA 43.57 4.0
12/31/86..................... 53.39 95.58 69.66 7.1
5/1/87....................... 186.42 NA 360.05 5.1
6/11/87...................... 50.46 70 92.35 4.5
6/11/87...................... 38.53 55 77.75 4.5
7/31/87...................... 13.1 NA 20.04 6.7
8/26/87...................... 55.92 57.52 70.88 NC
8/31/87...................... 19.55 23.75 30.64 5.0
8/31/87...................... 10.98 NA 17.01 4.2
10/6/87...................... 56.48 60 73.11 5.6
3/15/88...................... 297.63 NA 414.95 6.1
6/2/88....................... 27.26 NA 28.45 5.4
6/30/88...................... 137.78 NA 215.36 6.0
8/30/88...................... 768.62 677 1,090.55 10.7
3/31/89...................... 773.62 NA 557.3 7.9
5/26/89...................... 136.47 180 250.42 4.5
5/29/90...................... 9.87 NA 11.04 9.9
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* The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA Not Available
NC Not Computed
For more information regarding the OCC's stock appraisal process, contact
the Office of the Comptroller of the Currency, Bank Organization and Structure.
Frank Maguire
Acting Senior Deputy Comptroller
Corporate Policy and Economic Analysis
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Date: March 10, 1992 Page 4 of 4
AIX-7
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oklahoma Business Corporation Act and Article VI of the Bylaws of BOK
Financial Corporation provide BOK Financial Corporation with broad powers and
authority to indemnify its directors and officers and to purchase and maintain
insurance for such purposes. Pursuant to such statutory and Bylaw provisions,
BOK Financial Corporation has purchased insurance against certain costs of
indemnification of its officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Exhibit No. Description of Exhibits
----------- -----------------------
2.0 Agreement and Plan of Merger, dated May 15, 2002 and amended August 21, 2002, among BOK
Financial Corporation, Bank of Tanglewood, N.A. and TW Interim National Bank (included as
Appendix A to the proxy statement-prospectus, which forms a part of this Registration
Statement on Form S-4)
3.0 The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended and
Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of
State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii)
Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed
November 20, 1991
3.1 Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of Registration Statement on
Form S-1 No. 33-90450
5.0 Opinion of Frederic Dorwart, Lawyers regarding the legality of the shares of common stock being
registered
8.0 Opinion of Bracewell & Patterson, L.L.P. regarding certain tax matters
10.0+ Employment Agreement of Robert G. Greer
21.0 Subsidiaries of BOK Financial (incorporated by reference to Exhibit 21.0 to Form 10-K filed on
March 27, 2002)
23.0 Consent of Ernst & Young, LLP
23.1 Consent of Cornelius, Stegent & Price, LLP
23.2 Consent of Frederic Dorwart, Lawyers (included in opinion filed as Exhibit 5.0)
23.3 Consent of Bracewell & Patterson, L.L.P. (included in opinion filed as Exhibit 8.0)
23.4 Consent of Hovde Financial, LLC
24.0 Power of Attorney (included on the first signature page to this Registration Statement)
99.0 Consent of Robert G. Greer
99.1 Form of Proxy for Bank of Tanglewood
99.2 Form of Rule 145 Affiliate Letter (included in Exhibit 17 to Annex I filed herewith)
--------
+ Management contract or compensatory plan or arrangement
(b) Financial Statement Schedules. Not applicable.
(c) Fairness Opinions. The Opinion of Hovde Financial is included as Annex
VIII to the proxy statement-prospectus in Part I of this Registration
Statement.
II-1
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of any employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or
II-2
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Tulsa, State of Oklahoma, on September 20, 2002.
BOK FINANCIAL CORPORATION
By: /s/ STANLEY A. LYBARGER
-----------------------------
Stanley A. Lybarger,
President and
Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ GEORGE B. KAISER Chairman of the Board of BOK September 20, 2002
----------------------------- Financial Corporation
George B. Kaiser
/s/ STANLEY A. LYBARGER President, Chief Executive September 20, 2002
----------------------------- Officer and Director of BOK
Stanley A. Lybarger Financial Corporation
* Executive Vice President and September 20, 2002
----------------------------- Chief Financial Officer of
Steven E. Nell BOK Financial Corporation
* Senior Vice President and September 20, 2002
----------------------------- Director of Financial
John C. Morrow Accounting and Reporting of
BOK Financial Corporation
* Corporate Controller of BOK September 20, 2002
----------------------------- Financial Corporation
Valerie C. Toalson
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
C. Fred Ball, Jr.
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Sharon J. Bell
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Peter C. Boylan, III
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Joseph E. Cappy
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Luke R. Corbett
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
William E. Durrett
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
James O. Goodwin
II-4
Signature Title Date
--------- ----- ----
* Vice Chairman and Director of September 20, 2002
----------------------------- BOK Financial Corporation
V. Burns Hargis
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Howard E. Janzen
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
E. Carey Joullian, IV
----------------------------- Director of BOK Financial
David L. Kyle Corporation
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Robert J. LaFortune
----------------------------- Director of BOK Financial
Philip C. Lauinger Corporation
----------------------------- Director of BOK Financial
John C. Lopez Corporation
----------------------------- Director of BOK Financial
Steven J. Malcolm Corporation
----------------------------- Director of BOK Financial
Frank A. McPherson Corporation
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Steven E. Moore
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
J. Larry Nichols
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Robert L. Parker, Sr.
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
James A. Robinson
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
L. Francis Rooney, III
* Director of BOK Financial September 20, 2002
----------------------------- Corporation
Scott F. Zarrow
*By: /s/ STANLEY A. LYBARGER September 20, 2002
-------------------------
Stanley A. Lybarger
Attorney-in-fact
II-5
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
----------- -----------------------
2.0 Agreement and Plan of Merger, dated May 15, 2002 and amended August 21, 2002, among BOK
Financial Corporation, Bank of Tanglewood, N.A. and TW Interim National Bank (included as
Appendix A to the proxy statement-prospectus, which forms a part of this Registration
Statement on Form S-4)
3.0 The Certificate of Incorporation of BOK Financial, incorporated by reference to (i) Amended and
Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of
State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii)
Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed
November 20, 1991
3.1 Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of Registration Statement
Form S-1 No. 33-90450
5.0 Opinion of Frederic Dorwart, Lawyers regarding the legality of the shares of common stock being
registered
8.0 Opinion of Bracewell & Patterson, L.L.P. regarding certain tax matters
10.0+ Employment Agreement of Robert G. Greer
21.0 Subsidiaries of BOK Financial (incorporated by reference to Exhibit 21.0 to Form 10-K filed on
March 27, 2002)
23.0 Consent of Ernst & Young, LLP
23.1 Consent of Cornelius, Stegent & Price, L.L.P
23.2 Consent of Frederic Dorwart, Lawyers (included in opinion filed as Exhibit 5.0)
23.3 Consent of Bracewell & Patterson, L.L.P (included in opinion filed as Exhibit 8.0)
23.4 Consent of Hovde Financial, LLC
24.0 Power of Attorney (included on the first signature page to this Registration Statement)
99.0 Consent of Robert G. Greer
99.1 Form of Proxy for Bank of Tanglewood
99.2 Form of Rule 145 Affiliate Letter (included in Exhibit 17 to Annex I filed herewith)
--------
+ Management contract or compensatory plan or arrangement
II-6