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PROSPECTUS
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-51665-01
[LOGO]
$40,000,000
(Aggregate Liquidation Amount)
SVB CAPITAL I
8.25% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Trust Preferred Security)
fully and unconditionally guaranteed, as described herein, by
SILICON VALLEY BANCSHARES
------------
The 8.25% Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of SVB Capital I, a statutory business trust formed under the laws
of the State of Delaware ("SVB Capital"). Silicon Valley Bancshares, a
California corporation (referred to as the "Company" when such reference
includes Silicon Valley Bancshares and its subsidiaries, collectively; or
"Silicon" when referring only to the parent company), will be the owner of all
of the beneficial interests represented by common securities of SVB Capital (the
"Common Securities" and, collectively with the Trust Preferred Securities, the
"Trust Securities"). (CONTINUED ON NEXT PAGE)
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 16 HEREIN FOR CERTAIN INFORMATION RELEVANT
TO AN
INVESTMENT IN THE TRUST PREFERRED SECURITIES.
---------------------
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER
GOVERNMENTAL AGENCY, OR OTHERWISE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO SVB
PUBLIC(1) DISCOUNT(2) CAPITAL(3)
<S> <C> <C> <C>
Per Trust Preferred Security........................... $25.00 (3) $25.00
Total.................................................. $40,000,000 (3) $40,000,000
</TABLE>
(1) Plus accrued Distributions, if any, from May 22, 1998.
(2) Silicon and SVB Capital have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that all of the proceeds of the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated
Debentures, Silicon has agreed to pay the Underwriters, as compensation for
arranging the investment therein of such proceeds, $0.8125 per Trust
Preferred Security, or $1,300,000 in the aggregate. See "Underwriting."
Silicon has also agreed to pay the expenses of the offering estimated to be
$375,000.
The Trust Preferred Securities are offered by the Underwriters subject to
receipt and acceptance by them, prior sale and the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Trust Preferred Securities
will be made in book-entry form through the book-entry facilities of The
Depository Trust Company on or about May 22, 1998, against payment therefor in
immediately available funds.
BT ALEX. BROWN
KEEFE, BRUYETTE & WOODS, INC.
HOEFER & ARNETT INCORPORATED
THE DATE OF THIS PROSPECTUS IS MAY 19, 1998
<PAGE>
(CONTINUED FROM COVER PAGE)
SVB Capital exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of 8.25% Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") to be issued by Silicon. The Junior Subordinated Debentures will
mature on June 15, 2028, which date may be shortened (such date, as it may be
shortened, the "Stated Maturity") to a date not earlier than June 15, 2003 if
certain conditions are met (including Silicon having received the prior approval
of the Board of Governors of the Federal Reserve System (the "Federal Reserve")
to do so if then required under applicable capital guidelines or policies of the
Federal Reserve). The Trust Preferred Securities will have a preference under
certain circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities, which will be
held by Silicon. See "Description of the Trust Preferred
Securities--Subordination of Common Securities."
Holders of the Trust Preferred Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable quarterly in arrears on the 15th day of March, June,
September and December of each year (subject to possible deferral as described
below), commencing September 15, 1998, at the annual rate of 8.25% of the
Liquidation Amount (as defined herein) of $25 per Trust Preferred Security
("Distributions"). The amount of each Distribution due with respect to the Trust
Preferred Securities will include amounts accrued through the date the
Distribution payment is due. Silicon will have the right, so long as no
Debenture Event of Default (as defined below) has occurred and is continuing, to
defer payments of interest on the Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, Silicon may elect to begin a new Extension
Period subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Trust
Preferred Securities will also be deferred and Silicon will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to its capital stock or to make any payment with
respect to its debt securities that rank PARI PASSU with or junior to the Junior
Subordinated Debentures. Silicon has not paid cash dividends or made
distributions on its common stock during any of the past five years and
currently Silicon has no debt securities that rank PARI PASSU with or junior to
the Junior Subordinated Debentures. During an Extension Period, interest on the
Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Trust Preferred Securities are entitled
will accumulate) at the rate of 8.25% per annum, compounded quarterly, and
holders of the Trust Preferred Securities will be required to accrue income and
will be required to pay United States federal income tax on that income. See
"Description of Junior Subordinated Debentures--Option to Defer Interest Payment
Period" and "Certain Federal Income Tax Consequences-- Interest Income and
Original Issue Discount."
Silicon will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully, irrevocably and unconditionally
guarantee all of SVB Capital's obligations under the Trust Preferred Securities.
See "Relationship Among the Trust Preferred Securities, the Junior Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee." Under the
Guarantee, Silicon will guarantee the payment of Distributions by SVB Capital
and payments on liquidation of, or redemption of, the Trust Preferred Securities
(subordinate to the right to payment of Senior and Subordinated Debt of Silicon,
as defined herein) to the extent of funds held by SVB Capital. See "Description
of Guarantee." If Silicon does not make required payments on the Junior
Subordinated Debentures held by SVB Capital, SVB Capital will have insufficient
funds to pay Distributions on the Trust Preferred Securities. The Guarantee will
not cover payment of Distributions when SVB Capital does not have sufficient
funds to pay such Distributions. In such event, a holder of the Trust Preferred
Securities may institute a legal proceeding directly against Silicon pursuant to
the terms of the Indenture to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of Trust Preferred Securities." The obligations of
Silicon under the Guarantee and the Junior Subordinated Debentures will be
subordinate and junior in right of payment to all Senior and Subordinated Debt
(as defined in "Description of Junior Subordinated Debentures--Subordination")
of Silicon.
(CONTINUED ON NEXT PAGE)
2
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Trust Preferred Securities will be subject to mandatory redemption, in
whole but not in part, upon repayment of the Junior Subordinated Debentures at
the Stated Maturity or, in whole or in part, upon their earlier redemption, in
each case at a redemption price equal to the aggregate liquidation preference of
the Trust Preferred Securities plus any accumulated and unpaid Distributions
thereon to the date of redemption. Subject to regulatory approval, if then
required under applicable regulatory policies, the Junior Subordinated
Debentures are redeemable prior to maturity at the option of Silicon (i) on or
after June 15, 2003, in whole at any time or in part from time to time, or (ii)
at any time (whether occurring before or after June 15, 2003) in whole (but not
in part), within 90 days following the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event (each as defined herein), in each
case at a redemption price equal to the accrued and unpaid interest on the
Junior Subordinated Debentures to the date fixed for redemption, plus 100% of
the principal amount thereof. See "Description of the Trust Preferred
Securities--Redemption."
Silicon will have the right at any time to dissolve SVB Capital and cause a
Like Amount (as defined herein) of the Junior Subordinated Debentures to be
distributed to the holders of the Trust Preferred Securities in liquidation of
SVB Capital, subject to Silicon having received prior approval of the primary
federal regulator of Silicon if then required under applicable capital
guidelines or policies of such primary regulator. See "Description of the Trust
Preferred Securities--Liquidation Distribution Upon Dissolution."
In the event of the dissolution of SVB Capital, after satisfaction of
liabilities to creditors of SVB Capital as required by applicable law, the
holders of Trust Preferred Securities will be entitled to receive a liquidation
amount of $25 per Trust Preferred Security ("Liquidation Amount"), plus
accumulated and unpaid Distributions thereon to the date of payment, which may
be in the form of a Distribution of such Like Amount of Junior Subordinated
Debentures, subject to certain exceptions. See "Description of the Trust
Preferred Securities-- Liquidation Distribution Upon Dissolution."
The Junior Subordinated Debentures will be unsecured and subordinated to all
Senior and Subordinated Debt. Although at March 31, 1998, Silicon had no
outstanding Senior and Subordinated Debt, the terms of the Junior Subordinated
Debentures place no limitation on the amount of Senior and Subordinated Debt
that Silicon can issue. In addition, because Silicon is a holding company,
substantially all of Silicon's assets consist of the capital stock of its
subsidiaries. All obligations of Silicon relating to the securities described
herein will be effectively subordinated to all existing and future liabilities
of Silicon's subsidiaries. Silicon may cause additional trust preferred
securities to be issued by trusts similar to SVB Capital in the future, and
there is no limit on the amount of such securities that may be issued. In this
event, Silicon's obligations under the junior subordinated debentures to be
issued to such other trusts and Silicon's guarantees of the payments by such
trusts will rank PARI PASSU with Silicon's obligations under the Junior
Subordinated Debentures and the Guarantee, respectively. See "Risk
Factors--Ranking of Silicon's Obligations under the Junior Subordinated
Debentures and the Guarantee" and "Description of Junior Subordinated
Debentures--Subordination."
The Trust Preferred Securities have been approved for quotation on The
Nasdaq Stock Market's National Market (the "Nasdaq National Market"). Although
the Underwriters have indicated an intention to make a market in the Trust
Preferred Securities, the Underwriters are not obligated to do so, and any
market making may be discontinued at any time at the sole discretion of the
Underwriter. There can be no assurance that a market will develop for the Trust
Preferred Securities. See "Risk Factors--Absence of Existing Public Market;
Market Prices" and "Underwriting."
The Trust Preferred Securities and the Junior Subordinated Debentures will
be represented by one or more global certificates registered in the name of The
Depository Trust Company (the "Depositary") or its nominee. Beneficial interests
in the Trust Preferred Securities and the Junior Subordinated Debentures will be
shown on, and transfers thereof will be effected only through, records
maintained by participants in the Depositary. The Depositary and the Paying
Agent will be responsible for dividend payments to holders of the Trust
Preferred Securities and the Junior Subordinated Debentures. Except as described
herein, the Trust Preferred Securities in certificated form will not be issued
in exchange for global certificates. See "Book-Entry Issuance."
3
<PAGE>
AVAILABLE INFORMATION
Silicon and SVB Capital have jointly filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the offering of the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, SVB Capital and
the securities offered hereby, reference is made to the Registration Statement
and the exhibits and the financial statements, notes and schedules filed as a
part thereof or incorporated by reference therein, which may be inspected at the
public reference facilities of the Commission, at the address set forth below.
Statements made in this Prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each instance are
qualified in all respects by reference to a copy of such document filed as an
exhibit to the Registration Statement.
Silicon is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by Silicon can
be inspected and copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The
Commission also maintains a Web site (http://www.sec.gov) at which reports,
proxy and information statements and other information regarding the Company may
be accessed. In addition, such reports, proxy statements and other information
can also be inspected at the offices of The Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
No separate financial statements of SVB Capital have been included or
incorporated by reference herein. Silicon and SVB Capital do not consider that
such financial statements would be material to holders of the Trust Preferred
Securities because SVB Capital is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than holding as trust assets the Junior
Subordinated Debentures of Silicon and issuing the Trust Securities. See
"Prospectus Summary--SVB Capital," "Description of Trust Preferred Securities,"
"Description of Junior Subordinated Debentures" and "Description of Guarantee."
In addition, Silicon does not expect that SVB Capital will be filing reports
under the Exchange Act with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE TRUST PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTING THE TRUST PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH TRUST PREFERRED SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
4
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 previously filed by the Company with the Commission, are
incorporated by reference in this Prospectus and shall be deemed to be a part
hereof.
Each document filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of any offering of securities made by
this Prospectus shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of filing such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM A COPY OF THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF
ANY OR ALL OF THE DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE
HEREIN (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED
TO INVESTOR RELATIONS DEPARTMENT, 3003 TASMAN DRIVE, SANTA CLARA, CALIFORNIA
95054, TELEPHONE (408) 654-7400.
The Company will provide to the holders of the Trust Preferred Securities
Annual Reports containing financial statements audited by the Company's
independent auditors. The Company will also furnish Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q free of charge to holders of the Trust
Preferred Securities who so request in writing to the Company.
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND
SECTION 21E OF THE EXCHANGE ACT, WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE,"
"INTENDS," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR
OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. SUCH FORWARD-LOOKING
STATEMENTS ARE INHERENTLY UNCERTAIN, AND INVESTORS MUST RECOGNIZE THAT ACTUAL
RESULTS MAY DIFFER FROM MANAGEMENT'S EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH
A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION
"RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. THE STATEMENTS IN "RISK FACTORS" OF THIS PROSPECTUS
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING
CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS.
5
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. FOR PURPOSES OF THIS
PROSPECTUS, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, (I)
THE "COMPANY" REFERS TO SILICON VALLEY BANCSHARES, AND ITS WHOLLY OWNED
SUBSIDIARIES, COLLECTIVELY, (II) "SILICON" REFERS TO THE PARENT COMPANY ONLY,
AND (III) THE "BANK" REFERS TO SILICON VALLEY BANK ONLY.
AS USED HEREIN, (I) THE "INDENTURE" MEANS THE JUNIOR SUBORDINATED INDENTURE
DATED AS OF MAY 22, 1998, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BETWEEN
SILICON AND WILMINGTON TRUST COMPANY, AS TRUSTEE (THE "INDENTURE TRUSTEE"),
UNDER WHICH THE JUNIOR SUBORDINATED DEBENTURES WILL BE ISSUED, (II) THE "TRUST
AGREEMENT" MEANS THE AMENDED AND RESTATED TRUST AGREEMENT RELATING TO SVB
CAPITAL AMONG SILICON, AS DEPOSITOR, WILMINGTON TRUST COMPANY, AS PROPERTY
TRUSTEE (THE "PROPERTY TRUSTEE"), WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE
(THE "DELAWARE TRUSTEE"), AND THE ADMINISTRATIVE TRUSTEES NAMED THEREIN
(COLLECTIVELY, WITH THE PROPERTY TRUSTEE AND DELAWARE TRUSTEE, THE "ISSUER
TRUSTEES"), (III) THE "GUARANTEE AGREEMENT" MEANS THE GUARANTEE AGREEMENT
RELATING TO THE GUARANTEE BETWEEN SILICON AND WILMINGTON TRUST COMPANY, AS
GUARANTEE TRUSTEE, AND (IV) THE "EXPENSE AGREEMENT" MEANS THE AGREEMENT AS TO
EXPENSES AND LIABILITIES BETWEEN SILICON AND SVB CAPITAL.
THE COMPANY
BUSINESS OVERVIEW
Silicon Valley Bank was founded in 1983 to provide innovative banking
products and services to emerging growth and middle-market companies located
primarily in the Silicon Valley area of California (generally between Redwood
City and San Jose). Initially, focusing on the technology and life sciences
industries, the Bank created teams of banking specialists with knowledge of
specifically targeted industries and developed tailored financial products
appropriate to the particular stage of an emerging company's business and
financial life cycle. From this initial focus, the Bank has expanded its client
base on a national basis by implementing this strategy in the areas of
entertainment, real estate, premium wineries, religious organizations and
venture capital through the establishment of lending offices in locations with a
critical mass of corporations fitting the Bank's target customer base. As of
March 31, 1998, no particular industry sector (as identified by Standard
Industrial Codes) represented more than 10% of the Bank's loan portfolio.
The Bank has expanded from a single location in Santa Clara, California to a
national network of 16 offices located in Arizona, California, Colorado,
Georgia, Illinois, Maryland, Massachusetts, Oregon, Texas, and Washington.
As of March 31, 1998, the Company had $2.8 billion in total assets, $2.6
billion in deposits, $1.2 billion in loans, net of unearned income, and $187.6
million in shareholders' equity. For the quarter ended March 31, 1998 (as
compared to the quarter ended March 31, 1997), total assets increased 43.5%,
deposit growth was 44.3%, loans, net of unearned income, increased 33.3%, net
income increased 22.4% to $7.6 million and diluted earnings per share increased
17.7% to $0.36.
TECHNOLOGY AND LIFE SCIENCES NICHE
The Bank's technology and life sciences niche focuses on serving primarily
venture capital-backed companies within a variety of technology and life
sciences industries and markets across the nation. These companies are generally
liquid, net providers of funds to the Bank, and often have low utilization of
their credit facilities. Lending to this niche is typically related to working
capital lines of credit, equipment financing, asset acquisition loans, and
bridge financing. The following is an overview of the Bank's technology and life
sciences niche practices.
The Communications and Online Services practice serves companies in the
networking, telecommunications and online services industries. The networking
industry includes companies supplying the equipment and services that facilitate
distributed enterprise networks such as local and wide area networks. The
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telecommunications industry encompasses the suppliers of equipment and services
to companies and consumers for the transmission of voice, data and video.
Companies included in the online services industry supply access, content,
services, and support to individuals and businesses participating on the
Internet, or in other online activities.
The Computers and Peripherals practice focuses on companies that are engaged
in the support and manufacturing of computers, electronic components and related
peripheral products. Specific markets these companies serve include personal
computers, specialty computer systems, add-in boards, printers, storage devices,
networking equipment, and contract manufacturing.
The Semiconductors practice serves companies involved in the design,
manufacturing and marketing of integrated circuits. This includes companies
involved in the manufacturing of semiconductor production equipment and
semiconductors, testing and related services, electronic parts wholesaling,
computer-aided design, and computer-aided manufacturing.
The Software practice consists largely of companies specializing in the
design of integrated computer systems, computer programming services, and the
development and marketing of commercial and industrial applications as well as
prepackaged software.
The Life Sciences practices serve companies in the biotechnology, medical
devices and health care services industries. The biotechnology industry includes
companies involved in research and development of therapeutics and diagnostics
for the medical and pharmaceuticals industries. The medical devices industry
encompasses companies involved in the design, manufacturing and distribution of
surgical instruments and medical equipment. Companies included in the health
care services industry deal with patients, either in a primary care or secondary
care role.
In addition to the industry-related practices discussed above, the Bank has
three other practices that provide commercial lending and other financial
products and services to clients associated with the technology and life
sciences industries. The Pacific Rim practice serves the market of Asian-owned
or managed companies located in the U.S. which meet the criteria for inclusion
in any of the industries mentioned above, while the Venture Capital practice
provides venture capital firms with financing and other specialized products and
services. Lastly, the Emerging Technologies practice, which was established in
1997, primarily targets non-venture-backed technology financial relationships in
Northern California, with a primary focus on the software industry.
SPECIAL INDUSTRY NICHES
The Bank has always served a variety of commercial enterprises unrelated to
its technology and life sciences niche. These clients are served through several
special industry niche practices which generally focus their lending in specific
regions throughout the U.S. The Bank's niche strategy evolved from clients
unrelated to the technology and life sciences niche, and the Bank continues to
follow this strategy by identifying industries whose financial services needs
are underserved. The following is a brief summary of the Bank's special industry
niche practices.
The Real Estate practice is composed of real estate construction and term
loans whose primary source of repayment is cash flow or sales proceeds from real
property collateral. The focus of the Real Estate practice consists of
construction loans for residential and commercial projects, and construction and
mini-permanent loans on retail, industrial and office projects.
The Premium Wineries practice focuses on wineries which produce select or
exclusive vintages of up to 150,000 cases annually. Lending in this niche
consists of both short-term inventory loans and term loans related to vineyard
acquisition and development, equipment financing and cooperage.
The Religious Financial Resources practice serves the credit needs of
churches, temples, their affiliated schools, and other religious organizations
nationwide. Products offered to this niche include term loans for refinancing
existing debt, acquiring property and for construction, remodeling or renovation
projects.
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The Entertainment practice serves the independent sector of the
entertainment industry. This practice provides production loans, lines of credit
and term loans for library and other acquisitions.
In addition to serving the niches listed above, the Bank serves a broad
array of industries through its Diversified Industries practice in Northern
California. This practice allows the Bank to continue to evaluate potential
niches by initially identifying and serving a few clients in related industries
or markets.
SPECIALIZED PRODUCTS AND SERVICES
The Bank has several divisions that offer specialized lending products and
other financial products and services to clients in the technology and life
sciences niche as well as the special industry niches discussed above, enabling
the Bank to better serve its clients' wide range of financial services needs.
These divisions include: International, Cash Management, Treasury, Real Estate,
Factoring, Commercial Finance and Executive Banking.
The International Division provides foreign exchange, import and export
letters of credit, documentary collections, and a number of other trade finance
products and services to the Bank's clients, helping them to successfully
operate in international markets. The Bank has been granted delegated authority
by the Export-Import Bank of the U.S. (EX-IM) and the California Export Finance
Office (CEFO), enabling the Bank to provide its clients with EX-IM and CEFO
guaranteed working capital loans to finance foreign receivables and inventory
intended for export, as well as provide purchase order financing.
The Cash Management Division provides services to help the Bank's customers
manage cash collections and disbursements efficiently and cost effectively.
Services provided include wholesale lockbox services, electronic information
reporting, controlled disbursement services, and a variety of other services
designed to meet the banking and cash management needs of the Bank's clients.
Through the Treasury Division, the Bank provides investment services to
assist its clients with managing short-term investments. Investment securities
purchased on behalf of clients include U.S. Treasury securities, U.S. agency
securities, commercial paper, Eurodollar deposits, and bankers' acceptances.
In addition to being a special industry niche, real estate lending is also a
product offered to the Bank's clients. This product is typically offered to
finance commercial real estate to be owned and operated by the Bank's client
companies.
Both the Factoring Division and the Commercial Finance Division offer
alternative financing to client companies which do not qualify for the more
traditional financing offered through the Bank's niche practices. The Factoring
Division generally serves the Bank's emerging growth client base by purchasing
clients' accounts receivable at a discount, making operating funds immediately
available to the clients, and then managing the collection of these receivables.
The Commercial Finance Division assists client companies during periods when
profit performance has been interrupted or where greater flexibility is required
by providing credit facilities that involve frequent monitoring of the
underlying collateral, which generally consists of accounts receivable,
inventory and equipment. As clients of the Factoring and Commercial Finance
Divisions grow and their financial condition strengthens, they often end up
being served through the Bank's niche practices.
The Executive Banking Division focuses on serving the personal banking needs
of senior executives and owners of the Bank's client companies, partners and
senior executives of venture capital firms, attorneys, accountants, and other
professionals whose businesses are affiliated with the Bank's niches.
GENERAL
Silicon Valley Bancshares is a California corporation and bank holding
company that was incorporated on April 23, 1982. The Bank, a wholly owned
subsidiary of Silicon, is Silicon's sole operating subsidiary. The Bank is a
member of the Federal Reserve System and its deposits are insured by the
8
<PAGE>
Federal Deposit Insurance Corporation ("FDIC"). Silicon's principal offices are
located at 3003 Tasman Drive, Santa Clara, California 95054 and its telephone
number is (408) 654-7400.
SVB CAPITAL
SVB Capital is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement and (ii) the filing of a Certificate of Trust with
the Delaware Secretary of State on April 29, 1998. SVB Capital's business and
affairs are conducted by the Property Trustee, Delaware Trustee and three
individual Administrative Trustees who are officers of the Company. SVB Capital
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures issued by Silicon, and (iii) engaging
in only those other activities necessary, advisable or incidental thereto. The
Junior Subordinated Debentures will be the sole assets of SVB Capital, and
payments by Silicon under the Junior Subordinated Debentures and the Expense
Agreement will be the sole revenues of SVB Capital. All of the Common Securities
will be owned by Silicon. The Common Securities will rank PARI PASSU, and
payments will be made thereon pro rata, with the Trust Preferred Securities,
except that upon the occurrence and during the continuance of an event of
default under the Trust Agreement resulting from an event of default under the
Indenture, the rights of Silicon as holder of the Common Securities to payment
in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. See "Description of the Trust Preferred
Securities--Subordination of Common Securities." Silicon will acquire Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of SVB Capital. SVB Capital has a term of 31 years, but may terminate earlier as
provided in the Trust Agreement.
SVB Capital's principal offices are located at 3003 Tasman Drive, Santa
Clara, California 95054 and its telephone number is (408) 654-7400.
9
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THE OFFERING
<TABLE>
<S> <C>
Trust Preferred Securities
Issuer.......................... SVB Capital I ("SVB Capital")
Securities Offered................ 1,600,000 Trust Preferred Securities having a
Liquidation Amount of $25 per Trust Preferred Security.
The Trust Preferred Securities represent preferred
undivided beneficial interests in SVB Capital's assets,
which will consist solely of the Junior Subordinated
Debentures and payments thereunder.
Offering Price.................... $25 per Trust Preferred Security (Liquidation Amount
$25), plus accumulated Distributions, if any, from May
22, 1998.
Distributions..................... The Distributions payable on each Trust Preferred
Security will be fixed at a rate per annum of 8.25% of
the Liquidation Amount of $25 per Trust Preferred
Security, will be cumulative, will accrue from the date
of issuance of the Trust Preferred Securities, and will
be payable quarterly in arrears on the 15th day of
March, June, September and December of each year,
commencing on September 15, 1998 (subject to possible
deferral as described below). The amount of each
Distribution due with respect to the Trust Preferred
Securities will include amounts accrued through the date
the Distribution payment is due. See "Description of the
Trust Preferred Securities."
Extension Periods................. So long as no Debenture Event of Default (as defined
herein) has occurred and is continuing, Silicon will
have the right, at any time, to defer payments of
interest on the Junior Subordinated Debentures by
extending the interest payment period thereon for a
period not exceeding 20 consecutive quarters with
respect to each deferral period (each an "Extension
Period"), provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated
Debentures. If interest payments are so deferred,
Distributions on the Trust Preferred Securities will
also be deferred and Silicon will not be permitted,
subject to certain exceptions described herein, to
declare or pay any cash distributions with respect to
Silicon's capital stock or debt securities that rank
PARI PASSU with or junior to the Junior Subordinated
Debentures. Silicon has not paid cash dividends or made
distributions on its common stock during any of the past
five years and currently Silicon has no debt securities
that rank PARI PASSU with or junior to the Junior
Subordinated Debentures. During an Extension Period,
Distributions will continue to accumulate with interest
thereon compounded quarterly. Because interest would
continue to accrue and compound on the Junior
Subordinated Debentures, to the extent permitted by
applicable law, holders of the Trust Preferred
Securities will be required to accrue income for United
States federal income tax purposes. See "Description of
Junior Subordinated Debentures--Option to Defer Interest
Payment Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
</TABLE>
10
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<TABLE>
<S> <C>
Maturity.......................... The Junior Subordinated Debentures will mature on June
15, 2028 which date may be shortened (such date, as it
may be shortened, the "Stated Maturity") to a date not
earlier than June 15, 2003 if certain conditions are met
(including Silicon having received prior approval of the
Federal Reserve to do so if then required under
applicable capital guidelines or policies of the Federal
Reserve).
Redemption........................ The Trust Preferred Securities will be subject to
mandatory redemption upon repayment of the Junior
Subordinated Debentures at their Stated Maturity or
their earlier redemption at a redemption price equal to
the aggregate Liquidation Amount of the Trust Preferred
Securities plus accumulated and unpaid Distributions
thereon to the date of redemption. Subject to Federal
Reserve approval, if then required under applicable
capital guidelines or policies of the Federal Reserve,
the Junior Subordinated Debentures will be redeemable
prior to maturity at the option of Silicon (i) on or
after June 15, 2003 in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in
part), within 90 days following the occurrence of a Tax
Event, an Investment Company Event or a Capital
Treatment Event, in each case at a redemption price
equal to 100% of the principal amount of the Junior
Subordinated Debentures so redeemed, together with any
accrued but unpaid interest to the date fixed for
redemption. See "Description of the Trust Preferred
Securities--Redemption" and "Description of Junior
Subordinated Debentures--Redemption."
Distribution of Junior
Subordinated Debentures......... Silicon will have the right at any time to dissolve SVB
Capital, after satisfaction of creditors of SVB Capital
as required by applicable law, and cause the Junior
Subordinated Debentures to be distributed to holders of
Trust Preferred Securities in liquidation of SVB
Capital, subject to Silicon having received prior
approval of the Federal Reserve to do so if then
required under applicable capital guidelines or policies
of the Federal Reserve. See "Description of the Trust
Preferred Securities-- Distribution of Junior
Subordinated Debentures."
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Guarantee......................... Taken together, Silicon's obligations under various
documents described herein, including the Guarantee
Agreement, will provide a full, irrevocable and
unconditional guarantee of payments by SVB Capital of
Distributions and other amounts due on the Trust
Preferred Securities. Under the Guarantee Agreement,
Silicon guarantees the payment of Distributions by SVB
Capital and payments on liquidation of SVB Capital or
redemption of the Trust Preferred Securities
(subordinate to the right to payment of Senior and
Subordinated Debt of Silicon, as defined herein) to the
extent of funds held by SVB Capital. If SVB Capital has
insufficient funds to pay Distributions on the Trust
Preferred Securities because Silicon has failed to make
required payments under the Junior Subordinated
Debentures, a holder of the Trust Preferred Securities
would have the right to institute a legal proceeding
directly against Silicon to enforce payment of such
Distributions to such holder. See "Description of Junior
Subordinated Debentures--Enforcement of Certain Rights
by Holders of Trust Preferred Securities," "Description
of Junior Subordinated Debentures--Debenture Events of
Default" and "Description of Guarantee."
Ranking........................... The Trust Preferred Securities will rank PARI PASSU, and
payments thereon will be made pro rata, with the Common
Securities of SVB Capital held by Silicon, except as
described under "Description of the Trust Preferred
Securities-- Subordination of Common Securities." The
obligations of Silicon under the Guarantee, the Junior
Subordinated Debentures and other documents described
herein will be unsecured and rank subordinate and junior
in right of payment to all current and future Senior and
Subordinated Debt, the amount of which is unlimited. In
addition, because Silicon is a holding company,
substantially all of Silicon's assets consist of the
capital stock of its subsidiaries. All obligations of
Silicon relating to the securities described herein will
be effectively subordinated to all existing and future
liabilities of Silicon's subsidiaries. Silicon may cause
additional trust preferred securities to be issued by
trusts similar to SVB Capital in the future, and there
is no limit on the amount of such securities that may be
issued. In this event, Silicon's obligations under the
junior subordinated debentures to be issued to such
other trusts and Silicon's guarantees of the payments by
such trusts will rank
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
PARI PASSU with Silicon's obligations under the Junior
Subordinated Debentures and the Guarantee, respectively.
Voting Rights..................... The holders of the Trust Preferred Securities will
generally have limited voting rights relating only to
the modification of the Trust Preferred Securities, the
dissolution, winding-up or termination of SVB Capital
and certain other matters described herein. See
"Description of the Trust Preferred Securities-- Voting
Rights; Amendment of the Trust Agreement."
ERISA Considerations.............. Prospective purchasers should carefully consider the
information set forth under "Certain ERISA
Considerations."
Nasdaq National Market Symbol..... The Trust Preferred Securities have been approved for
quotation on the Nasdaq National Market under the symbol
SIVBP.
Use of Proceeds................... The proceeds to SVB Capital from the sale of the Trust
Preferred Securities offered hereby will be invested by
SVB Capital in the Junior Subordinated Debentures of
Silicon. Silicon intends to invest approximately $20.0
million of the net proceeds in the Bank. Silicon intends
to use the remaining net proceeds for general corporate
purposes, which may include, without limitation,
investments in liquid government and corporate debt
securities, additional investments in the Bank and
investments in venture capital funds. Silicon expects
the Trust Preferred Securities to qualify as Tier 1
Capital under the capital guidelines of the Federal
Reserve. See "Use of Proceeds."
</TABLE>
For additional information regarding the Trust Preferred Securities, see
"Description of the Trust Preferred Securities," "Description of Junior
Subordinated Debentures," "Book-Entry Issuance," "Description of Guarantee,"
"Expense Agreement" and "Relationship Among the Trust Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 16.
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<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following summary presents selected consolidated financial data of the
Company and its subsidiaries as of, and for the years ended, December 31, 1997,
1996, 1995, 1994 and 1993. Certain financial data has been derived from the
Company's audited consolidated financial statements. The following summary
presents selected consolidated financial data for the three months ended March
31, 1998 and 1997. Certain financial data has been derived from the Company's
unaudited consolidated quarterly financial statements which, in the opinion of
management, include all adjustments (consisting of only normal, recurring
adjustments) considered necessary for a fair presentation. The summary selected
consolidated financial data should be read in conjunction with the Company's
consolidated financial statements and related notes incorporated herein by
reference. The summary selected consolidated financial data for the three months
ended March 31, 1998 is not necessarily indicative of the operating results to
be expected for the entire year. All share and per share information has been
adjusted as of each date presented to reflect a two-for-one stock split to
shareholders of record on April 17, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS AND NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT SUMMARY:
Net interest income........... $ 31,937 $ 23,857 $ 110,824 $ 87,275 $ 73,952 $ 60,260 $ 50,410
Provision for loan losses..... 5,480 3,348 10,067 10,426 8,737 3,087 9,702
Noninterest income............ 5,391 4,830 13,265 11,609 12,565 4,922 9,316
Noninterest expense........... 18,904 14,667 66,301 52,682 47,925 45,599 47,357
Income before taxes........... 12,944 10,672 47,721 35,776 29,855 16,496 2,667
Income tax expense............ 5,365 4,482 20,043 14,310 11,702 7,430 1,066
Net income.................... 7,579 6,190 27,678 21,466 18,153 9,066 1,601
COMMON SHARE SUMMARY(1):
Basic earnings per share...... $ 0.38 $ 0.33 $ 1.43 $ 1.17 $ 1.04 $ 0.55 $ 0.10
Diluted earnings per share.... 0.36 0.31 1.36 1.11 0.99 0.53 0.10
Book value per share.......... 9.16 7.35 8.75 7.26 5.86 4.54 4.24
Weighted average shares
outstanding................. 20,065 18,988 19,370 18,426 17,494 16,670 15,920
Weighted average diluted
shares outstanding.......... 20,853 19,971 20,338 19,382 18,288 17,066 16,326
PERIOD-END BALANCE SHEET
SUMMARY:
Assets........................ $2,800,900 $1,951,522 $2,625,123 $1,924,544 $1,407,587 $1,161,539 $ 992,289
Loans, net of unearned
income...................... 1,242,014 931,457 1,174,645 863,492 738,405 703,809 564,555
Deposits...................... 2,597,200 1,799,683 2,432,407 1,774,304 1,290,060 1,075,373 914,959
Shareholders' equity.......... 187,556 140,245 174,481 135,400 104,974 77,257 70,336
AVERAGE BALANCE SHEET SUMMARY:
Assets........................ $2,595,702 $1,871,610 $2,140,630 $1,573,903 $1,165,004 $ 956,325 $ 917,569
Loans, net of unearned
income...................... 1,171,078 862,531 973,637 779,655 681,255 592,759 574,546
Deposits...................... 2,393,707 1,717,270 1,973,118 1,441,360 1,060,333 877,787 846,298
Shareholders' equity.......... 182,294 138,908 152,118 119,788 91,710 73,461 68,198
CAPITAL RATIOS:
Total risk-based capital
ratio....................... 11.9% 11.7% 11.5% 11.5% 11.9% 10.1% 11.3%
Tier 1 risk-based capital
ratio....................... 10.6% 10.5% 10.2% 10.2% 10.6% 8.9% 10.1%
Tier 1 leverage ratio......... 7.1% 7.6% 7.1% 7.7% 8.0% 8.3% 7.2%
Average shareholders' equity
to average assets........... 7.0% 7.4% 7.1% 7.6% 7.9% 7.7% 7.4%
</TABLE>
(FOOTNOTES APPEAR ON NEXT PAGE)
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS AND NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED ASSET QUALITY DATA:
Loans past due 90 days or more....... $ 1,080 $ 1,142 $ 1,016 $ 8,556 $ 906 $ 444 $ 2,014
Nonaccrual loans..................... 19,297 15,001 24,476 14,581 27,867 11,269 43,001
Total nonperforming loans............ 20,377 16,143 25,492 23,137 28,773 11,713 45,015
Other real estate owned and other
foreclosed assets.................. 1,858 1,426 1,858 1,948 4,955 7,089 14,261
Total nonperforming assets........... 22,235 17,569 27,350 25,085 33,728 18,802 59,276
Allowance for loan losses............ 40,400 36,400 37,700 32,700 29,700 20,000 25,000
SELECTED FINANCIAL RATIOS:
Return on average assets(2).......... 1.2% 1.3% 1.3% 1.4% 1.6% 0.9% 0.2%
Return on average shareholders'
equity(2).......................... 16.9% 18.1% 18.2% 17.9% 19.8% 12.3% 2.3%
Dividends declared to net income..... -- -- -- -- -- -- --
Efficiency ratio(3).................. 54.9% 57.5% 55.9% 55.9% 60.6% 68.3% 68.9%
Net interest margin(2)............... 5.3% 5.7% 5.6% 6.1% 7.1% 7.2% 6.4%
Allowance for loan losses as a
percentage of
total loans........................ 3.2% 3.9% 3.2% 3.8% 4.0% 2.8% 4.4%
total nonperforming loans.......... 198.3% 225.5% 147.9% 141.3% 103.2% 170.8% 55.5%
Nonperforming assets to loans and
OREO and other foreclosed assets... 1.8% 1.9% 2.3% 2.9% 4.5% 2.6% 10.2%
Net charge-offs to average
loans(2)........................... 1.0% (0.2)% 0.5% 1.0% (0.1)% 1.4% 1.2%
Ratios of earnings to fixed
charges(4)
Excluding interest on deposits..... 23.28x 23.35x 24.86x 19.83x 15.93x 12.78x 3.22x
Including interest on deposits..... 1.71x 1.93x 1.84x 1.90x 2.02x 2.02x 1.18x
</TABLE>
- ------------------------------
(1) Includes adjustments made to reflect a two-for-one stock split to
shareholders of record on April 17, 1998.
(2) Annualized for the three-month periods ended March 31, 1998 and 1997.
(3) Noninterest expense (excluding OREO costs) divided by the sum of net
interest income plus noninterest income excluding warrant income and
securities gains/losses.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
represents income before income taxes, extraordinary items and fixed
charges. Fixed charges represents interest expense and rent expense.
15
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE MAKING AN INVESTMENT IN THE TRUST PREFERRED SECURITIES OFFERED
HEREBY.
RANKING OF SILICON'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES AND
THE GUARANTEE
All obligations of Silicon under the Guarantee, the Junior Subordinated
Debentures and other documents described herein will be unsecured and rank
subordinate and junior in right of payment to all current and future Senior and
Subordinated Debt, the amount of which is unlimited. In addition, because
Silicon is a holding company, all obligations of Silicon relating to the
securities described herein will be effectively subordinated to all existing and
future liabilities of Silicon's subsidiaries, including the Bank. As a holding
company, the right of Silicon to participate in any distribution of assets of
any subsidiary upon such subsidiary's liquidation or reorganization or otherwise
(and thus the ability of holders of the Trust Preferred Securities to benefit
indirectly from such distribution) is subject to the prior claims of creditors
of that subsidiary, except to the extent that Silicon may itself be recognized
as a creditor of that subsidiary. Accordingly, the Junior Subordinated
Debentures and all obligations of Silicon relating to the Trust Preferred
Securities will be effectively subordinated to all existing and future
liabilities of the Bank, and holders of the Trust Preferred Securities should
look only to the assets of Silicon, and not of its subsidiaries, for principal
and interest payments on the Junior Subordinated Debentures. Although at March
31, 1998 Silicon had no outstanding Senior and Subordinated Debt, none of the
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior and Subordinated Debt,
that may be incurred by Silicon or its subsidiaries. Further, there is no
limitation on Silicon's ability to issue additional junior subordinated
debentures in connection with any further offerings of trust preferred
securities, and such additional debentures would rank PARI PASSU with the Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Subordination" and "Description of Guarantee--Status of the
Guarantee."
DEPENDENCE ON DIVIDENDS AND INTEREST PAYMENTS FROM THE BANK
The ability of SVB Capital to pay amounts due on the Trust Preferred
Securities will be solely dependent upon Silicon making payments on the Junior
Subordinated Debentures as and when required. As a holding company without
significant assets other than its equity interest in the Bank, Silicon's ability
to pay interest on the Junior Subordinated Debentures to SVB Capital (and
consequently SVB Capital's ability to pay Distributions on the Trust Preferred
Securities and Silicon's ability to pay its obligations under the Guarantee)
will depend primarily upon the cash dividends Silicon receives from the Bank.
Dividend payments from the Bank are subject to regulatory limitations, generally
based on current and retained earnings, imposed by the various regulatory
agencies with authority over the Bank. Payment of dividends is also subject to
regulatory restrictions if such dividends would impair the capital of the Bank.
Payment of dividends by the Bank is also subject to the Bank's profitability,
financial condition and capital expenditures and other cash flow requirements.
No assurance can be given that the Bank will be able to pay dividends at past
levels, or at all, in the future. See the section entitled "Supervision and
Regulation" in Silicon's Annual Report on Form 10-K for the year ended December
31, 1997 which is incorporated herein by reference.
OPTION TO DEFER INTEREST PAYMENT PERIOD; TAX CONSEQUENCES OF A DEFERRAL OF
INTEREST PAYMENTS
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, Silicon will have the right under the Indenture to defer
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, quarterly
16
<PAGE>
Distributions on the Trust Preferred Securities by SVB Capital will be deferred
(and the amount of Distributions to which holders of the Trust Preferred
Securities are entitled will accumulate additional amounts thereon at the rate
of 8.25% per annum, compounded quarterly, from the relevant payment date for
such Distributions, to the extent permitted by applicable law) during any such
Extension Period. During any such Extension Period, Silicon will be prohibited
from making certain payments or distributions with respect to Silicon's capital
stock (including dividends on or redemptions of common or preferred stock) and
from making certain payments with respect to any debt securities of Silicon that
rank PARI PASSU with or junior in interest to the Junior Subordinated
Debentures; however, Silicon will not be restricted from (a) paying dividends or
distributions in common stock of Silicon, (b) redeeming rights or taking certain
other actions under a shareholders' rights plan, (c) making payments under the
Guarantee or (d) making purchases of common stock related to the issuance of
common stock or rights under any of Silicon's benefit plans for its directors,
officers, employees or consultants. Silicon has not paid cash dividends or made
distributions on its common stock during any of the past five years and
currently Silicon has no debt securities that rank PARI PASSU with or junior in
interest to the Junior Subordinated Debentures. Further, during an Extension
Period, Silicon will have the ability to continue to make payments on Senior and
Subordinated Debt. Prior to the termination of any Extension Period, Silicon may
further extend such Extension Period provided that such extension does not cause
such Extension Period to exceed 20 consecutive quarters or to extend beyond the
Stated Maturity. Upon the termination of any Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.25%, compounded quarterly, to the extent permitted by
applicable law), Silicon may elect to begin a new Extension Period subject to
the above requirements. There is no limitation on the number of times that
Silicon may elect to begin an Extension Period. See "Description of the Trust
Preferred Securities--Distributions" and "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment Period."
Silicon has no current plan to exercise its option to defer payments of
interest and considers the likelihood of exercising the option to be a remote
contingency as of the issue date of the Junior Subordinated Debentures.
Therefore, it is Silicon's position for tax reporting purposes that the Junior
Subordinated Debentures will be treated as issued without "original issue
discount" for United States federal income tax purposes. As a result, holders of
Trust Preferred Securities will include interest in taxable income under their
own methods of accounting (i.e., cash or accrual). If Silicon exercises its
right to defer payments of interest, the holders of Trust Preferred Securities
will be required to include their pro rata share of original issue discount in
gross income as it accrues for United States federal income tax (and possibly
other) purposes in advance of the receipt of cash. If the tax authorities
successfully asserted that, as of the issue date of the Junior Subordinated
Debentures, exercise of the option is not a remote or incidental contingency,
the tax authorities would treat the Junior Subordinated Debentures as being
issued with contingent payments for interest accrual purposes under the Treasury
Regulations. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount." If Silicon elects to exercise its right to defer
payments of interest in the future, the market price of the Trust Preferred
Securities is likely to be adversely affected. A holder that disposes of such
holder's Trust Preferred Securities during an Extension Period, therefore, might
not receive the same return on such holder's investment as a holder that
continues to hold the Trust Preferred Securities.
REDEMPTION PRIOR TO STATED MATURITY
Silicon may at any time, at its option, on or after June 15, 2003, redeem
the Junior Subordinated Debentures in whole at any time or in part from time to
time at 100% of the principal amount together with any accrued but unpaid
interest to the date fixed for redemption.
In addition, upon the occurrence and during the continuation of a Tax Event,
an Investment Company Event or a Capital Treatment Event (whether occurring
before or after June 15, 2003), Silicon will have the right, if certain
conditions are met, to redeem the Junior Subordinated Debentures in whole (but
not in
17
<PAGE>
part) at 100% of the principal amount together with accrued but unpaid interest
to the date fixed for redemption within 90 days following the occurrence of such
Tax Event, Investment Company Event or Capital Treatment Event and, therefore,
cause a mandatory redemption of the Trust Preferred Securities. The exercise of
such right is subject to Silicon having received the prior approval of the
Federal Reserve to do so if then required under applicable capital guidelines or
policies of the Federal Reserve. See "Description of the Trust Preferred
Securities--Redemption."
A "Tax Event" means the receipt by Silicon and SVB Capital of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) SVB Capital is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, (ii)
interest payable by Silicon on the Junior Subordinated Debentures is not, or
within 90 days of such opinion will not be, deductible by Silicon, in whole or
in part, for United States federal income tax purposes, or (iii) SVB Capital is,
or will be within 90 days of the date of the opinion, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges. See
"Possible Tax Law Changes Affecting the Trust Preferred Securities" below for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit Silicon to cause a redemption of the Junior
Subordinated Debentures (and therefore the Trust Preferred Securities) prior to
June 15, 2003.
An "Investment Company Event" means the receipt by Silicon and SVB Capital
of an opinion of counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or a written change in interpretation
or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
SVB Capital is or will be considered an "investment company" that is required to
be registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which change becomes effective on or after the
original issuance of the Trust Preferred Securities.
A "Capital Treatment Event" means the reasonable determination by Silicon
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such prospective change, pronouncement or decision is announced on
or after the date of original issuance of the Trust Preferred Securities, there
is more than an insubstantial risk that Silicon will not be entitled to treat
the Trust Preferred Securities (or any substantial portion thereof) as "Tier 1
Capital" (or the then equivalent thereof) for purposes of the capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to Silicon.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
Congress and the Clinton Administration have considered proposals that would
deny an issuer a deduction for United States income tax purposes for the payment
of interest on instruments with characteristics similar to the Junior
Subordinated Debentures. While no such adverse legislation has been enacted, and
no such legislation is currently pending, there can be no assurance that similar
legislation proposed and enacted after the date hereof would not adversely
affect the tax treatment of the Junior Subordinated Debentures. Such a change
would give rise to a Tax Event which may permit Silicon to cause a redemption of
the Trust Preferred Securities by electing to prepay the Junior Subordinated
Debentures. See "Description of the Trust Preferred Securities--Redemption;"
"Description of Junior Subordinated Debentures--Redemption" and "Certain Federal
Income Tax Consequences."
18
<PAGE>
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST
PREFERRED SECURITIES
Silicon will have the right at any time to dissolve SVB Capital and, after
satisfaction of liabilities to creditors of SVB Capital as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Preferred Securities in liquidation of SVB Capital.
Because holders of the Trust Preferred Securities may receive Junior
Subordinated Debentures in liquidation of SVB Capital and because Distributions
are otherwise limited to payments on the Junior Subordinated Debentures,
prospective purchasers of the Trust Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of the Trust Preferred
Securities--Liquidation Distribution Upon Dissolution" and "Description of
Junior Subordinated Debentures."
Under current United States federal income tax law and interpretations and
assuming, as set forth in an opinion of counsel to Silicon, SVB Capital is
classified as a grantor trust for such purposes, a distribution of the Junior
Subordinated Debentures upon a liquidation of SVB Capital should not be a
taxable event to holders of the Trust Preferred Securities. However, if a Tax
Event were to occur which would cause SVB Capital to be subject to United States
federal income tax with respect to income received or accrued on the Junior
Subordinated Debentures, a distribution of the Junior Subordinated Debentures by
SVB Capital could be a taxable event to SVB Capital and the holders of the Trust
Preferred Securities. See "Certain Federal Income Tax Consequences--Distribution
of Junior Subordinated Debentures to Holders of Trust Preferred Securities."
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
Silicon will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than five years from the
date of issuance and thereby cause the Trust Preferred Securities to be redeemed
on such earlier date. The exercise of such right is subject to Silicon having
received prior approval of the Federal Reserve if then required under applicable
capital guidelines or policies of the Federal Reserve. See "Description of
Junior Subordinated Debentures--Redemption."
LIMITATIONS ON DIRECT ACTIONS AGAINST SILICON AND ON RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Trust Preferred Securities
the following payments, to the extent not paid by SVB Capital: (i) any
accumulated and unpaid Distributions required to be paid on the Trust Preferred
Securities, to the extent that SVB Capital has funds on hand available therefor
at such time, (ii) the redemption price with respect to any Trust Preferred
Securities called for redemption, to the extent that SVB Capital has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of SVB Capital (unless the Junior
Subordinated Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent that
SVB Capital has funds on hand available therefor at such time (the "Liquidation
Distribution") and (b) the amount of assets of SVB Capital remaining available
for distribution to holders of the Trust Preferred Securities after satisfaction
of liabilities to creditors of SVB Capital as required by applicable law. The
holders of not less than a majority in aggregate liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the
Trust Preferred Securities may institute a legal proceeding directly against
Silicon to enforce its rights under the Guarantee without first instituting a
legal proceeding against SVB Capital, the Guarantee Trustee or any other person
or entity. If Silicon were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, SVB Capital would lack funds for the
payment of Distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and, in such event, holders of the Trust Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead,
19
<PAGE>
in the event a Debenture Event of Default shall have occurred and be continuing
and such event is attributable to the failure of Silicon to pay interest on or
principal of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Trust Preferred Securities may
institute a legal proceeding directly against Silicon for enforcement of payment
to such holder of the principal of or interest on such Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Trust Preferred Securities of such holder (a "Direct Action"). In
connection with such Direct Action, Silicon will have a right of set-off under
the Indenture to the extent of any payment made by Silicon to such holder of
Trust Preferred Securities in the Direct Action. Except as described herein,
holders of Trust Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Junior Subordinated Debentures or
assert directly any other rights in respect of the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures-- Enforcement of
Certain Rights by Holders of Trust Preferred Securities" and "Description of
Guarantee." The Trust Agreement provides that each holder of Trust Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee
Agreement and the Indenture.
ABILITY TO MAKE PAYMENTS ON THE TRUST PREFERRED SECURITIES AND JUNIOR
SUBORDINATED DEBENTURES
Substantially all of the assets of Silicon consist of the capital stock of
its subsidiaries. Silicon is a legal entity separate and distinct from its
subsidiaries. The ability of SVB Capital to pay amounts due on the Trust
Preferred Securities will be solely dependent upon Silicon making payments on
the Junior Subordinated Debentures as and when required. Silicon's ability to
pay interest on the Junior Subordinated Debentures to SVB Capital (and
consequently, SVB Capital's ability to pay distributions on the Trust Preferred
Securities and Silicon's ability to pay its obligations under the Guarantee)
will depend primarily on cash and liquid investments at Silicon and upon cash
dividends and interest payments Silicon may receive in the future from its
subsidiaries. Payment of dividends by subsidiaries is subject to the
subsidiaries' profitability, financial condition, capital expenditure and other
cash flow requirements.
UNCERTAINTY OF DEDUCTIBILITY OF INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES
Silicon's ability to deduct the interest paid on the Junior Subordinated
Debentures will depend upon whether the Junior Subordinated Debentures are
characterized as debt instruments for federal income tax purposes, taking all
the relevant facts and circumstances into account. Counsel has rendered an
opinion to Silicon that the Junior Subordinated Debentures are debt instruments
for federal income tax purposes. In accordance with such opinion of counsel,
interest on the Junior Subordinated Debentures will be deductible by Silicon.
However, a legal opinion is not binding on the tax authorities or the courts. If
the interest on the Junior Subordinated Debentures is finally determined not to
be deductible by Silicon, Silicon would have significant additional income tax
liabilities. Any such tax liability could adversely affect the ability of
Silicon to pay interest on the Junior Subordinated Debentures to SVB Capital
(and consequently SVB Capital's ability to pay Distributions on the Trust
Preferred Securities and Silicon's ability to pay its obligations under the
Guarantee).
LIMITED COVENANTS
The covenants in the Indenture are limited, and there are no covenants
relating to Silicon in the Trust Agreement. As a result, neither the Indenture
nor the Trust Agreement protects holders of Junior Subordinated Debentures, or
Trust Preferred Securities, respectively, in the event of a material adverse
change in Silicon's or the Company's financial condition or results of
operations or limits the ability of Silicon or any subsidiary to incur
additional indebtedness. Therefore, the provisions of these governing
instruments should not be considered a significant factor in evaluating whether
Silicon will be able to comply with its obligations under the Junior
Subordinated Debentures or the Guarantee.
20
<PAGE>
LIMITED VOTING RIGHTS
Holders of Trust Preferred Securities will generally have limited voting
rights relating only to the modification of the Trust Preferred Securities, the
dissolution, winding-up or liquidation of SVB Capital, and the exercise of SVB
Capital's rights as holder of Junior Subordinated Debentures. Holders of Trust
Preferred Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence of
certain events described herein. In no event will the holders of the Trust
Preferred Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the holder
of the Common Securities. The Property Trustee, the Administrative Trustees and
Silicon may amend the Trust Agreement without the consent of holders of Trust
Preferred Securities to ensure that SVB Capital will be classified for United
States federal income tax purposes as a grantor trust or to ensure that SVB
Capital will not be required to register as an "investment company," even if
such action adversely affects the interests of such holders. See "Description of
Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement" and
"--Removal of Trustees."
ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
Although the Trust Preferred Securities have been approved for quotation on
the Nasdaq National Market, there is no existing market for the Trust Preferred
Securities. There can be no assurance that an active and liquid trading market
for the Trust Preferred Securities will develop or that quotation of the Trust
Preferred Securities will continue to be available on Nasdaq. Although the
Underwriters have informed SVB Capital and the Company that the Underwriters
intend to make a market in the Trust Preferred Securities offered hereby, the
Underwriters are not obligated to do so and any such market making activity may
be terminated at any time without notice to the holders of the Trust Preferred
Securities. Future trading prices of the Trust Preferred Securities will depend
on many factors including, among other things, prevailing interest rates, the
operating results and financial condition of the Company, and the market for
similar securities. As a result of the existence of Silicon's right to defer
interest payments on or, subject to prior approval of the Federal Reserve if
then required under applicable capital guidelines or policies of the Federal
Reserve, shorten the Stated Maturity of the Junior Subordinated Debentures, the
market price of the Trust Preferred Securities may be more volatile than the
market prices of debt securities that are not subject to such optional deferrals
or reduction in maturity. There can be no assurance as to the market prices for
the Trust Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if Silicon exercises
its right to terminate SVB Capital. Accordingly, the Trust Preferred Securities
that an investor may purchase, or the Junior Subordinated Debentures that a
holder of the Trust Preferred Securities may receive in liquidation of SVB
Capital, may trade at a discount from the price that the investor paid to
purchase the Trust Preferred Securities offered hereby.
ECONOMIC CONDITIONS AND INTEREST RATE RISK
The Company's profitability, like most other financial institutions, is
primarily dependent on interest rate differentials. In general, the difference
between the interest rates paid by the Bank on interest-bearing liabilities,
such as deposits and other borrowings, and the interest rates received by the
Bank on interest-earning assets, such as loans extended to its clients and
securities held in its investment portfolio, comprise the major portion of the
Company's earnings. These rates are highly sensitive to many factors that are
beyond the control of the Company, such as inflation, recession and
unemployment, and the impact that future changes in domestic and foreign
economic conditions might have on Silicon and the Bank cannot be predicted.
21
<PAGE>
COMPETITION
The banking and financial services business environment in California, as
well as the rest of the U.S., is highly and increasingly competitive. The Bank
competes for client loans, deposits and other financial products and services
with other commercial banks, savings and loan associations, securities and
brokerage companies, mortgage companies, insurance companies, finance companies,
money market and other mutual funds, credit unions, and other non-bank financial
services providers. Many of these competitors are much larger in total assets
and capitalization, have greater access to capital markets and offer a broader
array of financial products and services than the Bank. The increasingly
competitive environment is primarily a result of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. In order to compete with other
financial services providers, the Bank principally relies upon promotional
activities and industry knowledge in its market areas, personal relationships
with clients and other service providers, referral sources established by
officers, directors and employees, and specialized services tailored to meet the
Bank's clients' needs.
CREDIT QUALITY
A significant source of risk for the Bank arises from the possibility that
losses will be sustained because borrowers, guarantors and related parties may
fail to perform in accordance with the terms of their loans. The Bank has
adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for loan losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying the
Bank's credit portfolio. No assurance can be given that such policies and
procedures will be effective or that the Bank will not experience unexpected
losses that could materially adversely affect the Bank's results of operations.
IMPORTANCE OF CAPITAL FOR START-UP AND EMERGING GROWTH COMPANIES
The Bank's strategy has focused on providing banking products and services
to start-up and emerging growth companies receiving financial support from
sophisticated investors, including angel, venture capital and corporate
investors. The available supply of capital for start-up and emerging growth
companies has grown significantly during the Bank's existence resulting in an
expanding number of new clients for the Bank. If the capital available to invest
in start-up and emerging growth companies decreases, it is likely that the
number of new clients of the Bank and the financial support of borrowing clients
by venture investors would decrease which could have an adverse effect on the
Bank's future prospects. Among the factors that could affect the amount of
capital available to start-up and emerging growth companies is the receptivity
of the capital markets to initial public offerings of companies within the
Bank's high technology and life sciences niches. Based on the Bank's past
experience, the Bank believes that a decrease in capital availability for
start-up and emerging growth companies may enhance the Bank's ability to retain
existing loan commitments longer because loan payoffs due to initial public
offerings, secondary offerings and acquisitions may diminish. In addition, based
on past experience, the Bank believes that established venture capitalists would
be able to continue to fund future and follow-on investments in their portfolio
companies for a period of time because they have traditionally reserved funds
for such purposes.
YEAR 2000 COMPLIANCE
In May 1997, the Federal Financial Institutions Examination Council issued
an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding "year 2000" project awareness. It is
expected that unless financial institutions address the technology issues
relating to the coming of the year 2000, there will be major disruptions in the
operation of financial institutions. The statement provides guidance to
financial institutions, providers of data services and all examining personnel
of the federal banking agencies regarding the year 2000 issue. The federal
banking agencies intend to
22
<PAGE>
conduct year 2000 compliance examinations, and the failure to implement a year
2000 compliance program by December 31, 1998 may be viewed by the federal
banking agencies as an unsafe and unsound banking practice. In addition, the
federal banking agencies will be taking into account year 2000 compliance
programs when analyzing applications to acquire a bank or other bank holding
company and may deny an application based on year 2000-related issues.
The Company is aware of the "year 2000" issue and the related potential
risks. The Bank has engaged a third party vendor, a recognized expert in
assisting in all phases of year 2000 compliance, as part of a multiphase project
to assist the Bank in addressing the year 2000 issue. The first two phases of
the year 2000 compliance project (systems inventory and risk assessment) are
projected to be completed during the second quarter of 1998. The expense and
related potential impact on the Company's pre-tax earnings of the first two
phases of the year 2000 compliance project is expected to approximate $250,000.
Phase three, renovation, consists of analysis, remediation and unit testing, and
is projected to be completed by the end of 1998. The expense and related
potential impact on the Company's pre-tax earnings of phase three of the year
2000 compliance project is expected to approximate $1,250,000. The fourth and
final phase, validation and implementation, is expected to begin in the first
quarter of 1999. Management has not yet assessed the potential financial impact
of the last phase of the project.
ECONOMIC CONDITIONS IN ASIA
Management of the Company has been undertaking an ongoing evaluation of the
economic events occurring in Asia during recent months. Based on the results to
date from this evaluation, no significant current or forecasted negative impact
has been identified with respect to the Company's loan growth, credit quality,
overall financial condition or results of operations. Future events and
circumstances surrounding the economic conditions in Asia cannot be predicted,
nor can any assurance be given that these future events and circumstances will
not adversely affect the Company's loan growth, credit quality, overall
financial condition or results of operations.
OTHER RISK FACTORS
For a discussion of other risk factors that should be considered by
potential investors, please see the sections entitled "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Silicon's Annual Report on Form 10-K for the year ended December
31, 1997 which is incorporated herein by reference.
RECENT DEVELOPMENTS
The following information regarding the Company's results of operations for
the quarter ended March 31, 1998 should be read in conjunction with the
financial information set forth in the Company's Quarterly Report on Form 10-Q,
which is incorporated herein by reference.
The Company's total assets were $2.8 billion at March 31, 1998, an increase
of $849.4 million, or 43.5%, compared to $2.0 billion at March 31, 1997. Total
deposits increased $797.5 million, or 44.3%, to $2.6 billion at March 31, 1998,
from $1.8 billion a year earlier. Of these deposit totals, at March 31, 1998,
29.5% consisted of noninterest-bearing demand deposits, versus a comparative
33.6% composition of noninterest-bearing demand deposits at March 31, 1997.
Loans, net of unearned income, totaled $1.2 billion at March 31, 1998, an
increase of $310.6 million, or 33.3%, compared to $931.5 million at March 31,
1997. Total shareholders' equity was $187.6 million at March 31, 1998, an
increase of $47.3 million, or 33.7%, compared to $140.2 million a year prior.
The Company's market capitalization was $625.5 million as of March 31, 1998, an
84.8% increase compared to the $338.5 million total a year earlier.
The Company reported net income for the quarter ended March 31, 1998, of
$7.6 million, a $1.4 million, or 22.4%, increase from the $6.2 million earned in
the first quarter of 1997. The increase was largely due to growth in average
interest-earning assets, partially offset by increases in noninterest expense
23
<PAGE>
and the provision for loan losses. Diluted earnings per share totaled $0.36 for
the first quarter of 1998, an increase of 17.7% compared to $0.31 per diluted
share for the first quarter of 1997. For the first quarter of 1998, return on
average assets (ROA) was 1.2%, versus 1.3% in the first quarter of 1997. Return
on average equity (ROE) was 16.9% in the first quarter of 1998, compared to
18.1% in the first quarter of 1997. Net interest income totaled $31.9 million
for the first quarter of 1998, an $8.1 million, or 33.9%, increase compared to
the $23.9 million total for the first quarter of the prior year. The net
interest margin for the first quarter of 1998 was 5.3% compared with 5.7% in the
first quarter of 1997 and 5.4% in the fourth quarter of 1997. Noninterest income
totaled $5.4 million in the first quarter of 1998, an increase of $0.6 million,
or 11.6%, compared to the $4.8 million total in the first quarter of 1997. This
increase was largely due to a $0.7 million increase in letter of credit fees,
foreign exchange fees and other trade finance income and a $0.5 million increase
in gain on sales of investment securities, partially offset by a $0.7 million
decline in income from the disposition of client warrants. Noninterest expense
totaled $18.9 million in the first quarter of 1998, a $4.2 million, or 28.9%
increase, over the $14.7 million incurred in the comparable 1997 period.
Nonperforming loans totaled $20.4 million, or 1.6% of total loans, at March
31, 1998, compared to $16.1 million, or 1.7% of total loans, a year earlier.
Total nonperforming loans at March 31, 1998, decreased $5.1 million, or 20.1%,
from the 1997 year-end total of $25.5 million, or 2.2% of total loans. The
decrease from the prior year end was primarily due to one credit in excess of
$7.0 million being returned to accrual status during the first quarter of 1998.
The allowance for loan losses totaled $40.4 million, or 3.2% of total loans and
198.3% of nonperforming loans, at March 31, 1998, compared to $36.4 million, or
3.9% of total loans and 225.5% of nonperforming loans, a year earlier.
On March 19, 1998, the Company announced a two-for-one stock split, to be
distributed on May 1, 1998, to shareholders of record on April 17, 1998.
USE OF PROCEEDS
All of the proceeds from the sale of Trust Preferred Securities will be
invested by SVB Capital in the Junior Subordinated Debentures. The net proceeds
to Silicon from the sale of the Junior Subordinated Debentures relating to the
Trust Preferred Securities are estimated to be $38.3 million, net of estimated
underwriting commissions and other estimated offering expenses. Silicon intends
to invest approximately $20.0 million of the net proceeds in the Bank. Silicon
intends to use the remaining net proceeds for general corporate purposes, which
may include, without limitation, investments in liquid government and corporate
debt securities, additional investments in the Bank and investments in venture
capital funds.
The Company is required by the Federal Reserve to maintain certain levels of
capital for bank regulatory purposes. On October 21, 1996, the Federal Reserve
announced that certain qualifying amounts of cumulative preferred securities
having the characteristics of the Trust Preferred Securities could be included
as Tier 1 Capital for bank holding companies, however, capital received from the
sale of such cumulative preferred securities, including the Trust Preferred
Securities, cannot constitute, as a whole, more than 25% of the total Tier 1
Capital of Silicon (the "25% Capital Limitation"). Amounts in excess of the 25%
Capital Limitation would constitute Tier 2 or supplementary capital of Silicon.
Such Tier 1 Capital treatment, together with Silicon's ability to deduct, for
federal income tax purposes, interest payable on the Junior Subordinated
Debentures, will provide Silicon with a cost-effective means of obtaining
capital for bank regulatory purposes.
24
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1998 and as adjusted to give effect to the issuance of the
Trust Preferred Securities offered by SVB Capital and receipt by the Company of
the proceeds from the corresponding sale of the Junior Subordinated Debentures
to SVB Capital. All share information has been adjusted as of March 31, 1998 to
reflect a two-for-one stock split to shareholders of record on April 17, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Company obligated mandatorily redeemable trust preferred securities of subsidiary trust
holding solely junior subordinated debentures(1)....................................... $ -- $ 40,000
---------- -----------
Preferred stock, no par value: 20,000,000 shares authorized, none issued................. -- --
Common stock, no par value: 60,000,000 shares authorized, 20,486,526 outstanding......... 87,920 87,920
Retained earnings........................................................................ 102,579 102,579
Unearned compensation.................................................................... (5,499) (5,499)
Accumulated other comprehensive income:
Net unrealized gain on available-for-sale investments.................................. 2,556 2,556
---------- -----------
Total shareholders' equity........................................................... 187,556 187,556
---------- -----------
Total capitalization............................................................... $ 187,556 $ 227,556
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The subsidiary trust is SVB Capital, which will hold the Junior Subordinated
Debentures issued by Silicon as its sole asset. The Trust Preferred
Securities are issued by SVB Capital. The Junior Subordinated Debentures
will bear interest at the rate of 8.25% per annum and will mature on June
15, 2028, which date may be shortened to a date not earlier than June 15,
2003 if certain conditions are met. The Junior Subordinated Debentures are
redeemable prior to maturity at the option of Silicon, subject to Silicon
having received prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve, (i) on or
after June 15, 2003, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 90 days following the
occurrence and continuation of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein). See "Description of Junior
Subordinated Debentures--Redemption." Silicon will own all of the Common
Securities of SVB Capital.
REGULATORY CAPITAL RATIOS
The following table sets forth the consolidated capital ratios of the
Company at March 31, 1998 and as adjusted to give effect to the issuance of the
Trust Preferred Securities by SVB Capital offered hereby.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
--------- ---------------
<S> <C> <C>
Total risk-based capital................................................................. 11.9% 14.0%
Tier 1 risk-based capital................................................................ 10.6% 12.8%
Tier 1 leverage ratio.................................................................... 7.1% 8.6%
</TABLE>
- ------------------------
(1) Assumes net proceeds are invested in 20% risk-weighted assets.
25
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, SVB Capital will be treated as a
subsidiary of Silicon and, accordingly, the accounts of SVB Capital will be
included in the consolidated financial statements of the Company. The Trust
Preferred Securities will be presented as a separate line item in the
consolidated balance sheet of the Company under the caption "Company Obligated
Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures," and appropriate disclosures about the
Trust Preferred Securities, the Guarantee and the Junior Subordinated Debentures
will be included in the notes to consolidated financial statements. For
financial reporting purposes, the Company will record Distributions payable on
the Trust Preferred Securities as an expense in the consolidated statements of
operations.
Future reports of Silicon filed under the Exchange Act will include a
footnote to the financial statements stating that (i) SVB Capital is wholly
owned, (ii) the sole assets of SVB Capital are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date of
such Junior Subordinated Debentures), and (iii) the back-up obligations, in the
aggregate, constitute a full and unconditional guarantee by Silicon of the
obligations of SVB Capital under the Trust Preferred Securities. SVB Capital
will not provide separate reports under the Exchange Act.
26
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company, their ages (at March 31, 1998), and their
positions and offices with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Daniel J. Kelleher............ 55 Chairman of the Board
John C. Dean.................. 50 President, Chief Executive Officer and Director
Gary K. Barr.................. 53 Director
James F. Burns, Jr............ 60 Director
David M. deWilde.............. 57 Director
Clarence J. Ferrari, Jr....... 63 Director
James R. Porter............... 62 Director
Ann R. Wells.................. 54 Director
James F. Forrester............ 54 Executive Vice President
David A. Jones................ 41 Executive Vice President
Barbara B. Kamm............... 46 Executive Vice President and Acting Chief
Financial Officer
Harry W. Kellogg, Jr.......... 54 Executive Vice President
Kenneth P. Wilcox............. 50 Executive Vice President
</TABLE>
DANIEL J. KELLEHER. Mr. Kelleher is a Private Investor, Los Altos Hills,
California.
JOHN C. DEAN. Mr. Dean has been President and Chief Executive Officer of
Silicon and the Bank since May 1993. He also has been an Advisory Member of the
Board of Directors of American Central Gas Companies, Inc., Tulsa, Oklahoma,
since August 1994. Prior to joining Silicon and the Bank in May 1993, Mr. Dean
served as President and Chief Executive Officer of Pacific First Bank, a $6.5
billion federal savings bank, headquartered in Seattle, Washington, from
December 1991 until April 1993. From 1990 to 1991, Mr. Dean served as Chairman
and Chief Executive Officer of First Interstate Bank of Washington, and from
1986 to 1990, Chairman and Chief Executive Officer of First Interstate Bank of
Oklahoma.
GARY K. BARR. Mr. Barr has been President and Chief Executive Officer of
Pacific Coast Capital (a real estate investment and management company),
Carbondale, Colorado, since August 1992. He also has served as Chief Financial
Officer of Import/Export Time Advisor (an information software company) since
April 1997. Mr. Barr served as President and Chief Executive Officer of Landsing
Pacific Fund (a California real estate investment and management company) from
1984 to August 1992. In addition, Mr. Barr was Interim Acting Chief Executive
Officer of the Company and the Bank from January 1993 to May 1993.
JAMES F. BURNS, JR. Mr. Burns has been a Trustee of CBR Liquidating Trust
since October 1996, and was Executive Vice President and Chief Financial Officer
of CBR Information Group (a credit and mortgage reporting company), Houston,
Texas, from September 1993 to October 1996. He was Executive Vice President and
Chief Financial Officer of Integratec, Inc. (a company providing credit
origination, servicing and collection services, and the parent company of CBR
Information Group prior to the spin-off of CBR in 1993) from 1988 to 1993.
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DAVID M. DEWILDE. Mr. deWilde has been Managing Partner of L.A.I. (an
executive search firm) since January 1998. He was Founder and Chief Executive
Officer of Chartwell Partners International, Inc. (an executive search firm)
from 1989 to January 1998. Mr. deWilde has been a Director of Berkshire Realty
Company, Inc. (a real estate investment trust), Boston, Massachusetts, since
1993.
CLARENCE J. FERRARI, JR. Mr. Ferrari has been a Founder and Principal of
Ferrari, Olsen, Ottoboni & Bebb Esq. (Attorneys-at-Law), San Jose, California
since 1981.
JAMES R. PORTER. Mr. Porter has been Chairman of CCI/Triad (a computer
services company) since February 1997. He was President, Chief Executive Officer
and Director of Triad Systems Corporation (a computer software company),
Livermore, California, from September 1985 to February 1997. Mr. Porter has been
a member of the Board of Directors of Firstwave Technologies (a sales automation
company), Atlanta, Georgia, since April 1993, and a member of the Board of
Directors of Cellular Technical Services (a cellular device company), Seattle,
Washington, since July 1997.
ANN R. WELLS. Ms. Wells has been President of Ann Wells Personnel Services
Division of Personnel Group of America (a personnel agency) since January 1998.
She was Chief Executive Officer of Ann Wells Personnel Services, Inc. (a
personnel agency), Sunnyvale, California, from January 1980 to January 1998.
JAMES F. FORRESTER. Mr. Forrester joined the Bank in 1987 as Senior Vice
President of Operations and Administration. In 1990, Mr. Forrester founded the
Bank's Southern California office and managed that office until August 1993.
From August 1993 to December 1995, Mr. Forrester managed the Bank's Special
Industries Group and Northern California Technology Group, and from January 1996
to December 1997, he managed the Bank's Strategic Financial Services Group. Mr.
Forrester was named Manager of the Corporate Finance Group in December 1997.
DAVID A. JONES. Mr. Jones joined the Bank in August 1997 as Executive Vice
President and Chief Credit Officer. Prior to joining the Bank, Mr. Jones served
as Senior Vice President of Wells Fargo Bank in Portland, Oregon, from April
1996 to August 1997. From January 1982 to April 1996, Mr. Jones was a Senior
Vice President with First Interstate Bank in Oklahoma, Texas and Oregon.
BARBARA B. KAMM. Ms. Kamm joined the Bank in January 1991 as Vice President
and Senior Loan Officer of the Bank's Southern California Technology Group.
Prior to being appointed Executive Vice President and Chief Administrative
Officer in September 1996, Ms. Kamm served as Executive Vice President and
Manager of the Bank's Southern California Group from November 1995 to September
1996 (having served as Manager of the Southern California Group since August
1993).
HARRY W. KELLOGG, JR. Mr. Kellogg joined the Bank in October 1986 as Senior
Vice President of the Bank's Technology Division. Mr. Kellogg served as
Executive Vice President and Chief Marketing Officer from September 1993 to
April 1994 (when he left the Bank for ten months, during which time, he served
as Executive Vice President for the Emerging Growth Industries Division of
Cupertino Bank). Mr. Kellogg returned to the Bank in February 1995 as Executive
Vice President and Chief Marketing Officer. He was named Manager of the Bank's
Products and Services Group in December 1997.
KENNETH P. WILCOX. Mr. Wilcox joined the Bank in April 1990 as Regional
Vice President of the Bank's East Coast Technology Group. Prior to becoming
Executive Vice President and Manager of the East Coast Technology Group in
November 1995, Mr. Wilcox held increasingly responsible positions with the Bank
(having served as Manager of the East Coast Technology Group since June 1993).
Mr. Wilcox was appointed Chief Banking Officer in December 1997.
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities and the Common Securities will be issued
pursuant to the terms of the Trust Agreement. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Initially, Wilmington Trust Company will be the Delaware
Trustee and the Property Trustee. The Property Trustee is the independent
trustee whose sole responsibility is to fulfill the obligations specified in the
Trust Indenture Act. The terms of the Trust Preferred Securities will include
those stated in the Trust Agreement and those made part of the Trust Agreement
by the Trust Indenture Act. This summary of certain terms and provisions of the
Trust Preferred Securities and the Trust Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular defined terms of
the Trust Agreement (as amended or supplemented from time to time) are referred
to herein, such defined terms are incorporated herein. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees on
behalf of SVB Capital will issue the Trust Preferred Securities and the Common
Securities (collectively, the "Trust Securities"). The Trust Preferred
Securities will represent preferred undivided beneficial interests in the assets
of SVB Capital and the holders thereof will be entitled to a preference in
certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities of SVB Capital (which will
be held by Silicon), as well as other benefits as described in the Trust
Agreement.
The Trust Preferred Securities will rank PARI PASSU, and payments will be
made thereon pro rata, with the Common Securities of SVB Capital except as
described under "--Subordination of Common Securities" below. Legal title to the
Junior Subordinated Debentures will be held by the Property Trustee in trust for
the benefit of the holders of the Trust Securities. The Guarantee executed by
Silicon for the benefit of the holders of the Trust Preferred Securities (the
"Guarantee") will be a guarantee on a subordinated basis and will not guarantee
payment of Distributions or amounts payable on redemption of the Trust Preferred
Securities or on liquidation of the Trust Preferred Securities if SVB Capital
does not have funds on hand available to make such payments. See "Description of
Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Distributions on the Trust Preferred Securities
will be payable at the annual rate of 8.25% of the stated Liquidation Amount of
$25 per Trust Preferred Security, payable quarterly in arrears on the 15th day
of March, June, September and December in each year, commencing September 15,
1998 to the holders of the Trust Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The amount of each Distribution due with
respect to the Trust Preferred Securities will include amounts accrued through
the date the Distribution payment is due. Distributions on the Trust Preferred
Securities will be payable to the holders thereof as they appear on the register
of SVB Capital on the relevant record date which will be the date 15 days prior
to the relevant Distribution Date. Distributions will accumulate from the date
of original issuance.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Trust Preferred Securities is not a
Business Day (as defined below), payment of the Distribution payable on such
date will be made on the next Business Day (and without any interest or other
payment in respect to any such delay), with the same force and effect as if made
on the date such payment was originally payable. As used in this Prospectus, a
"Business Day" shall mean any day other than a Saturday or a Sunday, or a day on
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which banking institutions in the State of California are authorized or required
by law or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Indenture Trustee is closed for business.
The funds of SVB Capital available for distribution to holders of its Trust
Preferred Securities will be limited to payments by Silicon under the Junior
Subordinated Debentures in which SVB Capital will invest the proceeds from the
issuance and sale of its Trust Preferred Securities. See "Description of Junior
Subordinated Debentures." If Silicon does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Trust Preferred Securities. The payment of
Distributions (if and to the extent SVB Capital has funds legally available for
the payment of such Distributions and cash sufficient to make such payments)
will be guaranteed by Silicon. See "Description of Guarantee."
EXTENSION PERIOD. So long as no Debenture Event of Default has occurred and
is continuing, Silicon will have the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each such period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. As a consequence of any such election, quarterly Distributions on
the Trust Preferred Securities will be deferred by SVB Capital during any such
Extension Period. Distributions to which holders of Trust Preferred Securities
are entitled will accumulate additional amounts thereon at the rate per annum of
8.25% thereof, compounded quarterly from the relevant Distribution Date, to the
extent permitted under applicable law. The term "Distributions" as used herein
shall include any such additional accumulated amounts. During any such Extension
Period, Silicon may not and shall not allow any of its subsidiaries to (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire,
or make a liquidation payment with respect to, any of Silicon's capital stock
(which includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of Silicon (including other junior subordinated debentures) that rank
PARI PASSU with or junior in interest to the Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by Silicon of
the debt securities of any subsidiary of Silicon if such guarantee ranks PARI
PASSU with or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in Silicon's capital stock (which includes
common and preferred stock), (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee and (d) purchases of
common stock related to the issuance of common stock or rights under any of
Silicon's benefit plans for its directors, officers, employees or consultants)
or (iv) redeem, purchase or acquire less than all of the Junior Subordinated
Debentures or any of the Trust Preferred Securities. Prior to the termination of
any such Extension Period, Silicon may further extend such Extension Period,
provided that such extension does not cause such Extension Period to exceed 20
consecutive quarters or extend beyond the Stated Maturity. Upon the termination
of any such Extension Period and the payment of all amounts then due, and
subject to the foregoing limitations, Silicon may elect to begin a new Extension
Period. Subject to the foregoing, there is no limitation on the number of times
that Silicon may elect to begin an Extension Period. Silicon has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Junior Subordinated Debentures.
REDEMPTION
Upon the repayment or redemption at any time, in whole or in part, of any
Junior Subordinated Debentures, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
below) of the Trust Securities, upon not less than 30 nor more than 60 days'
notice of a date of redemption (the "Redemption Date"), at the Redemption Price
(as defined below). See "Description of Junior Subordinated
Debentures--Redemption." If less than all of the Junior
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Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then
the proceeds from such repayment or redemption shall be allocated to the
redemption of the Trust Securities pro rata.
Silicon will have the right to redeem the Junior Subordinated Debentures (i)
on or after June 15, 2003, in whole at any time or in part from time to time at
a redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof, or (ii) at any time (whether occurring before
or after June 15, 2003), in whole (but not in part), within 90 days following
the occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event at a redemption price equal to the accrued and unpaid interest
on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption, plus 100% of the principal amount thereof. See "Description of
Junior Subordinated Debentures--Redemption." If a Tax Event, Capital Treatment
Event or an Investment Company Event has occurred and is continuing and Silicon
does not elect to redeem the Junior Subordinated Debentures and thereby cause a
mandatory redemption of the Trust Securities or to liquidate SVB Capital and
cause the Junior Subordinated Debentures to be distributed to holders of the
Trust Securities in liquidation of SVB Capital as described below, such Trust
Securities will remain outstanding and Additional Sums (as defined below) may be
payable on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary to be
paid by Silicon with respect to the Junior Subordinated Debentures in order that
the amount of Distributions then due and payable by SVB Capital on the
outstanding Trust Securities of SVB Capital shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which SVB Capital
has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of SVB Capital, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to Silicon and SVB Capital having received an opinion of counsel to
the effect that such distribution will not be a taxable event to the holders of
the Trust Preferred Securities, Silicon will have the right at any time to
dissolve SVB Capital and, after satisfaction of the liabilities of creditors of
SVB Capital as provided by applicable law, cause a Like Amount of the Junior
Subordinated Debentures to be distributed to the holders of Trust Securities in
liquidation of SVB Capital. After the liquidation date fixed for any
distribution of Junior Subordinated Debentures for Trust Preferred Securities
(i) such Trust Preferred Securities will no longer be deemed to be outstanding,
(ii) certificates representing Trust Preferred Securities that are not then held
by the Depositary or its nominee will be deemed to represent the Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of such Trust Preferred Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on the Trust
Preferred Securities until such certificates are presented to the Administrative
Trustees or their agent for transfer or reissuance, (iii) Silicon shall use its
best efforts to
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have the Junior Subordinated Debentures approved for quotation on the Nasdaq
National Market or on such other exchange, interdealer quotation system or
self-regulatory organization as the Trust Preferred Securities are then listed,
(iv) any Trust Preferred Securities certificates not so surrendered for exchange
will be deemed to represent a Like Amount of Junior Subordinated Debentures,
accruing interest at the rate provided for in the Junior Subordinated Debentures
from the last Distribution Date on which a Distribution was made on such Trust
Securities certificates until such certificates are so surrendered (and until
such certificates are so surrendered, no payments of interest or principal will
be made to holders of Junior Subordinated Debentures represented by such
certificates) and (v) all rights of securityholders holding Trust Securities
will cease, except the right of such securityholders to receive a Like Amount of
Junior Subordinated Debentures upon surrender of Trust Securities certificates.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Preferred Securities if a dissolution and liquidation of
SVB Capital were to occur. Accordingly, the Trust Preferred Securities that an
investor may purchase, or the Junior Subordinated Debentures that the investor
may receive on dissolution and liquidation of SVB Capital, may trade at a
discount to the price that the investor paid to purchase the Trust Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
Trust Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions of
the Trust Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that SVB Capital has funds on
hand available for the payment of such Redemption Price. See "--Subordination of
Common Securities" herein and "Description of Guarantee."
If SVB Capital gives a notice of redemption in respect of the Trust
Preferred Securities, then, by 12:00 noon, Eastern time on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably deposit
with the Depositary funds sufficient to pay the aggregate Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price to the holders of such Trust Preferred Securities. See
"Book-Entry Issuance." If such Trust Preferred Securities are no longer in
book-entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for such Trust Preferred Securities
funds sufficient to pay the aggregate Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such Trust
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date shall be payable to the holders of such Trust
Preferred Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of the
Trust Preferred Securities will cease, except the right of the holders of the
Trust Preferred Securities to receive the applicable Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
on such Redemption Price, and such Trust Preferred Securities will cease to be
outstanding. In the event that any date fixed for redemption of such Trust
Preferred Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding Business Day (and
without any interest or other payment in respect of any such delay). In the
event that payment of the Redemption Price in respect of Trust Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by SVB Capital or by Silicon pursuant to the Guarantee, Distributions on
such Trust Preferred Securities will continue to accrue at the then applicable
rate, from the Redemption Date originally established by SVB Capital for such
Trust Preferred Securities to the date such Redemption Price is actually paid,
in which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price. See "Description of Guarantee."
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Subject to applicable law (including, without limitation, United States
federal securities law), and further provided that Silicon is not then
exercising its rights to defer interest payments on the Junior Subordinated
Debentures, the Company (other than SVB Capital) may at any time and from time
to time purchase outstanding Trust Preferred Securities by tender, in the open
market or by private agreement.
If less than all of the Trust Securities issued by SVB Capital are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and Common Securities based upon the relative Liquidation
Amounts of such classes. The particular Trust Preferred Securities to be
redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts)
not more than 60 days prior to the Redemption Date by the Property Trustee from
the outstanding Trust Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions (equal to $25 or an
integral multiple thereof) of the Liquidation Amount of Trust Preferred
Securities. The Property Trustee shall promptly notify the Security Registrar in
writing of the Trust Preferred Securities selected for redemption and, in the
case of any Trust Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of the Trust
Agreement, unless the context otherwise requires, all provisions relating to the
redemption of Trust Preferred Securities shall relate to the portion of the
aggregate Liquidation Amount of Trust Preferred Securities which has been or is
to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at such
holder's registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amounts of the Trust Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or applicable Redemption Price of, any of the Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of the Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all of the outstanding Trust Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the applicable Redemption Price, the full amount of such Redemption Price on
all of the outstanding Trust Preferred Securities then called for redemption,
shall have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Trust Preferred Securities then
due and payable (including Additional Amounts, if applicable).
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, Silicon as holder of the Common Securities will be
deemed to have waived any right to act with respect to any such Event of Default
until the effect of all such Events of Default have been cured, waived or
otherwise eliminated. Until any such Events of Default have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the holders of the Trust Preferred Securities and not on behalf of Silicon as
holder of the Common Securities, and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Silicon will have the right at any time to dissolve SVB Capital and cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Preferred Securities. Such right is subject to Silicon having received prior
approval of the Federal Reserve if then required under applicable capital
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guidelines or policies of the Federal Reserve. See "--Distribution of Junior
Subordinated Debentures." Silicon might exercise its right to dissolve SVB
Capital under circumstances where a Tax Event, a Capital Treatment Event, an
Investment Company Event or other undesirable event could be avoided simply by
dissolving SVB Capital and causing the Junior Subordinated Debentures to be
distributed to the holders of the Trust Preferred Securities.
In addition, pursuant to the Trust Agreement, SVB Capital shall
automatically dissolve upon expiration of its term and shall earlier dissolve on
the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of Silicon; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holder of its Trust Securities, if Silicon, as
Depositor, has delivered written direction to the Property Trustee to terminate
SVB Capital (which direction is optional and, except as described above, wholly
within the discretion of Silicon, as Depositor); (iii) redemption of all of the
Trust Preferred Securities as described under "--Redemption;" and (iv) the entry
of an order for the dissolution of SVB Capital by a court of competent
jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above or upon the Expiration Date (as defined in the Trust Agreement), SVB
Capital shall be liquidated by the Trustees as expeditiously as the Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of SVB Capital as provided by applicable law, to the holders of such
Trust Securities a Like Amount of the Junior Subordinated Debentures, unless
such distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of SVB
Capital available for distribution to holders, after satisfaction of liabilities
to creditors of SVB Capital as provided by applicable law, an amount equal to,
in the case of holders of Trust Preferred Securities, the aggregate of the
Liquidation Amount plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because SVB Capital has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by SVB Capital on the Trust Preferred Securities shall
be paid on a pro rata basis (based upon Liquidation Amounts). The holder(s) of
the Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Trust Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a priority over the Common Securities.
Under current United States federal income tax law and interpretations and
assuming, as set forth in an opinion of counsel to Silicon, SVB Capital is
treated as a grantor trust, a distribution of the Junior Subordinated Debentures
should not be a taxable event to holders of the Trust Preferred Securities.
Should there be a change in law, a change in legal interpretation, a Tax Event
or other circumstances, however, the distribution could be a taxable event to
SVB Capital and to holders of the Trust Preferred Securities. See "Certain
Federal Income Tax Consequences."
If Silicon elects to dissolve SVB Capital and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Trust Preferred
Securities in liquidation of SVB Capital, Silicon shall continue to have the
right to shorten the maturity of such Junior Subordinated Debentures, subject to
certain conditions. See "Description of Junior Subordinated
Debentures--General."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
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(ii) default by the Trust in the payment of any Distribution when it becomes
due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in the Trust Agreement (other than
a default or breach in the performance of a covenant or warranty which
is addressed in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the defaulting Issuer Trustee or
Trustees by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Trust Preferred Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Trust
Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by Silicon to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred
Securities, the Administrative Trustees and Silicon, as Depositor, unless such
Event of Default shall have been cured or waived. Silicon, as Depositor, and the
Administrative Trustees will be required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a preference over the Common Securities upon
termination of SVB Capital as described above. See "--Liquidation Distribution
Upon Dissolution." Upon a Debenture Event of Default (other than with respect to
certain events in bankruptcy, insolvency or reorganization), unless the
principal of all the Junior Subordinated Debentures has already become due and
payable, either the Property Trustee or the holders of not less than 25% in
aggregate principal amount of the Junior Subordinated Debentures then
outstanding may declare all of the Junior Subordinated Debentures to be due and
payable immediately by giving notice in writing to Silicon (and to the Property
Trustee, if notice is given by holders of the Junior Subordinated Debentures).
If the Property Trustee or the holders of not less than 25% in principal amount
of the outstanding Junior Subordinated Debentures fail to declare the principal
of all of the Junior Subordinated Debentures due and payable upon a Debenture
Event of Default, the holders of at least 25% in Liquidation Amount of the Trust
Preferred Securities then outstanding shall have the right to declare the Junior
Subordinated Debentures immediately due and payable. In either event, payment of
principal and interest on the Junior Subordinated Debentures shall remain
subordinated to the extent provided in the Indenture. In addition, holders of
the Trust Preferred Securities have the right in certain circumstances to bring
a Direct Action (as hereinafter defined). See "Description of Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Trust
Preferred Securities."
If a Debenture Event of Default with respect to certain events in
bankruptcy, insolvency or reorganization occurs, the Junior Subordinated
Debentures shall automatically, and without any declaration or other action on
the part of the Property Trustee or the holders of the Junior Subordinated
Debentures, become immediately due and payable. In such event, payment of
principal and interest on the Junior Subordinated Debentures will also remain
subordinated to the extent provided in the Indenture.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any of the Property Trustee, the Delaware Trustee or the Administrative Trustees
may be removed at any time by the holder of the Common Securities. For example,
the holder of the Common Securities may seek to remove such
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trustees upon a substandard performance or non-performance of their duties or
upon a significant increase in a trustee's fee. If a Debenture Event of Default
has occurred and is continuing, the Property Trustee or the Delaware Trustee or
both of them may be removed at such time by the holders of a majority in
Liquidation Amount of the outstanding Trust Preferred Securities. In no event
will the holders of the Trust Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights are
vested exclusively in Silicon as the holder of the Common Securities. No
resignation or removal of a Trustee and no appointment of a successor trustee
shall be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of Trust Property may at
the time be located, Silicon, as the holder of the Common Securities, and the
Administrative Trustees by agreed action of the majority of such Trustees shall
have power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to act
as separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. If Silicon does not
join in such appointment within 15 days of the receipt by it of a request to do
so, or in case a Debenture Event of Default has occurred and is continuing, the
Property Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Issuer Trustee shall be a party, or any person succeeding to all or
substantially all the corporate trust business of such Issuer Trustee, shall be
the successor of such Issuer Trustee under the Trust Agreement, provided such
corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF SVB CAPITAL
SVB Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. SVB Capital may, at the request of Silicon, with the consent of
the Administrative Trustees and without the consent of the holders of the Trust
Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of SVB Capital with respect to the Trust Preferred Securities or (b)
substitutes for the Trust Preferred Securities other securities having
substantially the same terms as the Trust Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Trust
Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) Silicon expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Junior Subordinated Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Trust Preferred Securities are then listed, if any,
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not cause the Trust Preferred Securities to be downgraded by any
nationally recognized statistical rating organization which gives ratings to the
Trust Preferred Securities, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not
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adversely affect the rights, preferences and privileges of the holders of the
Trust Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose identical to that of SVB
Capital, (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Silicon has received an opinion from independent
counsel to SVB Capital experienced in such matters to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the holders
of the Trust Preferred Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither SVB Capital nor such
successor entity will be required to register as an investment company under the
Investment Company Act and (viii) Silicon owns all of the common securities of
such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, SVB Capital shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause SVB Capital or the successor entity to
be classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Trust Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by Silicon, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that SVB Capital will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that SVB Capital will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (i), such action shall not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of the Trust Securities. The Trust Agreement may be amended
by the Administrative Trustees and the Property Trustee with (i) the consent of
holders representing not less than a majority of the aggregate Liquidation
Amount of the outstanding Trust Securities, and (ii) receipt by the Issuer
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect SVB Capital's status as a grantor trust for United
States federal income tax purposes or SVB Capital's exemption from status as an
"investment company" under the Investment Company Act, provided that without the
consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date or (ii)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
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So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding Trust Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior consent of each holder of the Trust Preferred Securities. The Issuer
Trustees shall not revoke any action previously authorized or approved by a vote
of the holders of the Trust Preferred Securities except by subsequent vote of
the holders of the Trust Preferred Securities. The Property Trustee shall notify
each holder of the Trust Preferred Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Trust Preferred Securities, prior to
taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion
of counsel experienced in such matters to the effect that SVB Capital will not
be classified as other than a grantor trust for United States federal income tax
purposes.
Any required approval of holders of the Trust Preferred Securities may be
given at a meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a notice
of any meeting at which holders of the Trust Preferred Securities are entitled
to vote, or of any matter upon which action by written consent of such holders
is to be taken, to be given to each holder of record of the Trust Preferred
Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Trust Preferred Securities will be
required for SVB Capital to redeem and cancel the Trust Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities will be
entitled to vote or consent under any of the circumstances described above, any
of the Trust Preferred Securities that are owned by Silicon, the Trustees or any
affiliate of Silicon or any Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee (a "Global
Trust Preferred Security"). Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary ("Participants").
Except as described below, Trust Preferred Securities in certificated form will
not be issued in exchange for the global certificates. See "Book-Entry
Issuance."
A Global Trust Preferred Security shall be exchangeable for Trust Preferred
Securities registered in the names of persons other than the Depositary or its
nominee only if (i) the Depositary notifies Silicon that it is unwilling or
unable to continue as a depositary for such global security and no successor
depositary shall have been appointed, or if at any time the Depositary ceases to
be a clearing agency registered under the Exchange Act, at a time when the
Depositary is required to be so registered to act as such depositary or (ii)
Silicon in its sole discretion determines that such global security shall be so
exchangeable. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as the Depositary shall direct. It is expected that such instructions will
be based upon directions received by the Depositary with respect to
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ownership of beneficial interests in such global security. In the event that
Trust Preferred Securities are issued in definitive form, such Trust Preferred
Securities will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices of the Depositary described
below.
Unless and until it is exchanged in whole or in part for the individual
Trust Preferred Securities represented thereby, a Global Trust Preferred
Security may not be transferred except as a whole by the Depositary to a nominee
of such the Depositary or by a nominee of such the Depositary to such Depositary
or another nominee of such Depositary or by the Depositary or any nominee to a
successor Depositary or any nominee of such successor.
Payments on Trust Preferred Securities represented by a Global Trust
Preferred Security will be made to the Depositary, as the depositary for the
Trust Preferred Securities. In the event the Trust Preferred Securities are
issued in definitive form, Distributions will be payable, the transfer of the
Trust Preferred Securities will be registrable, and Trust Preferred Securities
will be exchangeable for Trust Preferred Securities of other denominations of a
like aggregate Liquidation Amount, at the corporate office of the Property
Trustee, or at the offices of any paying agent or transfer agent appointed by
the Administrative Trustees, provided that payment of any Distribution may be
made at the option of the Administrative Trustees by check mailed to the address
of the persons entitled thereto or by wire transfer. For a description of the
terms of the depositary arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "Book-Entry
Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit of
such Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for such Global Trust Preferred Security or its nominee will credit,
on its book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Trust Preferred Securities represented by
such Global Trust Preferred Securities to the accounts of Participants. Such
accounts shall be designated by the dealers, underwriters or agents with respect
to such Trust Preferred Securities. Ownership of beneficial interests in a
Global Trust Preferred Security will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global Trust Preferred Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owner of such Global Trust Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Trust Preferred Securities represented by such Global
Trust Preferred Security for all purposes under the Trust Agreement governing
such Trust Preferred Securities. Except as provided above, owners of beneficial
interests in a Global Trust Preferred Security will not be entitled to have any
of the individual Trust Preferred Securities represented by such Global Trust
Preferred Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Trust Preferred Securities in definitive
form and will not be considered the owners or holders thereof under the Trust
Agreement.
None of Silicon, the Property Trustee, any Paying Agent, or the Securities
Registrar (defined below) for such Trust Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Trust
Preferred Security representing such Trust Preferred Securities or for
maintaining supervising or reviewing any records relating to such beneficial
ownership interests.
Silicon expects that the Depositary for Trust Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount or Distributions
in respect of a permanent Global Trust Preferred Security immediately will
credit Participants' accounts with payments in amounts proportionate to their
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respective beneficial interest in the aggregate Liquidation Amount of such
Global Trust Preferred Security as shown on the records of such Depositary or
its nominee. Silicon also expects that payments by Participants to owners of
beneficial interests in such Global Trust Preferred Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
PAYMENT AND PAYING AGENCY
Payments in respect of the Trust Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Trust Preferred Securities are
not held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. The paying agent (the "Paying Agent") shall initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and Silicon. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
Trust Preferred. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and
Silicon) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Trust
Preferred Securities. Registration of transfers of the Trust Preferred
Securities will be effected without charge by or on behalf of SVB Capital, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. SVB Capital will not be required to
register or cause to be registered the transfer of the Trust Preferred
Securities after such Trust Preferred Securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Trust
Preferred Securities are entitled under the Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by Silicon and if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate SVB Capital in such a way that SVB Capital will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of Silicon for United
States federal income tax purposes. In this connection, Silicon and the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable
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law, the certificate of trust of SVB Capital or the Trust Agreement, that
Silicon and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Trust Preferred
Securities. Holders of the Trust Preferred Securities have no preemptive or
similar rights.
SVB Capital may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Trust Preferred Securities, SVB
Capital will invest the proceeds thereof, together with the consideration paid
by Silicon for the Common Securities, in Junior Subordinated Debentures issued
by Silicon. The Junior Subordinated Debentures will be issued as unsecured debt
under the Junior Subordinated Indenture, dated as of May 22, 1998 (the
"Indenture"), between Silicon and the Indenture Trustee. The following summary
of the terms and provisions of the Junior Subordinated Debentures and the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Indenture, which has been filed as an exhibit
to the Registration Statement of which this Prospectus forms a part, and to the
Trust Indenture Act. The Indenture is qualified under the Trust Indenture Act.
Whenever particular defined terms of the Indenture are referred to herein, such
defined terms are incorporated herein or therein by reference.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate of
8.25% of the principal amount thereof, payable quarterly in arrears on the 15th
day of March, June, September and December of each year (each, an "Interest
Payment Date"), commencing September 15, 1998, to the person in whose name each
Junior Subordinated Debenture is registered on the date 15 days prior to the
relevant Interest Payment Date (whether or not a Business Day). The amount of
each interest payment due with respect to the Junior Subordinated Debentures
will include amounts accrued through the date the interest payment is due. It is
anticipated that, until the liquidation, if any, of SVB Capital, each Junior
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Preferred Securities. The amount of
interest payable for any period will be computed on the basis of a 360-day year
of twelve 30-day months. In the event that any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next Business Day (and without
any interest or other payment in respect of any such delay), in each case with
the same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.25% thereof, compounded quarterly.
The term "interest" as used herein shall include quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on June 15, 2028 (such date,
as it may be shortened as hereinafter described, the "Stated Maturity"). Such
date may be shortened at any time by Silicon to any date not earlier than June
15, 2003. Silicon might exercise its right to shorten the maturity of the Junior
subordinated Debentures under circumstances where a Tax Event, Capital Treatment
Event, Investment Company Event or other undesirable event could be avoided
simply by shortening the maturity of the Junior Subordinated Debentures. In the
event that Silicon elects to shorten the Stated Maturity of the Junior
Subordinated Debentures, it shall give notice to the Indenture Trustee, and the
Indenture Trustee shall give notice of such shortening to the holders of the
Junior Subordinated Debentures no less than 60 days prior to the effectiveness
thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior and Subordinated Debt of
Silicon. Because Silicon is a holding company, the
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right of Silicon to participate in any distribution of assets of any
subsidiaries upon any such subsidiaries' liquidation or reorganization or
otherwise (and thus the ability of holders of the Trust Preferred Securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of that subsidiary, except to the extent that Silicon may itself be
recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the subsidiaries of Silicon, and holders of Junior
Subordinated Debentures should look only to the assets of Silicon for payments
on the Junior Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of Silicon, including
Senior and Subordinated Debt, whether under the Indenture or any existing or
other indenture that Silicon may enter into in the future or otherwise. See
"--Subordination" below.
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
Silicon will have the right under the Indenture at any time during the term of
the Junior Subordinated Debentures to defer the payment of interest at any time
or from time to time for a period not exceeding 20 consecutive quarters (each
such period an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity. During the Extension Periods, the Company shall have
the right to make partial payments of interest on any Interest Payment Date. No
Extension Period shall end other than on an Interest Payment Date. At the end of
such Extension Period, Silicon must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8.25%, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated
Debentures will be required to accrue interest income for United States federal
income tax purposes. See "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount." Neither the default by Silicon on any
Senior and Subordinated Debt, nor a default with respect to Senior and
Subordinated Debt resulting in acceleration of the maturity thereof, constitutes
a Debenture Event of Default. See "--Debenture Events of Default" below.
During any such Extension Period, Silicon may not and shall not permit any
of its subsidiaries to (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
Silicon's capital stock (which includes common and preferred stock), or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of Silicon (including other junior
subordinated debentures) that rank PARI PASSU with or junior in interest to the
Junior Subordinated Debentures or (iii) make any guarantee payments with respect
to any guarantee by Silicon of the debt securities of any subsidiary of Silicon
if such guarantee ranks PARI PASSU with or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or distributions in capital
stock of Silicon (which includes common and preferred stock), (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, and (d) purchases of common stock related to the
issuance of common stock or rights under any of Silicon's benefit plans for its
directors, officers, employees or consultants) or (iv) redeem, purchase or
acquire less than all of the Junior Subordinated Debentures or any of the Trust
Preferred Securities. Prior to the termination of any such Extension Period,
Silicon may further extend such Extension Period, provided that such extension
does not cause such Extension Period to exceed 20 consecutive quarters or extend
beyond the Stated Maturity. Upon the termination of any such Extension Period
and the payment of all amounts then due on any Interest Payment Date, Silicon
may elect to begin a new Extension Period subject to the above requirements. No
interest shall be due and payable during an Extension Period, except at the end
thereof. Silicon must give the Property Trustee, the Administrative Trustees and
the Indenture Trustee notice of its election of any Extension Period at least
one Business Day prior to the earlier of (i) the date the Distributions on the
Trust Preferred Securities would have been payable except for the election to
begin or extend such Extension Period or (ii) the date the Administrative
Trustees are required to give notice to the New York Stock Exchange, the Nasdaq
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National Market or any applicable stock exchange or automated quotation system
on which the Trust Preferred Securities are then listed or quoted or to the
holders of the Trust Preferred Securities of the record date or (iii) the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Indenture Trustee shall give notice of Silicon's
election to begin or extend a new Extension Period to the holders of the Trust
Preferred Securities. There is no limitation on the number of times that Silicon
may elect to begin an Extension Period.
Distributions on the Trust Preferred Securities will be deferred by SVB
Capital during any such Extension Period. See "Description of the Trust
Preferred Securities--Distributions." For a description of certain federal
income tax consequences and special considerations applicable to the Junior
Subordinated Debentures during the Extension Period, see "Certain Federal Income
Tax Consequences."
ADDITIONAL SUMS
If SVB Capital is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, Silicon will pay as additional
amounts on the Junior Subordinated Debentures such amounts ("Additional Sums")
as shall be required so that the Distributions payable by SVB Capital shall not
be reduced as a result of any such additional taxes, duties or other
governmental charges.
REDEMPTION
The Junior Subordinated Debentures will be redeemable prior to maturity at
the option of Silicon (i) on or after June 15, 2003, in whole at any time or in
part from time to time, or (ii) at any time (whether occurring before or after
June 15, 2003) in whole (but not in part), within 90 days following a Tax Event,
a Capital Treatment Event or an Investment Company Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless Silicon
defaults in payment of the redemption price, on and after the redemption date
interest ceases to accrue on such Junior Subordinated Debentures or portions
thereof called for redemption.
If SVB Capital is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, Silicon will pay as additional
amounts on the Junior Subordinated Debentures the Additional Sums.
The Junior Subordinated Debentures will not be subject to any sinking fund.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which Silicon has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute a Debenture Event of Default and (b) in respect of which
Silicon shall not have taken reasonable steps to cure, or (ii) Silicon shall
have given notice of its election of an Extension Period as provided in the
Indenture with respect to the Junior Subordinated Debentures and shall not have
rescinded such notice, or such Extension Period, or any extension thereof, shall
be continuing, or (iii) while the Junior Subordinated Debentures are held by SVB
Capital, Silicon shall be in default with respect to its payment of any
obligation under the Guarantee, then Silicon will not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of Silicon's capital stock (which
includes common and preferred stock) or (2) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of Silicon (including other junior subordinated debentures) that rank
PARI PASSU with or junior in interest to the Junior Subordinated Debentures or
(3) make any guarantee
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payments with respect to any guarantee by Silicon of the debt securities of any
subsidiary of Silicon if such guarantee ranks PARI PASSU with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in capital stock of Silicon (which includes common and preferred
stock), (b) any declaration of a dividend in connection with the implementation
of a stockholders' rights plan, or the issuance of stock under any such plan in
the future or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee and (d) purchases of common stock related to
issuance of common stock or rights under any of Silicon's benefit plans for its
directors, officers, employees or consultants) or (4) redeem, purchase or
acquire less than all of the Junior Subordinated Debentures or Trust Preferred
Securities.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due including any Additional Interest in respect
thereof (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption
by declaration or otherwise; or
(iii) default in the performance, or breach, in any material respect of
certain other covenants contained in the Indenture for 90 days after
written notice to Silicon from the Indenture Trustee or to Silicon and
the Indenture Trustee by the holders of at least 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of Silicon.
The holders of not less than a majority in aggregate outstanding principal
amount of the Junior Subordinated Debentures will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee. The Indenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of the Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event of
Default. If the Indenture Trustee or such holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
Junior Subordinated Debentures which has become due solely by such acceleration)
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Indenture Trustee. Should the holders of the Junior Subordinated Debentures fail
to annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
In case a Debenture Event of Default shall occur and be continuing as to the
Junior Subordinated Debentures, the Property Trustee will have the right to
declare the principal of and the interest on such
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Junior Subordinated Debentures, and any other amounts payable under the
Indenture, to be forthwith due and payable and to enforce its other rights as a
creditor with respect to such Junior Subordinated Debentures.
Silicon will be required to file annually with the Indenture Trustee a
certificate as to whether or not Silicon is in compliance with all the
conditions and covenants applicable to it under the Indenture.
SUBORDINATION
The Indenture provides that any Junior Subordinated Debentures issued
thereunder will be subordinate and junior in right of payment to all Senior and
Subordinated Debt to the extent provided in the Indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of Silicon, the
holders of Senior and Subordinated Debt will first be entitled to receive
payment in full of all Allocable Amounts (as defined below) on such Senior and
Subordinated Debt before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect thereof.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior and Subordinated Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior and Subordinated Debt
or an event of default with respect to any Senior and Subordinated Debt
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Allocable Amounts," when used with respect to any Senior and Subordinated
Debt, means all amounts due or to become due on such Senior and Subordinated
Debt less, if applicable, any amount which would have been paid to, and retained
by, the holders of such Senior and Subordinated Debt (whether as a result of the
receipt of payments by the holders of such Senior and Subordinated Debt from
Silicon or any other obligor thereon or from any holders of, or trustee in
respect of, other indebtedness that is subordinate and junior in right of
payment to such Senior and Subordinated Debt pursuant to any provision of such
indebtedness for the payment over of amounts received on account of such
indebtedness to the holders of such Senior and Subordinated Debt or otherwise)
but for the fact that such Senior and Subordinated Debt is subordinated or
junior in right of payment to (or subject to a requirement that amounts received
on such Senior and Subordinated Debt be paid over to obligees on) trade accounts
payable or accrued liabilities arising in the ordinary course of business.
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"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; (vi) all
indebtedness of such person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another person and all dividends
of another person the payment of which, in either case, such person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior and Subordinated Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to Silicon whether or not
such claim for post-petition interest is allowed in such proceeding), on Debt of
Silicon, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is PARI PASSU with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior and Subordinated Debt shall not be
deemed to include (i) any Debt of Silicon which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to Silicon, (ii) any Debt of
Silicon to any of its subsidiaries, (iii) Debt to any employee of Silicon, and
(iv) any other debt securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of additional Senior and
Subordinated Debt that may be incurred by Silicon. Silicon expects from time to
time to incur additional indebtedness constituting Senior and Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of the Depositary or its nominee (a "Global
Subordinated Debenture"). Beneficial interests in the Junior Subordinated
Debentures will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary. Except as described below, Junior
Subordinated Debentures in certificated form will not be issued in exchange for
the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or in
part for the individual Junior Subordinated Debentures represented thereby, it
may not be transferred except as a whole by the Depositary for such Global
Subordinated Debenture to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies Silicon that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Securities Exchange Act, at a time when the
Depositary is required to be so registered to act as such depositary or (ii)
Silicon in its sole discretion determines that such global security shall be so
exchangeable. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for
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definitive certificates registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such global security. In the event that Junior Subordinated
Debentures are issued in definitive form, such Junior Subordinated Debentures
will be in denominations of $25 and integral multiples thereof and may be
transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to the Depositary, as the depositary for the Junior Subordinated
Debentures. In the event Junior Subordinated Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate office of
the Indenture Trustee, or at the offices of any paying agent or transfer agent
appointed by Silicon, provided that payment of interest may be made at the
option of Silicon by check mailed to the address of the persons entitled thereto
or by wire transfer. In addition, if the Junior Subordinated Debentures are
issued in certificated form, the record dates for payment of interest will be
the date 15 days prior to the relevant Interest Payment Date. For a description
of the Depositary and the terms of the depositary arrangements relating to
payments, transfers, voting rights, redemptions and other notices and other
matters, see "Book-Entry Issuance."
Silicon will appoint the Indenture Trustee as securities registrar under the
Indenture (the "Securities Registrar"). Junior Subordinated Debentures may be
presented for exchange as provided above, and may be presented for registration
of transfer (with the form of transfer endorsed thereon, or a satisfactory
written instrument of transfer, duly executed), at the office of the Securities
Registrar. Silicon may at any time rescind the designation of any such transfer
agent or approve a change in the location through which any such transfer agent
acts, provided that Silicon maintains a transfer agent in the place of payment.
Silicon may at any time designate additional transfer agents with respect to the
Junior Subordinated Debentures.
In the event of any redemption, neither Silicon nor the Indenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Junior
Subordinated Debentures so selected for redemption, except, in the case of any
Junior Subordinated Debentures being redeemed in part, any portion thereof not
to be redeemed.
GLOBAL SUBORDINATED DEBENTURES
Upon the issuance of the Global Subordinated Debenture, and the deposit of
such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to the accounts of persons that have accounts with
such Depositary ("Participants"). Ownership of beneficial interests in a Global
Subordinated Debenture will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Subordinated Debenture will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Subordinated Debenture.
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So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by such Global
Subordinated Debenture for all purposes under the Indenture governing such
Junior Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any of
the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated Debentures
in definitive form and will not be considered the owners or holders thereof
under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Subordinated Debenture
representing such Junior Subordinated Debentures. None of Silicon, the Indenture
Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debentures will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Silicon expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a permanent Global Subordinated
Debenture representing the Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. Silicon also expects that payments by Participants to owners of
beneficial interests in such Global Subordinated Debenture held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the office of the Indenture Trustee, except that at
the option of Silicon payment of any interest may be made (i) except in the case
of Global Junior Subordinated Debentures, by check mailed to the address of the
person entitled thereto as such address shall appear in the securities register
or (ii) by transfer to an account maintained by the person entitled thereto as
specified in the securities register, provided that proper transfer instructions
have been received by the regular record date. Payment of any interest on Junior
Subordinated Debentures will be made to the person in whose name such Junior
Subordinated Debenture is registered at the close of business on the regular
record date for such interest. Silicon may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however Silicon
will at all times be required to maintain a Paying Agent in each place of
payment for the Junior Subordinated Debentures. Any moneys deposited with the
Indenture Trustee or any Paying Agent, or then held by Silicon in trust, for the
payment of the principal of or interest on the Junior Subordinated Debentures
and remaining unclaimed for two years after such principal or interest has
become due and payable shall, at the request of Silicon, be repaid to Silicon
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to Silicon for payment thereof.
MODIFICATION OF INDENTURE
From time to time Silicon and the Indenture Trustee may, without the consent
of the holders of the Junior Subordinated Debentures, amend, waive or supplement
the Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action
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does not adversely affect the interests of the holders of the Junior
Subordinated Debentures or the Trust Preferred Securities in any material
respect so long as they remain outstanding) and qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting Silicon and the Indenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
outstanding Junior Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures;
provided, that no such modification may, without the consent of the holder of
each outstanding Junior Subordinated Debenture, except to the extent permitted
in connection with the deferral of Interest Payment Dates during an Extension
Period, or the shortening of the Stated Maturity to a date not earlier than the
first date Silicon has a right to redeem the Junior Subordinated Debentures, (i)
change the Stated Maturity of the Junior Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture or (iii) modify the provisions of the
Indenture with respect to the subordination of the Junior Subordinated
Debentures in a manner adverse to the holders thereof, provided that so long as
any of the Trust Preferred Securities remain outstanding, no such modification
may be made that adversely affects the holders of such Trust Preferred
Securities in any material respect, and no termination of the Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of the Trust
Preferred Securities unless and until the principal of the Junior Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied. Where a consent under the Indenture
would require the consent of each holder of Junior Subordinated Debentures, no
such consent shall be given by the Property Trustee without the prior consent of
each holder of Trust Preferred Securities. In addition, Silicon and the
Indenture Trustee may execute, without the consent of any holder of Junior
Subordinated Debentures, any supplemental Indenture for the purpose of creating
any new series of Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of Silicon to pay interest or principal on
the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of Trust Preferred Securities may institute a legal
proceeding directly against Silicon for enforcement of payment to such holder of
the principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Trust
Preferred Securities of such holder (a "Direct Action"). Silicon may not amend
the Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities
outstanding. If the right to bring a Direct Action is removed, SVB Capital may
become subject to the reporting obligations under the Exchange Act. Silicon
shall have the right under the Indenture to set-off any payment made to such
holder of Trust Preferred Securities by Silicon in connection with a Direct
Action.
The holders of the Trust Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of the Trust Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Silicon shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into Silicon or convey, transfer or lease its properties and assets
substantially as an entirety to Silicon, unless (i) in case Silicon consolidates
with or merges into another
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Person or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any state or the District of Columbia, and such successor
Person expressly assumes Silicon's obligations on the Junior Subordinated
Debentures issued under the Indenture; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving Silicon that may adversely affect holders of the Junior
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and Silicon deposits or causes to be
deposited with the Indenture Trustee trust funds, in trust, for the purpose and
in an amount in the currency or currencies in which the Junior Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Indenture
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the Stated Maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to Silicon's obligations to pay all
other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and Silicon will be
deemed to have satisfied and discharged the Indenture.
COVENANTS OF SILICON
Silicon will covenant in the Indenture, as to the Junior Subordinated
Debentures, that so long as no Event of Default has occurred and is continuing,
if and so long as (i) SVB Capital is the holder of all such Junior Subordinated
Debentures, (ii) a Tax Event in respect of SVB Capital has occurred and is
continuing and (iii) Silicon shall not have redeemed the Junior Subordinated
Debentures or dissolved SVB Capital, Silicon will pay to SVB Capital any
applicable Additional Sums. Silicon will also covenant, as to the Junior
Subordinated Debentures, (i) to maintain, directly or indirectly, 100% ownership
of the Common Securities of SVB Capital, provided that certain successors which
are permitted pursuant to the Indenture may succeed to Silicon's ownership of
the Common Securities, (ii) not to voluntarily terminate, wind up or liquidate
SVB Capital, except upon prior approval of the primary federal regulator of
Silicon if then so required under applicable capital guidelines or policies of
such primary regulator, and except (a) in connection with a distribution of
Junior Subordinated Debentures to the holders of the Trust Preferred Securities
in liquidation of SVB Capital or (b) in connection with certain mergers,
consolidations, or amalgamations permitted by the Trust Agreement and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause SVB Capital to remain classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of California, except that
the immunities and standard of care of the Indenture Trustee will be governed by
Delaware law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture
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Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and the Junior Subordinated Debentures. The Trust Preferred
Securities and the Junior Subordinated Debentures will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global certificates will be
issued for the Trust Preferred Securities and the Junior Subordinated Debentures
and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Commission.
Purchases of Trust Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Trust Preferred Securities or Junior
Subordinated Debentures on the Depositary's records. The ownership interest of
each actual purchaser of each Trust Preferred Securities and each Junior
Subordinated Debenture ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from the Depositary of their purchases, but Beneficial
Owners are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased Trust
Preferred Securities or Junior Subordinated Debentures. Transfers of ownership
interests in the Trust Preferred Securities or Junior Subordinated Debentures
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Trust Preferred Securities or Junior
Subordinated Debentures, except in the event that use of the book-entry system
for the Junior Subordinated Debentures is discontinued.
The Depositary will have no knowledge of the actual Beneficial Owners of the
Trust Preferred Securities or Junior Subordinated Debentures; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Trust Preferred Securities or Junior Subordinated Debentures. If less than
all of the Trust Preferred Securities or the Junior Subordinated Debentures are
being redeemed, the Depositary will determine by lot or pro rata the amount of
the Trust Preferred Securities of each Direct Participant to be redeemed.
Although voting with respect to the Trust Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Trust
Preferred Securities or Junior Subordinated Debentures, as applicable, in those
instances in which a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities or Junior
Subordinated Debentures. Under its usual procedures, the Depositary would mail
an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts such
Trust Preferred Securities or Junior Subordinated Debentures are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Trust Preferred Securities or the Junior
Subordinated Debentures will be made by the relevant Trustee to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of the
Depositary, the relevant Trustee, SVB Capital or Silicon, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the relevant
Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Trust Preferred Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the relevant
Trustee and Silicon. In the event that a successor securities depositary is not
obtained, definitive Trust Preferred Securities or Junior Subordinated Debenture
certificates representing such Trust Preferred Securities or Junior Subordinated
Debentures are required to be printed and delivered. Silicon, at its option, may
decide to discontinue use of the system of book-entry transfers through the
Depositary (or a successor depositary). In either event, definitive certificates
for such Trust Preferred Securities or Junior Subordinated Debentures will be
printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that SVB Capital
and Silicon believe to be accurate, but SVB Capital and Silicon assume no
responsibility for the accuracy thereof. Neither SVB Capital nor Silicon has any
responsibility for the performance by the Depositary or its Participants of
their respective obligations as described herein or under the rules and
procedures governing their respective operations.
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DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by Silicon
concurrently with the issuance of the Trust Preferred Securities for the benefit
of the holders of the Trust Preferred Securities. Wilmington Trust Company will
act as Guarantee Trustee under the Guarantee Agreement for the purposes of
compliance with the Trust Indenture Act, and the Guarantee will be qualified as
an Indenture under the Trust Indenture Act. The following summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee Agreement, including the definitions therein of certain terms, and the
Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the Trust
Preferred Securities.
GENERAL
Silicon will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the Trust Preferred Securities, as and when
due, regardless of any defense, right of set-off or counterclaim that SVB
Capital may have or assert other than the defense of payment. The following
payments with respect to the Trust Preferred Securities, to the extent not paid
by or on behalf of SVB Capital (the "Guarantee Payments"), will be subject to
the Guarantee: (i) any accrued and unpaid Distributions required to be paid on
the Trust Preferred Securities, to the extent that SVB Capital has funds on hand
available therefor at such time, (ii) the Redemption Price with respect to any
Trust Preferred Securities called for redemption, to the extent that SVB Capital
has funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of SVB Capital (unless the
Junior Subordinated Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the Liquidation Distribution and (b) the amount
of assets of SVB Capital remaining available for distribution to holders of
Trust Preferred Securities after satisfaction of liabilities to creditors of SVB
Capital as required by applicable law. Silicon's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by Silicon to
the holders of the Trust Preferred Securities or by causing SVB Capital to pay
such amounts to such holders.
If Silicon does not make interest payments on the Junior Subordinated
Debentures held by SVB Capital, SVB Capital will not be able to pay
Distributions on the Trust Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior and Subordinated Debt of Silicon. See "--Status of the
Guarantee" below. Because Silicon is a holding company, the right of Silicon to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent Silicon may itself
be recognized as a creditor of that subsidiary. Accordingly, Silicon's
obligations under the Guarantee will be effectively subordinated to all existing
and future liabilities of Silicon's subsidiaries, and claimants should look only
to the assets of Silicon for payments thereunder. Except as otherwise described
herein, the Guarantee does not limit the incurrence or issuance of other secured
or unsecured debt of Silicon, including Senior and Subordinated Debt whether
under the Indenture, any other indenture that Silicon may enter into in the
future, or otherwise.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Silicon and will
rank subordinate and junior in right of payment to all Senior and Subordinated
Debt in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against Silicon to enforce its rights under the
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Guarantee without first instituting a legal proceeding against any other person
or entity. The Guarantee will be held for the benefit of the holders of the
Trust Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by SVB Capital
or upon distribution to the holders of the Trust Preferred Securities of the
Junior Subordinated Debentures to the holders of the Trust Preferred Securities.
The Guarantee does not place a limitation on the amount of additional Senior and
Subordinated Debt that may be incurred by Silicon. Silicon expects from time to
time to incur additional indebtedness constituting Senior and Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of the Trust Preferred Securities in any material respect (in which
case no vote will be required), the Guarantee Agreement may not be amended
without the prior approval of the holders of not less than a majority of the
aggregate Liquidation Amount of such outstanding Trust Preferred Securities. See
"Description of the Trust Preferred Securities--Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of Silicon and shall inure to the benefit of the holders of the
Trust Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee Agreement will occur upon the
failure of Silicon to perform any of its payment or other obligations
thereunder, provided, however, that, except with respect to a default in payment
of any Guarantee Payments, Silicon shall have received notice of default and
shall not have cured such default within 90 days of the receipt of such notice.
The holders of not less than a majority in aggregate Liquidation Amount of the
Trust Preferred Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any
holder of the Trust Preferred Securities may institute a legal proceeding
directly against Silicon to enforce its rights under the Guarantee without first
instituting a legal proceeding against SVB Capital, the Guarantee Trustee or any
other person or entity.
Silicon, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not Silicon is in compliance with all the
conditions and covenants applicable to it under the Guarantee Agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Silicon in performance of the Guarantee, undertakes to perform only
such duties as are specifically set forth in the Guarantee Agreement and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee Agreement at the
request of any holder of the Trust Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Trust Preferred Securities, upon full
payment of the amounts payable upon liquidation of SVB Capital or upon
distribution of Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case
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may be, if at any time any holder of the Trust Preferred Securities must restore
payment of any sums paid under the Trust Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance with
the laws of the State of California.
EXPENSE AGREEMENT
Pursuant to the Expense Agreement to be entered into by Silicon under the
Trust Agreement, Silicon will irrevocably and unconditionally guarantee to each
person or entity to whom SVB Capital becomes indebted or liable, the full
payment of any costs, expenses or liabilities of SVB Capital, (including,
without limitation, expenses relating to the offering of the Trust Securities
and any expenses the Property Trustee may incur relating to the enforcement of
the rights of the holders of the Trust Preferred Securities or the Junior
Subordinated Debentures pursuant to the Trust Agreement and the Indenture,
respectively) other than obligations of SVB Capital to pay to the holders of the
Trust Preferred Securities or other similar interests in SVB Capital of the
amounts due such holders pursuant to the terms of the Trust Preferred Securities
or such other similar interests, as the case may be. The Expense Agreement may
be enforced against Silicon by any person or entity to whom SVB Capital is or
becomes indebted or liable.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent SVB Capital has funds available for the payment of
such Distributions) will be irrevocably guaranteed by Silicon as and to the
extent set forth under "Description of Guarantee." Taken together, Silicon's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement, the Guarantee Agreement and the Guarantee will
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the Trust Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of those documents that has the effect of providing a full,
irrevocable and unconditional guarantee of SVB Capital's obligations under the
Trust Preferred Securities. If and to the extent that Silicon does not make
payments on the Junior Subordinated Debentures, SVB Capital will not pay
Distributions or other amounts due on the Trust Preferred Securities. The
Guarantee does not cover payment of Distributions when SVB Capital does not have
sufficient funds to pay such Distributions. In such event, the remedy of a
holder of the Trust Preferred Securities is to institute a legal proceeding
directly against Silicon for enforcement of payment of such Distributions to
such holder. The obligations of Silicon under the Guarantee will be subordinate
and junior in right of payment to all Senior and Subordinated Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount of the
Trust Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Preferred Securities; (iii) Silicon shall pay for all and any costs,
expenses and liabilities of SVB Capital except SVB Capital's obligations to
holders of Trust Preferred Securities; and (iv) the Trust
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Agreement further provides that SVB Capital will not engage in any activity that
is not consistent with its limited purposes.
Notwithstanding anything to the contrary in the Indenture, Silicon will have
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent Silicon has theretofore made, or is concurrently on the
date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE
GUARANTEE
A holder of Trust Preferred Securities may institute a legal proceeding
directly against Silicon to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, SVB Capital or any
other person or entity.
A default or event of default under any Senior and Subordinated Debt would
not constitute a default or Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior and
Subordinated Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF SVB CAPITAL
The Trust Preferred Securities evidence beneficial interests in SVB Capital,
and SVB Capital exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of the Trust Preferred Securities and
a holder of a Junior Subordinated Debenture is that a holder of a Junior
Subordinated Debenture will be entitled to receive from Silicon the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of the Trust Preferred Securities will be entitled to receive
Distributions from SVB Capital (or from Silicon under the Guarantee) if and to
the extent SVB Capital has funds available for the payment of such
Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
SVB Capital involving the liquidation of the Junior Subordinated Debentures, the
holders of Trust Preferred Securities will be entitled to receive, out of assets
held by SVB Capital, the Liquidation Distribution in cash. See "Description of
the Trust Preferred Securities--Liquidation Distribution Upon Dissolution." Upon
any voluntary or involuntary liquidation or bankruptcy of Silicon, the Property
Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of Silicon, subordinated in right of payment to all Senior
and Subordinated Debt as set forth in the Indenture, but entitled to receive
payment in full of principal and interest, before any stockholders of Silicon
receive payments or distributions. Since Silicon is the guarantor under the
Guarantee and will pay for all costs, expenses and liabilities of SVB Capital
(other than SVB Capital's obligations to the holders of its Trust Preferred
Securities), the positions of a holder of the Trust Preferred Securities and a
holder of Junior Subordinated Debentures relative to other creditors and to
shareholders of Silicon in the event of liquidation or bankruptcy of Silicon are
expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Manatt, Phelps & Phillips, LLP, counsel to Silicon
("Counsel"), the following summary accurately describes the material United
States federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Trust Preferred Securities. Unless otherwise
stated, this summary deals only with Trust Preferred Securities held as capital
assets by United States Persons (defined below) who purchase the Trust Preferred
Securities upon original issuance at their original offering price. As used
herein, a "United States Person" means a person that is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, (iv) a trust if a court
is able to exercise primary supervision over the administration of such trust
and one or more United States fiduciaries have the authority to control all
substantial decisions of such trust, or (v) any other person whose income or
gain in respect of Trust Preferred Securities is effectively connected with the
conduct of a United States trade or business. The tax treatment of holders may
vary depending on their particular situation. This summary does not address all
the tax consequences that may be relevant to a particular holder or to holders
who may be subject to special tax treatment, such as banks, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or foreign investors. In
addition, this summary does not include any description of any alternative
minimum tax consequences or the tax laws of any state, local or foreign
government that may be applicable to a holder of Trust Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
The following discussion does not discuss the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors as to
the specific United States federal income tax consequences of the purchase,
ownership and disposition of Trust Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the Service with
respect to the transactions described herein. Accordingly, there can be no
assurance that the Service will not challenge the opinions expressed herein or
that a court would not sustain such a challenge.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE
TRUST PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE
"DESCRIPTION OF THE TRUST PREFERRED SECURITIES--REDEMPTION."
CLASSIFICATION OF SVB CAPITAL
In connection with the issuance of the Trust Preferred Securities, Counsel
is of the opinion that, under current law and assuming compliance with the terms
of the Trust Agreement, and based on certain facts and assumptions contained in
such opinion, SVB Capital will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the Trust Preferred Securities
(a "Securityholder") will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures. Accordingly, each Securityholder will be
required to include in its gross income its pro rata share of the interest
income, including original issue
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discount, that is paid or accrued on the Junior Subordinated Debentures. See
"--Interest Income and Original Issue Discount" herein. No amount included in
income with respect to the Trust Preferred Securities will be eligible for the
dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
It is Counsel's opinion that the Junior Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of
Silicon under current law. By acceptance of a Trust Preferred Security, each
holder covenants to treat the Junior Subordinated Debentures as indebtedness and
the Trust Preferred Securities as evidence of an indirect beneficial ownership
interest in the Junior Subordinated Debentures. No assurance can be given,
however, that such position of Silicon will not be challenged by the Service or,
if challenged, that such a challenge will not be successful. The remainder of
this discussion assumes that the Junior Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of
Silicon. See "Risk Factors--Uncertainty of Deductibility of Interest on the
Junior Subordinated Debentures."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Counsel has issued its opinion to Silicon that, except in the case of the
occurrence of an Extension Period, stated interest on the Junior Subordinated
Debentures generally will be included in income by a holder of Trust Preferred
Securities at the time such interest is paid or accrued in accordance with the
holder's regular method of tax accounting but that, if Silicon exercises its
right to defer payments of interest on the Junior Subordinated Debentures during
an Extension Period, Securityholders will commence reporting interest income
with respect to the Junior Subordinated Debentures under the original issue
discount rules of the Code.
Accordingly, Silicon will take the position for tax reporting purposes that,
under the applicable Treasury regulations, the Junior Subordinated Debentures
will not be considered to have been issued with "original issue discount"
("OID") within the meaning of Section 1273(a) of the Code. If, however, Silicon
exercises its right to defer payments of interest on the Junior Subordinated
Debentures, the Junior Subordinated Debentures will become OID instruments at
such time and all Securityholders will be required to accrue the stated interest
on the Junior Subordinated Debentures on a daily basis during the Extension
Period, even though Silicon will not pay such interest until the end of the
Extension Period, and even though some Securityholders may use the cash method
of tax accounting. Moreover, thereafter the Junior Subordinated Debentures will
be taxed as OID instruments for as long as they remain outstanding. Thus, even
after the end of the Extension Period, all Securityholders would be required to
continue to include the stated interest on the Junior Subordinated Debentures in
income on a daily economic accrual basis, regardless of their method of tax
accounting and in advance of receipt of the cash attributable to such interest
income. Under the OID economic accrual rules, a Securityholder would accrue an
amount of interest income each year that approximates the stated interest
payments called for under the Junior Subordinated Debentures, and actual cash
payments of interest on the Junior Subordinated Debentures would not be reported
separately as taxable income.
The Treasury regulations described above have not yet been addressed in any
definitive interpretations by the Service, and it is possible that the Service
could take a contrary position. If the Service were to assert successfully that
the stated interest on the Junior Subordinated Debentures was OID regardless of
whether Silicon exercises its right to defer payments of interest on the Junior
Subordinated Debentures, all Securityholders would be required to include such
stated interest in income on a daily economic accrual basis as described above.
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DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES
Under current law, a distribution by SVB Capital of the Junior Subordinated
Debentures as described under the caption "Description of the Trust Preferred
Securities--Liquidation Distribution Upon Dissolution" will be non-taxable and
will result in the Securityholder receiving directly its pro rata share of the
Junior Subordinated Debentures previously held indirectly through SVB Capital,
with a holding period and aggregate tax basis equal to the holding period and
aggregate tax basis such Securityholder had in its Trust Preferred Securities
before such distribution. If, however, the liquidation of SVB Capital were to
occur because SVB Capital is subject to United States federal income tax with
respect to income accrued or received on the Junior Subordinated Debentures as a
result of a Tax Event or otherwise, the distribution of Junior Subordinated
Debentures to Securityholders by SVB Capital could be a taxable event to SVB
Capital and each Securityholder, and a Securityholder would recognize gain or
loss as if the Securityholder had exchanged its Trust Preferred Securities for
the Junior Subordinated Debentures it received upon the liquidation of SVB
Capital. A Securityholder would recognize interest income in respect of Junior
Subordinated Debentures received from SVB Capital in the manner described above
under "--Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Trust
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which, for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Trust Preferred
Securities sold or so redeemed. Gain or loss recognized by a Securityholder on
Trust Preferred Securities held for more than one year will generally be taxable
as long-term capital gain or loss. Under current law, for Securityholders who
are individuals, the maximum federal income tax rate applicable to net long term
capital gains will depend upon whether the capital asset sold or exchanged had a
holding period in excess of one year or a holding period in excess of 18 months.
Amounts attributable to accrued interest with respect to a Securityholder's pro
rata share of the Junior Subordinated Debentures not previously included in
income will be taxable as ordinary income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Trust Preferred Securities held of record
by United States Persons (other than corporations and other exempt
Securityholders), if any, will be reported to the Service. "Backup" withholding
at a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions. Any amounts withheld from a Securityholder
under the backup withholding rules will be allowed as a refund or a credit
against such Securityholder's United States federal income tax liability,
provided the required information is furnished to the Service.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
There can be no assurance that future legislative proposals or final
legislation will not affect the foregoing discussion of federal income tax
consequences. Such a change could give rise to a Tax Event, which may permit
Silicon to cause a redemption of the Trust Preferred Securities. See
"Description of the Trust Preferred Securities--Redemption" and "Description of
Junior Subordinated Debentures-- Redemption."
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CERTAIN ERISA CONSIDERATIONS
GENERAL
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), should consider
the fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the Trust
Preferred Securities. Such fiduciary should consider whether the investment
satisfies ERISA's diversification and prudence requirements, whether the
investment constitutes an unauthorized delegation of fiduciary authority and
whether the investment is in accordance with the documents and instruments
governing the plan. In addition, ERISA and the Code prohibit a wide range of
transactions ("Prohibited Transactions") involving the assets of a plan subject
to ERISA or the assets of an individual retirement account or plan subject to
Section 4975 of the Code or any entity in which such plan invests whose assets
are deemed "plan assets" (hereinafter an "ERISA Plan") and persons who have
certain specified relationships to the ERISA Plan ("parties in interest," within
the meaning of ERISA, and "disqualified persons," within the meaning of the
Code). Such transactions may require "correction" and may cause the ERISA Plan
fiduciary to incur certain liabilities and the parties in interest or
disqualified persons to be subject to excise taxes.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transactions rules. Such plans may, however,
be subject to federal, state or local laws or regulations which may affect their
investment in the Trust Preferred Securities. Any fiduciary of such a
governmental or church plan considering an investment in the Trust Preferred
Securities should determine the need for, and the availability, if necessary, of
any exemptive relief under such laws or regulations.
TRUST ASSETS AS "PLAN ASSETS"
The Department of Labor has issued final regulations as to what constitutes
assets of an employee benefit plan ("plan asset") under ERISA (the "Plan Asset
Regulations"). The Plan Asset Regulations provide that, as a general rule, when
an ERISA Plan acquires an equity interest in an entity and such interest does
not represent a "publicly offered security" nor a security issued by an
investment company registered under the Investment Company Act of 1940, as
amended, the ERISA Plan's assets include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless it is
established that the equity interest is a "publicly offered security."
For purposes of the Plan Asset Regulations, a "publicly offered security" is
a security that is (a) "freely transferable," (b) part of a class of securities
that is "widely held," and (c) sold to an ERISA Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and part of a class of securities that is registered under
the Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. The Trust Preferred
Securities will be registered under the Securities Act and the Exchange Act
within the time periods specified in the Plan Asset Regulations.
The Plan Asset Regulations provide that a security is "widely held" only if
it is a part of the class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the control of
the issuer. The Company expects the Trust Preferred Securities to be "widely
held" upon the completion of the offering.
The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The Plan Asset Regulations further provide
that when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with the offering of the Trust Preferred
Securities, certain restrictions
60
<PAGE>
ordinarily will not, alone or in combination, affect the finding that such
securities are "freely transferable." The Company believes that any restrictions
imposed on the transfer of the Trust Preferred Securities are limited to the
restrictions on transfer generally permitted under the Plan Asset Regulations
and are not likely to result in the failure of the Trust Preferred Securities to
be "freely transferable."
An ERISA Plan should not acquire or hold the Trust Preferred Securities if
the Company's underlying assets will be treated as the assets of such ERISA
Plan. However, the Company believes that under the Plan Asset Regulations, the
Trust Preferred Securities should be treated as "publicly offered securities"
and, accordingly, the underlying assets of the Company should not be considered
to be assets of any ERISA Plan investing in the Trust Preferred securities.
EFFECT OF PLAN ASSET STATUS
ERISA generally requires that the assets of an ERISA Plan be held in trust
and that the trustee, or an investment manager (within the meaning of Section
3(38) of ERISA), have exclusive authority and discretion to manage and control
the assets of the ERISA Plan. As discussed above, the assets of the Company
under current law do not appear likely to be assets of the ERISA Plans receiving
Trust Preferred Securities as a result of the offering. However, if the assets
of the Company were deemed to be assets of the ERISA Plans under ERISA, certain
directors and officers of the Company might be deemed fiduciaries with respect
to the ERISA Plans that invest in the Company and the prudence and other
fiduciary standards set forth in ERISA would apply to them and to all
investments.
If the assets of the Company were deemed to be plan assets, transactions
between the Company and parties in interest or disqualified persons with respect
to the investing ERISA Plan could be prohibited transactions unless a statutory
or administrative exemption is available. In addition, investment authority
would also have been improperly delegated to such fiduciaries, and, under
certain circumstances, Plan fiduciaries who make the decision to invest in the
Trust Preferred Securities could be liable as co-fiduciaries for actions taken
by the Company that do not conform to the ERISA standards for investments under
Part 4 of Title I of ERISA.
PROHIBITED TRANSACTIONS
The Company and/or any of its affiliates may be a party in interest or a
disqualified person with respect to an ERISA Plan investing in the Trust
Preferred Securities, and therefore, such investment by an ERISA Plan may give
rise to a Prohibited Transaction in the form of a direct or indirect extension
of credit by the investing ERISA Plan to the Company and/or any of its
affiliates. Consequently, before investing in the Trust Preferred Securities,
any person who is, or who is acquiring such securities for, or on behalf of, an
ERISA Plan should determine that either a statutory or an administrative
exemption from the Prohibited Transaction rules discussed below or otherwise
available is applicable to such investment in the Trust Preferred Securities, or
that such investment in, or acquisition of, such securities will not result in a
non-exempt Prohibited Transaction.
The statutory or administrative exemptions from the Prohibited Transaction
rules under ERISA and the Code which may be available to an ERISA Plan which is
investing in the Trust Preferred Securities include: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by qualified
professional asset managers; PTCE 96-23, regarding transactions effected by
in-house asset managers; and PTCE 95-60, regarding investments by insurance
company general accounts (collectively referred to as the "ERISA Investor
Exemptions").
Notwithstanding the foregoing, Trust Preferred Securities may not be
acquired by any person who is, or who in acquiring such Trust Preferred
Securities is using the assets of, an ERISA Plan unless one of the ERISA
Investor Exemptions or another applicable exemption is available to the ERISA
Plan. The acquisition of the Trust Preferred Securities by any person who is, or
who in acquiring such Trust Preferred
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Securities is using the assets of, an ERISA Plan shall be deemed to constitute a
representation by such person to the Company that such person is eligible for
exemptive relief available pursuant to one or more of the ERISA Investor
Exemptions or another applicable exemption with respect to the acquisition and
holding of such Trust Preferred Securities and will not result in an non-exempt
Prohibited Transaction.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE ALL INCLUSIVE. ANY FIDUCIARY OF AN ERISA PLAN, GOVERNMENTAL PLAN OR CHURCH
PLAN CONSIDERING AN INVESTMENT IN THE TRUST PREFERRED SECURITIES SHOULD CONSULT
WITH ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES OF SUCH INVESTMENT AND
CONSIDER WHETHER THE ERISA PLAN CAN MAKE THE REPRESENTATIONS NOTED ABOVE.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated May 19, 1998 (the "Underwriting Agreement"), BT Alex. Brown Incorporated,
Keefe, Bruyette & Woods, Inc. and Hoefer & Arnett Incorporated (the
"Underwriters") have severally agreed to purchase from SVB Capital the number of
Trust Preferred Securities set forth opposite their respective names below at
the public offering price.
<TABLE>
<CAPTION>
NUMBER OF TRUST
PREFERRED
UNDERWRITER SECURITIES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
BT Alex. Brown Incorporated.................................................. 960,000
Keefe, Bruyette & Woods, Inc................................................. 480,000
Hoefer & Arnett Incorporated................................................. 160,000
---------------
Total...................................................................... 1,600,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the Trust Preferred Securities offered hereby if any of such
Trust Preferred Securities are purchased.
Silicon has been advised by the Underwriters that the Underwriters propose
to offer the Trust Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $0.50 per Trust Preferred
Security. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.25 per Trust Preferred Security to certain other dealers.
After the public offering, the public offering price and other selling terms may
be changed by the Underwriters.
In connection with the offering of the Trust Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Trust Preferred Securities. Such transactions may include
over-allotment transactions in which an Underwriter creates a short position for
its own account by selling more Trust Preferred Securities than it is committed
to purchase from SVB Capital. In such a case, to cover all or part of the short
position, the Underwriters may purchase Trust Preferred Securities in the open
market following completion of the initial offering of the Trust Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for, and purchase, Trust Preferred Securities at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Trust Preferred
Securities. The Underwriters also may reclaim any selling concession allowed to
a dealer if the Underwriters repurchase shares distributed by that dealer. Any
of the foregoing transactions may result in the maintenance of a price for the
Trust Preferred Securities at a level above that which might otherwise prevail
in the open market. Neither the Company nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Trust Preferred
Securities. The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
Silicon, the Underwriting Agreement provides that Silicon will pay as
compensation for the Underwriters arranging the investment therein of such
proceeds, an amount in immediately available funds of $0.8125 per Trust
Preferred Security (or $1,300,000 in the aggregate) for the accounts of the
Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Trust Preferred Securities as interests in a direct
participation program, the offering of the Trust Preferred
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<PAGE>
Securities is being made in compliance with the applicable provisions of Rule
2810 of the NASD's Conduct Rules.
During a period of 180 days from the date of this Prospectus, neither SVB
Capital nor the Company will, subject to certain exceptions, without the prior
written consent of the Underwriters, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any Trust Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Trust Preferred Securities or Junior Subordinated Debentures or any debt
securities substantially similar to the Junior Subordinated Debentures or equity
securities substantially similar to the Trust Preferred Securities (except for
Junior Subordinated Debentures and the Trust Preferred Securities offered
hereby).
The Trust Preferred Securities are a new issue of securities with no
established trading market. Silicon and SVB Capital have been advised by the
Underwriters that they intend to make a market in the Trust Preferred
Securities. However, the Underwriters are not obligated to do so and such market
making may be interrupted or discontinued at any time without notice at the sole
discretion of the Underwriters. The Trust Preferred Securities have been
approved for quotation on the Nasdaq National Market. Nasdaq National Market
maintenance standards require the existence of two market makers for continued
listing, and the presence of such market makers cannot be assured. Accordingly,
no assurance can be given as to the development or liquidity of any market for
the Trust Preferred Securities.
Silicon and SVB Capital have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act.
The Underwriters or their affiliates have in the past performed and may in
the future perform various services to the Company, including investment banking
services, for which they have or may receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the Trust Agreement and the
formation of SVB Capital will be passed upon by Richards, Layton & Finger,
P.A.,Wilmington, Delaware, special counsel to Silicon and SVB Capital. The
validity of the Guarantee and the Junior Subordinated Debentures will be passed
upon for the Company by Manatt, Phelps & Phillips, LLP, Los Angeles, California,
counsel to the Company. Certain legal matters in connection with this Offering
will be passed upon for the Underwriters by O'Melveny & Myers LLP, Los Angeles,
California. Manatt, Phelps & Phillips, LLP and O'Melveny & Myers LLP will rely
on the opinions of Richards, Layton & Finger, P.A. as to matters of Delaware
law. Certain matters relating to United States federal income tax considerations
will be passed upon for the Company by Manatt, Phelps & Phillips, LLP.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997 have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, incorporated herein by reference, and upon the authority of said firm
as experts in accounting and auditing.
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 4
Incorporation of Certain Information by Reference......................... 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 16
Recent Developments....................................................... 23
Use of Proceeds........................................................... 24
Capitalization............................................................ 25
Regulatory Capital Ratios................................................. 25
Accounting Treatment...................................................... 26
Management................................................................ 27
Description of the Trust Preferred Securities............................. 29
Description of Junior Subordinated Debentures............................. 41
Book-Entry Issuance....................................................... 51
Description of Guarantee.................................................. 53
Expense Agreement......................................................... 55
Relationship Among the Trust Preferred Securities, the Junior Subordinated
Debentures and the Guarantee............................................ 55
Certain Federal Income Tax Consequences................................... 57
Certain ERISA Considerations.............................................. 60
Underwriting.............................................................. 63
Validity of Securities.................................................... 64
Experts................................................................... 64
</TABLE>
[LOGO]
$40,000,000
(Aggregate Liquidation Amount)
SVB CAPITAL I
8.25% Cumulative Trust
Preferred Securities
(Liquidation Amount $25
per Trust Preferred Security)
fully and unconditionally guaranteed,
as described herein, by
SILICON VALLEY BANCSHARES
-------------
PROSPECTUS
-------------
BT ALEX. BROWN
KEEFE, BRUYETTE & WOODS, INC.
HOEFER & ARNETT INCORPORATED
May 19, 1998
- --------------------------------------------------------------------------------
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