<PAGE>
As filed with the Securities and Exchange Commission on August 13, 1997
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________.
Commission File Number: 33-41102
SILICON VALLEY BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2856336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3003 Tasman Drive
Santa Clara, California 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 654-7282
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At July 31, 1997, 9,690,053 shares of the registrant's common stock
(no par value) were outstanding.
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This report contains a total of 29 pages.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED INCOME STATEMENTS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 27
ITEM 2. CHANGES IN SECURITIES 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
SIGNATURES 29
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Dollars in thousands) (Unaudited)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 116,893 $ 122,836
Federal funds sold and securities purchased under
agreement to resell 365,307 310,341
Investment securities, at fair value 693,833 625,022
Loans, net of unearned income 1,038,212 863,492
Allowance for loan losses (37,300) (32,700)
- ---------------------------------------------------------------------------------
Net loans 1,000,912 830,792
Premises and equipment 3,716 4,155
Other real estate owned 1,136 1,948
Accrued interest receivable and other assets 33,987 29,450
- ---------------------------------------------------------------------------------
Total assets $2,215,784 $1,924,544
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- ---------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing demand deposits $ 630,002 $ 599,257
NOW deposits 23,706 8,443
Money market deposits 1,298,976 1,081,391
Time deposits 102,332 85,213
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Total deposits 2,055,016 1,774,304
Other liabilities 10,081 14,840
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Total liabilities 2,065,097 1,789,144
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Shareholders' Equity:
Preferred stock, no par value:
20,000,000 shares authorized; none outstanding
Common stock, no par value:
30,000,000 shares authorized; 9,636,587 and
9,329,993 shares outstanding at June 30, 1997
and December 31, 1996, respectively 70,830 65,968
Retained earnings 80,290 67,321
Net unrealized gain on available-for-sale investments 227 2,456
Unearned compensation (660) (345)
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Total shareholders' equity 150,687 135,400
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Total liabilities and shareholders' equity $2,215,784 $1,924,544
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</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $26,589 $21,195 $49,525 $42,300
Investment securities 9,402 5,137 18,123 9,416
Federal funds sold and securities
purchased under agreement to resell 3,729 3,687 6,965 6,508
- -----------------------------------------------------------------------------------------------------
Total interest income 39,720 30,019 74,613 58,224
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits 12,638 9,153 23,674 17,085
- -----------------------------------------------------------------------------------------------------
Total interest expense 12,638 9,153 23,674 17,085
- -----------------------------------------------------------------------------------------------------
Net interest income 27,082 20,866 50,939 41,139
Provision for loan losses 2,618 2,065 5,966 3,588
- -----------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 24,464 18,801 44,973 37,551
- -----------------------------------------------------------------------------------------------------
Noninterest income:
Disposition of client warrants 1,082 1,971 4,245 2,262
Letter of credit and foreign
exchange income 1,110 855 2,090 1,734
Deposit service charges 407 445 772 841
Investment gains 44 - 45 1
Other 334 283 655 549
- -----------------------------------------------------------------------------------------------------
Total noninterest income 2,977 3,554 7,807 5,387
- -----------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation and benefits 9,420 7,557 18,476 15,345
Professional services 1,695 1,251 3,131 2,209
Business development and travel 1,026 725 1,986 1,278
Net occupancy expense 891 774 1,653 1,624
Furniture and equipment 763 939 1,424 1,592
Advertising and promotion 450 325 728 630
Postage and supplies 342 372 702 749
Telephone 330 291 634 601
Cost of other real estate owned 34 (124) 26 326
Other 803 850 1,660 1,394
- -----------------------------------------------------------------------------------------------------
Total noninterest expense 15,754 12,960 30,420 25,748
- -----------------------------------------------------------------------------------------------------
Income before income tax expense 11,687 9,395 22,360 17,190
Income tax expense 4,908 3,758 9,391 6,876
- -----------------------------------------------------------------------------------------------------
Net income $ 6,779 $ 5,637 $12,969 $10,314
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net income per common and
common equivalent share $ 0.67 $ 0.58 $ 1.29 $ 1.07
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
-----------------------------
June 30, June 30,
1997 1996
(Dollars in thousands) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,969 $ 10,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 5,966 3,588
Provision for other real estate owned - 551
Depreciation and amortization 655 598
Net gain on sales of investment securities (45) (1)
Net gain on sales of other real estate owned (45) (367)
Increase in accrued interest receivable (2,715) (2,440)
(increase) decrease in prepaid expenses (250) 2,549
Increase in unearned income 1,875 391
Decrease in accrued liabilities (3,088) (3,954)
Increase (decrease) in taxes payable (1,389) 244
Other, net (2,615) (409)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 11,318 11,064
- --------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities and paydowns of
investment securities 670,952 523,770
Proceeds from sales of investment securities 60,555 6,080
Purchases of investment securities (799,572) (651,301)
Net increase in loans (179,798) (91,332)
Proceeds from recoveries of charged off loans 1,837 1,407
Net proceeds from sales of other real estate owned 857 1,038
Purchases of premises and equipment (222) (212)
- --------------------------------------------------------------------------------------
Net cash applied to investing activities (245,391) (210,550)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 280,712 318,487
Proceeds from issuance of common stock,
net of issuance costs 2,384 1,407
- --------------------------------------------------------------------------------------
Net cash provided by financing activities 283,096 319,894
- --------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 49,023 120,408
Cash and cash equivalents at January 1, 433,177 342,325
- --------------------------------------------------------------------------------------
Cash and cash equivalents at June 30, $ 482,200 $ 462,733
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid $ 23,508 $ 17,062
Income taxes paid $ 11,271 $ 6,641
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Silicon Valley Bancshares (the
"Company") and its subsidiaries conform with generally accepted accounting
principles and prevailing practices within the banking industry. Certain
reclassifications have been made to the Company's 1996 consolidated financial
statements to conform to the 1997 presentations. Such reclassifications had
no effect on the results of operations or shareholders' equity. The following
is a summary of the significant accounting and reporting policies used in
preparing the interim consolidated financial statements.
NATURE OF OPERATIONS
The Company is a bank holding company whose principal subsidiary is Silicon
Valley Bank (the "Bank"), a California-chartered bank with headquarters in
Santa Clara, California. The Bank maintains regional banking offices in
Northern and Southern California, and additionally has loan offices in
Colorado, Georgia, Maryland, Massachusetts, Oregon, Texas, and Washington.
The Bank serves emerging growth and middle-market companies in specific
targeted niches, focusing on the technology and life sciences industries,
while also identifying and capitalizing on opportunities to serve companies
in other industries whose financial services needs are underserved.
Substantially all of the assets, liabilities and earnings of the Company
relate to its investment in the Bank.
CONSOLIDATION
The interim consolidated financial statements include the accounts of the
Company and those of its wholly owned subsidiaries, the Bank and SVB Leasing
Company (inactive). The revenues, expenses, assets, and liabilities of the
subsidiaries are included in the respective line items in the interim
consolidated financial statements after elimination of intercompany accounts
and transactions.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the interim consolidated financial statements
contain all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the Company's consolidated financial position at
June 30, 1997, the results of its operations for the three and six month
periods ended June 30, 1997 and June 30, 1996, and the results of its cash
flows for the six month periods ended June 30, 1997 and June 30, 1996. The
December 31, 1996 consolidated financial statements were derived from audited
financial statements, and certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K. The results of operations for the
three and six month periods ended June 30, 1997 may not necessarily be
indicative of the Company's operating results for the full year.
6
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and judgments
that affect the reported amounts of assets and liabilities as of the balance
sheet date and the results of operations for the period. Actual results could
differ from those estimates. A material estimate that is particularly
susceptible to possible change in the near term relates to the determination
of the allowance for loan losses. An estimate of possible changes or range of
possible changes cannot be made.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents as reported in the consolidated statements of cash
flows includes cash on hand, cash balances due from banks, federal funds
sold, and securities purchased under agreement to resell. The cash
equivalents are readily convertible to known amounts of cash and are so near
their maturity that they present insignificant risk of changes in value.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell as
reported in the consolidated balance sheets includes interest-bearing
deposits in other financial institutions of $307,000 and $341,000 at June 30,
1997 and December 31, 1996, respectively.
NONACCRUAL LOANS
Loans are placed on nonaccrual status when they become 90 days past due as to
principal or interest payments (unless the principal and interest are well
secured and in the process of collection), when the Company has determined,
based upon currently known information, that the timely collection of
principal or interest is doubtful, or when the loans otherwise become
impaired under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan."
When a loan is placed on nonaccrual status, the accrued interest is reversed
against interest income and the loan is accounted for on the cash or cost
recovery method thereafter until qualifying for return to accrual status.
Generally, a loan will be returned to accrual status when all delinquent
principal and interest become current in accordance with the terms of the
loan agreement and full collection of the principal appears probable.
7
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is calculated using
weighted-average shares, including the dilutive effect of stock options
outstanding during the period. Weighted-average shares outstanding were
10,081,715 and 10,053,481 for the three and six month periods ended June 30,
1997 and 9,665,820 and 9,607,069 for the three and six month periods ended
June 30, 1996. Fully diluted earnings per common and common equivalent share
were approximately equal to primary earnings per common and common equivalent
share for the three and six month periods ended June 30, 1997 and June 30,
1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings per Share." SFAS No. 128 establishes standards for
computing and reporting earnings per share (EPS) and applies to entities with
publicly held common stock or financial instruments that are potentially
convertible into publicly held common stock. This statement supersedes
Accounting Principles Board (APB) Opinion No. 15, "Earnings per Share." The
presentation of primary EPS, as required by APB Opinion No. 15, is replaced
with a presentation of basic EPS, which is defined in SFAS No. 128. In
addition, dual presentation of basic EPS and diluted EPS, as defined in SFAS
No. 128, is required on the face of the income statement for all entities
that have complex capital structures. Disclosure of a reconciliation between
basic EPS and diluted EPS is also required.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if financial instruments or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to the fully diluted EPS computation required by APB
Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is
not permitted. However, an entity is permitted to disclose pro forma EPS
amounts computed using this statement in the notes to interim financial
statements in periods prior to required adoption.
8
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The pro forma EPS amounts, computed pursuant to the provisions of SFAS No.
128, for the three and six month periods ended June 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
------------------------------- -------------------------------
(Dollars and shares in thousands, Net Per Share Net Per Share
except per share amounts) Income Shares Amount Income Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997:
BASIC EPS:
Income available to common
shareholders $6,779 9,581 $0.71 $12,969 9,538 $1.36
EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding - 500 - - 516 -
- -----------------------------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
shareholders plus assumed
conversions $6,779 10,081 $0.67 $12,969 10,054 $1.29
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
1996:
BASIC EPS:
Income available to common
shareholders $5,637 9,181 $0.61 $10,314 9,142 $1.13
EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding - 485 - - 465 -
- -----------------------------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
shareholders plus assumed
conversions $5,637 9,666 $0.58 $10,314 9,607 $1.07
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure." SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure and applies to all entities.
This statement is effective for financial statements issued for periods ending
after December 15, 1997. Management does not believe that the adoption of this
statement will have a material impact on the Company's consolidated financial
position or results of operations.
9
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 established standards for reporting comprehensive income and its
components in financial statements. This statement requires that all items
which are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is equal to net income plus the change in "other
comprehensive income." The only component of other comprehensive income
currently applicable to the Company, as defined by SFAS No. 130, is the net
unrealized gain or loss on available-for-sale investments. SFAS No. 130
requires that an entity: (a) classify items of other comprehensive income by
their nature in a financial statement, and (b) report the accumulated balance
of other comprehensive income separately from common stock and retained
earnings in the equity section of the statement of financial position. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997. Management does not believe that the
adoption of this statement will have a material impact on the Company's
consolidated financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
publicly held entities to follow in reporting information about operating
segments in annual financial statements and requires that those entities
report selected information about operating segments in interim financial
statements. This statement also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement is effective for financial statements issued for periods beginning
after December 15, 1997. Management does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position or results of operations.
In January 1997, the Securities and Exchange Commission (SEC) approved
amendments (Release No. 33-7386) to Regulations S-X and S-K regarding the
disclosure requirements for derivative financial instruments, other financial
instruments and derivative commodity instruments (collectively, "market risk
sensitive instruments"). The amendments require enhanced disclosure of
accounting policies for derivative financial instruments and derivative
commodity instruments in the notes to the financial statements. In addition,
the amendments expand existing disclosure requirements to include
quantitative and qualitative information regarding the market risk inherent
in market risk sensitive instruments. The required quantitative and
qualitative information should be disclosed outside of the financial
statements and related notes thereto.
The accounting policies disclosure requirements are effective for all SEC
registrants in filings that include financial statements issued for periods
ending after June 15, 1997. As the Company's 1996 Annual Report on Form 10-K
fully complied with the new disclosure requirements, no additional accounting
policy disclosures are required during interim filings in 1997. The
quantitative and qualitative information disclosure requirements regarding
market risks are effective for all bank and thrift registrant filings which
include annual financial statements issued for periods ending after June 15,
1997. Management does not believe that the adoption of the amendments will
have a material impact on the Company's consolidated financial position or
results of operations.
10
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
2. LOANS
The detailed composition of loans is presented in the following table:
June 30, December 31,
1997 1996
(Dollars in thousands) (Unaudited)
- -----------------------------------------------------------------------------
Commercial $ 925,834 $755,699
Real estate term 40,135 44,475
Real estate construction 35,927 27,540
Consumer and other 36,316 35,778
- -----------------------------------------------------------------------------
Total loans (1) $1,038,212 $863,492
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(1) Net of unearned income of $7,533 and $5,658 at June 30, 1997 and December
31, 1996, respectively.
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the three and six month
periods ended June 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
--------------------------- --------------------------
(Dollars in thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $36,400 $30,200 $32,700 $29,700
Provision for loan losses 2,618 2,065 5,966 3,588
Loans charged off (2,663) (4,056) (3,203) (5,695)
Recoveries 945 791 1,837 1,407
- ---------------------------------------------------------------------------------------------
Balance at June 30, $37,300 $29,000 $37,300 $29,000
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
The aggregate recorded investment in loans for which impairment has been
determined in accordance with SFAS No. 114 totaled $15.2 million and $23.5
million at June 30, 1997 and June 30, 1996, respectively. Allocations of the
allowance for loan losses related to impaired loans totaled $5.6 million at
June 30, 1997 and $7.9 million at June 30, 1996. Average impaired loans for
the second quarter of 1997 and 1996 totaled $17.5 million and $25.7 million,
respectively.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's interim
consolidated financial statements as presented in Item 1 of this report. In
addition to historical information, this discussion and analysis includes
certain forward-looking statements regarding events and trends which may
affect the Company's future results. Such statements are subject to risks and
uncertainties that could cause the Company's actual results to differ
materially. These risks and uncertainties include, but are not limited to,
those described in the Company's 1996 Annual Report on Form 10-K.
Certain reclassifications have been made to the Company's 1996 consolidated
financial statements to conform to the 1997 presentations. Such
reclassifications had no effect on the results of operations or shareholders'
equity.
EARNINGS SUMMARY
The Company reported net income of $6.8 million, or $0.67 per share, for the
second quarter of 1997, compared with net income of $5.6 million, or $0.58
per share, for the second quarter of 1996. Net income totaled $13.0 million,
or $1.29 per share, for the six months ended June 30, 1997, versus $10.3
million, or $1.07 per share, for the respective 1996 period. The annualized
return on average assets (ROA) was 1.3% in the second quarter of 1997 versus
1.5% in the second quarter of 1996. The annualized return on average equity
(ROE) for the second quarter of 1997 was 18.7%, compared to 19.6% in the 1996
second quarter. For the first six months of 1997, ROA was 1.3% and ROE was
18.4% versus 1.4% and 18.4%, respectively, for the comparable prior year
period.
The increase in net income during the three and six month periods ended June
30, 1997, as compared with the prior year respective periods, resulted
primarily from growth in net interest income, partially offset by an increase
in both the provision for loan losses and noninterest expense. The major
components of net income and changes in these components are summarized in
the following table for the three and six month periods ended June 30, 1997
and 1996, and are discussed in more detail below.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
--------------------------- --------------------------
(Dollars in thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $27,082 $20,866 $50,939 $41,139
Provision for loan losses 2,618 2,065 5,966 3,588
Noninterest income 2,977 3,554 7,807 5,387
Noninterest expense 15,754 12,960 30,420 25,748
- ---------------------------------------------------------------------------------------------
Income before income taxes 11,687 9,395 22,360 17,190
Income tax expense 4,908 3,758 9,391 6,876
- ---------------------------------------------------------------------------------------------
Net income $ 6,779 $ 5,637 $12,969 $10,314
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
NET INTEREST INCOME AND MARGIN
Net interest income represents the difference between interest earned,
primarily on loans and investments, and interest paid on funding sources,
primarily deposits, and is the principal source of revenue for the Company.
Net interest margin is the amount of net interest income, on a fully
taxable-equivalent basis, expressed as a percentage of average
interest-earning assets. The average yield earned on interest-earning assets
is the amount of taxable-equivalent interest income expressed as a percentage
of average interest-earning assets. The average rate paid on funding sources
expresses interest expense as a percentage of average interest-earning assets.
The following tables set forth average assets, liabilities and shareholders'
equity, interest income and interest expense, average yields and rates, and
the composition of the Company's net interest margin for the three and six
month periods ended June 30, 1997 and 1996, respectively.
13
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES, RATES AND YIELDS
- ----------------------------------------------------------------------------------------------------------------------------
For the three months ended June 30,
----------------------------------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
----------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell (1) $ 267,789 $ 3,729 5.6% $ 279,286 $ 3,687 5.3%
Investment securities:
Taxable 609,413 9,206 6.1 362,881 5,036 5.6
Non-taxable (2) 15,208 302 8.0 6,307 156 9.9
Loans:
Commercial 858,789 23,831 11.1 650,070 18,068 11.2
Real estate construction and term 74,192 1,892 10.2 75,503 2,185 11.6
Consumer and other 39,193 866 8.9 43,071 942 8.8
- --------------------------------------------- ------------------------------------ -------------------------------------
Total loans 972,174 26,589 11.0 768,644 21,195 11.1
- --------------------------------------------- ------------------------------------ -------------------------------------
Total interest-earning assets 1,864,584 39,826 8.6 1,417,118 30,074 8.5
- --------------------------------------------- ------------------------------------ -------------------------------------
Cash and due from banks 158,247 123,819
Allowance for loan losses (37,089) (30,773)
Other real estate owned 1,249 4,009
Other assets 34,482 27,004
- --------------------------------------------- ------------ -------------
Total assets $2,021,473 $1,541,177
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
Funding sources:
Interest-bearing liabilities:
NOW deposits $ 12,953 60 1.9 $ 9,843 55 2.2
Regular money market deposits 357,781 2,411 2.7 312,512 2,112 2.7
Bonus money market deposits 812,674 9,081 4.5 575,053 6,322 4.4
Time deposits 104,651 1,086 4.2 67,932 664 3.9
- --------------------------------------------- ------------------------------------ -------------------------------------
Total interest-bearing liabilities 1,288,059 12,638 3.9 965,340 9,153 3.8
Portion of noninterest-bearing
funding sources 576,525 451,778
- --------------------------------------------- ------------------------------------ -------------------------------------
Total funding sources 1,864,584 12,638 2.7 1,417,118 9,153 2.6
- --------------------------------------------- ------------------------------------ -------------------------------------
Noninterest-bearing funding sources:
Demand deposits 575,726 449,636
Other liabilities 11,903 10,463
Shareholders' equity 145,785 115,738
Portion used to fund
interest-earning assets (576,525) (451,778)
- --------------------------------------------- ------------ -------------
Total liabilities and shareholders'
equity $2,021,473 $1,541,177
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
Net interest income and margin $27,188 5.9% $20,921 5.9%
- --------------------------------------------- ------------ ------- ----------- -------
- --------------------------------------------- ------------ ------- ----------- -------
Memorandum: Total deposits $1,863,785 $1,414,976
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
</TABLE>
(1) Includes average interest-bearing deposits in other financial institutions
of $315 and $418 for the three months ended June 30, 1997 and 1996,
respectively.
(2) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate of 35% in 1997
and 1996. The tax equivalent adjustments were $106 and $55 for the three
months ended June 30, 1997 and 1996, respectively.
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES, RATES AND YIELDS
- ----------------------------------------------------------------------------------------------------------------------------
For the six months ended June 30,
----------------------------------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
----------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell (1) $ 257,119 $ 6,965 5.5% $ 244,294 $ 6,508 5.4%
Investment securities:
Taxable 597,801 17,747 6.0 330,977 9,214 5.6
Non-taxable (2) 14,519 579 8.0 6,218 311 10.1
Loans:
Commercial 806,457 44,210 11.1 628,884 35,998 11.5
Real estate construction and term 72,802 3,606 10.0 73,820 4,359 11.9
Consumer and other 38,396 1,709 9.0 43,097 1,943 9.1
- --------------------------------------------- ------------------------------------ -------------------------------------
Total loans 917,655 49,525 10.9 745,801 42,300 11.4
- --------------------------------------------- ------------------------------------ -------------------------------------
Total interest-earning assets 1,787,094 74,816 8.4 1,327,290 58,333 8.8
- --------------------------------------------- ------------------------------------ -------------------------------------
Cash and due from banks 159,735 127,408
Allowance for loan losses (36,110) (30,399)
Other real estate owned 1,544 4,464
Other assets 34,693 27,998
- --------------------------------------------- ------------ -------------
Total assets $1,946,956 $1,456,761
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
Funding sources:
Interest-bearing liabilities:
NOW deposits $ 13,789 129 1.9 $ 10,961 126 2.3
Regular money market deposits 337,786 4,519 2.7 304,114 4,092 2.7
Bonus money market deposits 766,875 17,042 4.5 516,290 11,582 4.5
Time deposits 98,074 1,984 4.1 66,101 1,285 3.9
- --------------------------------------------- ------------------------------------ -------------------------------------
Total interest-bearing liabilities 1,216,524 23,674 3.9 897,466 17,085 3.8
Portion of noninterest-bearing
funding sources 570,570 429,824
- --------------------------------------------- ------------------------------------ -------------------------------------
Total funding sources 1,787,094 23,674 2.7 1,327,290 17,085 2.6
- --------------------------------------------- ------------------------------------ -------------------------------------
Noninterest-bearing funding sources:
Demand deposits 574,408 435,052
Other liabilities 13,658 11,280
Shareholders' equity 142,366 112,963
Portion used to fund
interest-earning assets (570,570) (429,824)
- --------------------------------------------- ------------ -------------
Total liabilities and shareholders'
equity $1,946,956 $1,456,761
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
Net interest income and margin $51,142 5.8% $41,248 6.3%
- --------------------------------------------- ------------ ------- ----------- -------
- --------------------------------------------- ------------ ------- ----------- -------
Memorandum: Total deposits $1,790,932 $1,332,518
- --------------------------------------------- ------------ -------------
- --------------------------------------------- ------------ -------------
</TABLE>
(1) Includes average interest-bearing deposits in other financial institutions
of $323 and $310 for the six months ended June 30, 1997 and 1996,
respectively.
(2) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate of 35% in 1997
and 1996. The tax equivalent adjustments were $203 and $109 for the
six months ended June 30, 1997 and 1996, respectively.
15
<PAGE>
Net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as
"volume change." Net interest income is also affected by changes in yields
earned on interest-earning assets and rates paid on interest-bearing
liabilities, referred to as "rate change." The following table sets forth
changes in interest income and interest expense for each major category of
interest-earning assets and interest-bearing liabilities. The table also
reflects the amount of change attributable to both volume and rate changes
for the periods indicated. Changes relating to investments in non-taxable
municipal securities are presented on a fully taxable-equivalent basis using
the federal statutory rate of 35% in 1997 and 1996.
<TABLE>
<CAPTION>
1997 Compared to 1996
-------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
--------------------------------- -------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
--------------------------------- -------------------------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold and securities
purchased under agreement to resell $ (150) $ 192 $ 42 $ 329 $ 128 $ 457
Investment securities 3,903 413 4,316 8,208 593 8,801
Loans 5,625 (231) 5,394 9,158 (1,933) 7,225
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest income 9,378 374 9,752 17,695 (1,212) 16,483
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
NOW deposits 15 (10) 5 25 (22) 3
Regular money market deposits 311 (12) 299 439 (12) 427
Bonus money market deposits 2,673 86 2,759 5,537 (77) 5,460
Time deposits 383 39 422 644 55 699
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense 3,382 103 3,485 6,645 (56) 6,589
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income $5,996 $ 271 $6,267 $11,050 $(1,156) $ 9,894
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest income, on a fully taxable-equivalent basis, totaled $27.2
million for the second quarter of 1997, an increase of $6.3 million, or
30.0%, from the $20.9 million total for the second quarter of 1996. The
increase in net interest income was the result of a $9.8 million, or 32.4%,
increase in interest income, offset by a $3.5 million, or 38.1%, increase in
interest expense over the comparable prior year period.
The $9.8 million increase in interest income for the second quarter of 1997,
as compared to the second quarter of 1996, was the result of a $9.4 million
favorable volume variance combined with a $0.4 million favorable rate
variance. The favorable volume variance resulted from a $447.5 million, or
31.6%, increase in average interest-earning assets over the comparable prior
year period. The increase in average interest-earning assets resulted from
strong growth in the Company's deposits and consisted of an increase in both
loans and investment securities.
The growth in average loans for the 1997 second quarter, which were up $203.5
million, or 26.5%, compared to the second quarter of 1996, was widely
distributed throughout the loan portfolio. This diversified growth was
evidenced by increased average loan balances in many of the Company's market
niches, recently developed products and loan offices opened by the Company
during the past few years.
Average investment securities for the second quarter of 1997 increased $255.4
million, or 69.2%, over the respective prior year period, as excess funds
generated as a result of the aforementioned
16
<PAGE>
deposit growth having exceeded the growth in loans were invested in U.S.
agencies securities, U.S. Treasury securities, mortgage-backed securities,
municipal securities, and commercial paper. The nature of this growth in the
investment portfolio reflected a continuation of Management's recent actions
to both increase the portfolio of longer-term investment securities in an
effort to obtain available higher yields, as well as to further diversify the
Company's portfolio of short-term investments in response to a significant
increase in liquidity. Average federal funds sold and securities purchased
under agreement to resell decreased $11.5 million, or 4.1%, in the second
quarter of 1997 as compared to the 1996 second quarter.
Interest income for the second quarter of 1997 increased $0.4 million from
the comparable prior year period due to a favorable rate variance. The
overall increase in the yield on average interest-earning assets of
approximately 10 basis points for the second quarter of 1997, as compared to
the 1996 second quarter, was primarily centered in investment securities, as
the yield on average investment securities increased largely due to a shift
in the mix of the investment portfolio towards higher-yielding longer-term
investment securities.
Total interest expense in the 1997 second quarter increased $3.5 million from
the second quarter of 1996. This increase was due to an unfavorable volume
variance of $3.4 million and an unfavorable rate variance of $0.1 million.
The unfavorable volume variance resulted from a $322.7 million, or 33.4%,
increase in average interest-bearing liabilities in the second quarter of
1997 as compared with the second quarter of 1996. This increase was largely
concentrated in the Company's bonus money market deposit product, which
increased $237.6 million, or 41.3%, and was explained by high levels of
client liquidity attributable to the continued strong inflow of investment
capital into the venture capital community and into the public equity markets
during 1996 and 1997.
Net interest income, on a fully taxable-equivalent basis, totaled $51.1
million for the first six months of 1997, an increase of $9.9 million, or
24.0%, from the $41.2 million total for the first six months of 1996. The
increase in net interest income was attributable to a $16.5 million, or
28.3%, increase in interest income, offset by a $6.6 million, or 38.6%,
increase in interest expense over the comparable prior year period.
The $16.5 million increase in interest income for the first half of 1997, as
compared to the first half of 1996, was explained by a $17.7 million
favorable volume variance, slightly offset by a $1.2 million unfavorable rate
variance. The favorable volume variance was attributable to growth in average
interest-earning assets, which increased $459.8 million, or 34.6%, from the
prior year comparable period. The increase in average interest-earning assets
resulted from strong growth in the Company's deposits, which were up $458.4
million, or 34.4%, from the comparable prior year period, and primarily
consisted of an increase in both loans and investment securities. The growth
in average loans was widely distributed among the Company's market niches,
recently developed products and loan offices opened by the Company during the
past few years. The growth in average investment securities reflected a
continuation of Management's recent actions to both increase the portfolio of
longer-term investment securities in an effort to obtain available higher
yields, as well as to further diversify the Company's portfolio of short-term
investments in response to a significant increase in liquidity.
The unfavorable rate variance of $1.2 million was the result of an overall
decrease in the yield on average interest-earning assets of approximately 40
basis points for the first six months of 1997, as compared to the respective
prior year period. The decrease in the yield was centered in loans,
17
<PAGE>
as the yield on average loans declined largely due to reduced pricing
resulting from increased competition.
Total interest expense for the first half of 1997 increased $6.6 million from
the first half of 1996. This increase was primarily due to an unfavorable
volume variance of $6.6 million which resulted from a $319.1 million, or
35.6%, increase in average interest-bearing liabilities for the first six
months of 1997 over the comparable prior year period. The growth in average
interest-bearing liabilities was largely concentrated in the Company's bonus
money market deposit product, which increased $250.6 million, or 48.5%, and
was explained by high levels of client liquidity attributable to the
continued strong inflow of investment capital into the venture capital
community and into the public equity markets during 1996 and 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on Management's evaluation of the
adequacy of the existing allowance for loan losses in relation to total
loans, and on Management's periodic assessment of the inherent and identified
risk dynamics of the loan portfolio resulting from reviews of selected
individual loans and loan commitments.
The Company's provision for loan losses totaled $2.6 million for the second
quarter of 1997, a $0.6 million, or 26.8%, increase compared to the $2.1
million provision for the second quarter of 1996. The provision for loan
losses increased $2.4 million, or 66.3%, to a total of $6.0 million for the
first six months of 1997, versus $3.6 million for the comparable 1996 period.
See "Financial Condition - Credit Quality and the Allowance for Loan Losses"
for additional related discussion.
NONINTEREST INCOME
The following table summarizes the components of noninterest income for the
three and six month periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
--------------------------- -------------------------
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Disposition of client warrants $1,082 $1,971 $4,245 $2,262
Letter of credit and foreign exchange income 1,110 855 2,090 1,734
Deposit service charges 407 445 772 841
Investment gains 44 - 45 1
Other 334 283 655 549
- ----------------------------------------------------------------------------------------------------------
Total noninterest income $2,977 $3,554 $7,807 $5,387
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest income decreased $0.6 million, or 16.2%, to a total of $3.0
million in the second quarter of 1997 versus $3.6 million in the prior year
second quarter. The decrease in noninterest income was largely due to a $0.9
million decrease in income from the disposition of client warrants, partially
offset by a $0.3 million increase in letter of credit fees, foreign exchange
fees and other trade finance income. Noninterest income totaled $7.8 million
for the first six months of 1997, an increase of $2.4 million, or 44.9%, from
the $5.4 million total in the comparable prior year period. This increase was
largely due to a $2.0 million increase in income from the disposition of
client warrants and a $0.4 million increase in letter of credit fees, foreign
exchange fees and other trade finance income.
18
<PAGE>
Income from the disposition of client warrants totaled $1.1 million in the
second quarter of 1997 and $4.2 million for the first six months of 1997
versus $2.0 million and $2.3 million for the respective 1996 periods. The
Company has historically obtained rights to acquire stock (in the form of
warrants) in certain clients as part of negotiated credit facilities. The
receipt of warrants does not change the loan covenants or other collateral
control techniques employed by the Company to mitigate the risk of a loan
becoming nonperforming. Interest rates, loan fees and collateral requirements
on loans with warrants are similar to lending arrangements where warrants are
not obtained. The timing and amount of income from the disposition of client
warrants typically depends upon factors beyond the control of the Company,
including the general condition of the public equity markets, and therefore
cannot be predicted with any degree of accuracy and is likely to vary
materially from period to period. During the first six months of 1997, as
well as throughout 1996, a significant portion of the income realized by the
Company from the disposition of client warrants was offset by expenses
related to the Company's efforts to build an infrastructure sufficient to
support present and prospective business activities, as well as evaluate and
pursue new business opportunities, and was also offset by the need to
increase the provision for loan losses during those periods. As opportunities
present themselves in future periods, the Company may continue to reinvest
some or all of the income realized from the disposition of client warrants in
furthering the execution of its business strategies.
Letter of credit fees, foreign exchange fees and other trade finance income
increased to a total of $1.1 million during the 1997 second quarter, and
totaled $2.1 million for the first six months of 1997, compared to $0.9
million for the 1996 second quarter and $1.7 million for the first six months
of 1996. The growth in this category of noninterest income reflects a
concerted effort by Management to expand the penetration of trade
finance-related products and services among the Company's client base, a
large percentage of which provide products and services in international
markets.
Deposit service charges totaled $0.4 million and $0.8 million for the three
and six month periods ended June 30, 1997, respectively, as well as for the
three and six month periods ended June 30, 1996, respectively. Clients
compensate the Company for depository services either through earnings
credits computed on their demand deposit balances, or via explicit payments
recognized by the Company as deposit service charges income.
The Company realized a nominal gain on sales of investment securities for
both the three and six month periods ended June 30, 1997. The Company
reported no gains or losses on sales of investment securities in the second
quarter of 1996 and realized a nominal gain on sales of investment securities
during the first six months of 1996. All investment securities sold were
classified as available-for-sale, and all sales were conducted as a normal
component of the Company's asset/liability and liquidity management
activities.
Other noninterest income, which largely consists of service-based fee income,
totaled $0.3 million and $0.7 million for the three and six month periods
ended June 30, 1997, compared to $0.3 million and $0.5 million for the
respective prior year periods. The increase during 1997 was primarily due to
increased fees associated with cash management services provided to the
Company's client base.
19
<PAGE>
NONINTEREST EXPENSE
Noninterest expense in the second quarter of 1997 totaled $15.8 million, a
$2.8 million, or 21.6%, increase from the $13.0 million incurred in the
comparable 1996 period. Noninterest expense totaled $30.4 million for the
first six months of 1997, an increase of $4.7 million, or 18.1%, over the
$25.7 million total for the comparable 1996 period. Management closely
monitors the level of noninterest expense using a variety of financial
ratios, including the efficiency ratio. The efficiency ratio is calculated by
dividing the amount of noninterest expense, excluding costs associated with
other real estate owned, by adjusted revenues, defined as the total of net
interest income and noninterest income, excluding income from the disposition
of client warrants and gains or losses related to sales of investment
securities. This ratio reflects the level of operating expense required to
generate $1 of operating revenue. The Company's efficiency ratio improved to
54.3% for the 1997 second quarter, down from 58.3% for the second quarter of
1996. The Company's efficiency ratio for the first six months of 1997 was
55.8%, versus 57.4% for the comparable 1996 period. The following tables
present the detail of noninterest expense and the incremental contribution of
each line item to the Company's efficiency ratio:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
------------------------ ----------------------
Percent of Percent of
Adjusted Adjusted
(Dollars in thousands) Amount Revenues Amount Revenues
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation and benefits $ 9,420 32.6% $ 7,557 33.7%
Professional services 1,695 5.9 1,251 5.6
Business development and travel 1,026 3.5 725 3.2
Net occupancy expense 891 3.1 774 3.4
Furniture and equipment 763 2.6 939 4.2
Advertising and promotion 450 1.6 325 1.4
Postage and supplies 342 1.2 372 1.7
Telephone 330 1.1 291 1.3
Other 803 2.8 850 3.8
- -----------------------------------------------------------------------------------------------
Total, excluding cost of other real
estate owned 15,720 54.3% 13,084 58.3%
Cost of other real estate owned 34 (124)
- -----------------------------------------------------------------------------------------------
Total noninterest expense $15,754 $12,960
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
------------------------ ----------------------
Percent of Percent of
Adjusted Adjusted
(Dollars in thousands) Amount Revenues Amount Revenues
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation and benefits $18,476 33.9% $15,345 34.7%
Professional services 3,131 5.7 2,209 5.0
Business development and travel 1,986 3.6 1,278 2.9
Net occupancy expense 1,653 3.0 1,624 3.7
Furniture and equipment 1,424 2.6 1,592 3.6
Advertising and promotion 728 1.3 630 1.4
Postage and supplies 702 1.3 749 1.7
Telephone 634 1.2 601 1.4
Other 1,660 3.0 1,394 3.1
- -----------------------------------------------------------------------------------------------
Total, excluding cost of other real
estate owned 30,394 55.8% 25,422 57.4%
Cost of other real estate owned 26 326
- -----------------------------------------------------------------------------------------------
Total noninterest expense $30,420 $25,748
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Compensation and benefits expenses totaled $9.4 million in the second quarter
of 1997, a $1.9 million, or 24.7%, increase over the $7.6 million incurred in
the second quarter of 1996. For the first six months of 1997, compensation
and benefits expenses totaled $18.5 million, an increase of $3.1 million, or
20.4%, over the $15.3 million total for the comparable 1996 period. The 1997
increase in compensation and benefits expenses was largely the result of an
increase in the number of average full-time equivalent (FTE) staff employed
by the Company. Average FTE were 402 and 397 for the three and six month
periods ended June 30, 1997, compared to 355 and 353 for the respective prior
year periods. The increase in FTE was primarily due to a combination of the
Company's efforts: to develop and support new markets through geographic
expansion, to develop and expand recently developed as well as previously
existing products and niches, and to build an infrastructure sufficient to
support present and prospective business activities. Further growth in the
Company's FTE is likely to occur during future years as a result of the
continued expansion of the Company's business activities.
Professional services expenses, which consist of costs associated with legal
consultation, accounting and auditing, consulting, and directors fees,
totaled $1.7 million in the second quarter of 1997, a $0.4 million, or 35.5%,
increase from the $1.3 million incurred in the second quarter of 1996.
Professional services expenses totaled $3.1 million for the first six months
of 1997, an increase of $0.9 million, or 41.7%, versus $2.2 million for the
comparable 1996 period. The increase in professional services expenses in
1997 primarily relates to the timing of accounting and auditing expenses, an
increase in legal fees related to credit workouts and a $0.4 million gain in
the 1996 second quarter related to a legal settlement.
Business development and travel expenses totaled $1.0 million and $2.0
million for the three and six month periods ended June 30, 1997, an increase
of $0.3 million, or 41.5%, and $0.7 million, or 55.4%, compared to the $0.7
million and $1.3 million totals for the comparable 1996 periods. The increase
in business development and travel expenses reflects the Company's expansion
during recent quarters into new geographic markets combined with continued
business activities.
21
<PAGE>
Net occupancy, furniture and equipment expenses totaled $1.7 million for both
the second quarter of 1997 and 1996 and $3.1 million and $3.2 million for the
first six months of 1997 and 1996, respectively. In July 1997, the Bank
finalized an amendment to the original lease related to the Company's
headquarters facility located at 3003 Tasman Drive in Santa Clara,
California. The amendment provides for the leasing of additional premises,
approximating 56,000 square feet, adjacent to the existing headquarters
facility. Construction of the interior of the building is projected to begin
shortly after the later of December 1, 1997 or the date that the current
tenant vacates the premises. Assuming a build-out period of four months, the
Bank could begin occupying the additional premises in April 1998, with
additional future minimum rental payments of approximately $0.8 million for
1998, $1.1 million per year for 1999 through 2001, $1.2 million per year for
2002 through 2003, $1.3 million in the year 2004, and $0.6 million in the
year 2005. The Company expects to incur other occupancy, furniture and
equipment expenses in future periods associated with the construction,
furnishing and maintenance of the additional premises, in addition to the
future minimum rental payments detailed above.
Other noninterest expenses totaled $0.8 million and $0.9 million for the
second quarter of 1997 and 1996, respectively. For the first half of 1997,
other noninterest expenses increased $0.3 million, or 19.1%, to a total of
$1.7 million compared to $1.4 million for the first half of 1996. This
increase was largely due to both the timing of reimbursements related to
client services and an increase in costs associated with certain vendor
provided services.
Costs incurred during the second quarter of 1997 associated with other real
estate owned (OREO) increased $0.2 million from the comparable prior year
period, primarily due to a gain realized in the second quarter of 1996 on the
sale of one property. For the first six months of 1997, OREO costs incurred
decreased $0.3 million from the first half of 1996, primarily due to the
write-down in the first quarter of 1996 of one property owned by the Company,
partially offset by the aforementioned gain realized in the second quarter of
1996 on the sale of one property. The Company's net costs associated with
OREO include: maintenance expenses, property taxes, marketing costs, net
operating expense or income associated with income-producing properties,
property write-downs, and gains or losses on the sales of such properties.
INCOME TAXES
The Company's effective tax rate was 42.0% in both the three and six month
periods ended June 30, 1997, compared to 40.0% in the comparable prior year
periods. The increase in the Company's effective income tax rate was
attributable to adjustments in the Company's estimate of its tax liabilities.
FINANCIAL CONDITION
The Company's total assets were $2.2 billion at June 30, 1997 compared to
$1.9 billion at December 31, 1996.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell totaled
$365.3 million at June 30, 1997, an increase of $55.0 million, or 17.7%,
compared to the $310.3 million total at December 31, 1996. The balance of
federal funds sold and securities purchased under agreement to resell at June
30, 1997 was significantly higher than the average balance for both the
second quarter and the first half of 1997, and was attributable to the
Company investing excess funds,
22
<PAGE>
resulting from a combination near quarter end of strong growth in deposits
coupled with a reduction of noninterest-bearing cash accounts, in these types
of short-term, liquid investments.
INVESTMENT SECURITIES
Investment securities totaled $693.8 million at June 30, 1997. This
represented a $68.8 million, or 11.0%, increase over the December 31, 1996
balance of $625.0 million. The increase in investment securities was related
to the strong growth in the Company's total deposits during the first half of
1997, and was primarily centered in U.S. Treasury securities and
mortgage-backed securities, partially offset by a decrease in U.S. agencies
securities. This growth reflected a continuation of Management's recent
actions to both increase the portfolio of longer-term investment securities
in an effort to obtain available higher yields, as well as to further
diversify the Company's portfolio of short-term investments in response to a
significant increase in liquidity.
LOANS
Total loans, net of unearned income, at June 30, 1997 were in excess of $1.0
billion, a $174.7 million, or 20.2%, increase compared to the roughly $0.9
billion total at December 31, 1996. The increase in loans from the 1996
year-end total was widely distributed throughout the loan portfolio. This
diversified growth was evidenced by increased quarter end loan balances in
many of the Company's market niches, recently developed products and loan
offices opened by the Company during the past few years.
CREDIT QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
Credit risk is defined as the possibility of sustaining a loss because other
parties to the financial instrument fail to perform in accordance with the
terms of the contract. While the Bank follows underwriting and credit
monitoring procedures which it believes are appropriate in growing and
managing the loan portfolio, in the event of nonperformance by these other
parties, the Bank's potential exposure to credit losses could significantly
affect the Company's consolidated financial position, earnings and growth.
Lending money involves an inherent risk of nonpayment. Through the
administration of loan policies and monitoring of the portfolio, Management
seeks to reduce such risks. The allowance for loan losses is an estimate to
provide a financial buffer for losses, both identified and unidentified, in
the loan portfolio.
Management regularly reviews and monitors the loan portfolio to determine the
risk profile of each credit, and to identify credits whose risk profiles have
changed. This review includes, but is not limited to, such factors as payment
status, the financial condition of the borrower, borrower compliance with
loan covenants, underlying collateral values, potential loan concentrations,
and general economic conditions. Potential problem credits are identified
and, based upon known information, action plans are developed.
The allowance for loan losses totaled $37.3 million at June 30, 1997, an
increase of $4.6 million, or 14.1%, compared to the $32.7 million balance at
December 31, 1996. This increase was due to $6.0 million in additional
provisions to the allowance for loan losses, offset by net charge-offs of
$1.4 million for the first six months of 1997. Gross charge-offs for the
first six months of 1997 were $3.2 million and included charge-offs of $1.6
million related to one commercial credit. In
23
<PAGE>
August 1997, the Company realized a $0.7 million recovery and a related
reduction in nonperforming loans in excess of $3.0 million as a result of a
sale of a portion of the underlying collateral in the above-mentioned
commercial credit.
In general, Management believes the allowance for loan losses is adequate as
of June 30, 1997. However, future changes in circumstances, economic
conditions or other factors could cause Management to increase or decrease
the allowance for loan losses as deemed necessary.
Nonperforming assets consist of loans that are past due 90 days or more but
still accruing interest, loans on nonaccrual status and OREO. The table below
sets forth certain relationships between nonperforming loans, nonperforming
assets and the allowance for loan losses:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Dollars in thousands) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming assets:
Loans past due 90 days or more $ 85 $ 8,556
Nonaccrual loans 15,167 14,581
- ---------------------------------------------------------------------------------------
Total nonperforming loans 15,252 23,137
OREO 1,136 1,948
- ---------------------------------------------------------------------------------------
Total nonperforming assets $16,388 $25,085
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans 1.5% 2.7%
OREO as a percentage of total assets 0.1% 0.1%
Nonperforming assets as a percentage of total assets 0.7% 1.3%
Allowance for loan losses: $37,300 $32,700
As a percentage of total loans 3.6% 3.8%
As a percentage of nonaccrual loans 245.9% 224.3%
As a percentage of nonperforming loans 244.6% 141.3%
</TABLE>
Nonperforming loans totaled $15.3 million, or 1.5% of total loans, at June
30, 1997. This represented a decrease of $7.9 million, or 34.1%, compared to
$23.1 million, or 2.7% of total loans, at December 31, 1996. The decrease
from the prior year end was primarily due to the first quarter 1997 payoff by
the Export-Import Bank of the U.S. of one credit in excess of $8.0 million
that was more than 90 days past due as of December 31, 1996.
In addition to the loans disclosed in the foregoing analysis, Management has
identified four loans with principal amounts aggregating approximately $10.0
million, that, on the basis of information known by Management as of June 30,
1997, were judged to have a higher than normal risk of becoming
nonperforming. The Company is not aware of any other loans at June 30, 1997
where known information about possible problems of the borrower casts serious
doubts about the ability of the borrower to comply with the loan repayment
terms.
OREO totaled $1.1 million at June 30, 1997, a decrease of $0.8 million, or
41.7%, from the $1.9 million balance at December 31, 1996. The OREO balance
at June 30, 1997 was composed of two properties, each consisting of multiple
undeveloped lots, and each acquired prior to June 1993. The decrease in the
OREO balance during the first six months of 1997 resulted from sales of lots
related to one of the aforementioned properties.
24
<PAGE>
DEPOSITS
Total deposits were $2.1 billion at June 30, 1997, an increase of $280.7
million, or 15.8%, from the prior year-end total of $1.8 billion. Although
each category of the Company's deposit portfolio experienced growth during
the first half of 1997, the largest portion of this increase was in the
Company's bonus money market deposit product, which increased $211.7 million,
or 28.0%, to $1.0 billion at June 30, 1997. The increase in the Company's
bonus money market deposit product was explained by high levels of client
liquidity attributable to the continued strong inflow of investment capital
into the venture capital community and into the public equity markets during
1996 and 1997.
LIQUIDITY
The objective of liquidity management is to ensure that funds are available
in a timely manner to meet loan demand and depositors' needs, and to service
other liabilities as they come due, without causing an undue amount of cost
or risk, and without causing a disruption to normal operating conditions.
The Company regularly assesses the amount and likelihood of projected funding
requirements through a review of factors such as historical deposit
volatility and funding patterns, present and forecasted market and economic
conditions, individual client funding needs, and existing and planned Company
business activities. The asset/liability committee of the Bank provides
oversight to the liquidity management process and recommends policy
guidelines, subject to Board of Directors approval, and courses of action to
address the Company's actual and projected liquidity needs.
The ability to attract a stable, low-cost base of deposits is the Company's
primary source of liquidity. Other sources of liquidity available to the
Company include short-term borrowings, which consist of federal funds
purchased, security repurchase agreements and other short-term borrowing
arrangements. The Company's liquidity requirements can also be met through
the use of its portfolio of liquid assets. Liquid assets, as defined, include
cash and cash equivalents in excess of the minimum levels necessary to carry
out normal business operations, federal funds sold, securities purchased
under resale agreements, investment securities maturing within six months,
investment securities eligible and available for pledging purposes with a
maturity in excess of six months, and anticipated near term cash flows from
investments.
Company policy guidelines provide that liquid assets as a percentage of total
deposits should not fall below 20.0%. At June 30, 1997, the Company's liquid
assets as a percentage of total deposits were 49.8%, compared to 47.3% at
December 31, 1996. These ratios are well in excess of the Company's minimum
policy guidelines and were largely due to increased balances in short-term,
liquid investment securities that primarily resulted from the strong growth
in deposits experienced by the Company, which exceeded the growth in loans,
during 1996 and 1997.
25
<PAGE>
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support anticipated asset
growth and credit risks, and to ensure that the Company is in compliance with
all regulatory capital guidelines. The primary source of new capital for the
Company has been the retention of earnings. Aside from current earnings, an
additional source of new capital for the Company has been the issuance of
common stock under the Company's employee benefit plans, including the
Company's stock option plans, employee stock ownership plan and employee
stock purchase plan.
Shareholders' equity totaled $150.7 million at June 30, 1997, an increase of
$15.3 million from the $135.4 million balance at December 31, 1996. This
increase resulted from net income of $13.0 million combined with capital
generated through the Company's employee benefit plans of $4.5 million,
offset by a decrease in the after-tax net unrealized gain on
available-for-sale investments of $2.2 million from the prior year end, as
the Company sold common stock acquired from the 1996 exercise of a warrant in
one client of the Bank and realized approximately $1.8 million in after-tax
warrant-related income in the first quarter of 1997.
The Company is subject to capital adequacy guidelines issued by the Federal
Reserve Board. Under these capital guidelines, the minimum total risk-based
capital and Tier 1 risk-based capital requirements are 10.0% and 6.0% of
risk-weighted assets and certain off-balance sheet items, respectively, for a
"well capitalized" depository institution.
The Federal Reserve Board has also established minimum capital leverage ratio
guidelines for state member banks. The ratio is determined using Tier 1
capital divided by quarterly average total assets. The guidelines require a
minimum of 5.0% for a well capitalized depository institution.
The Company's risk-based capital ratios were in excess of regulatory
guidelines for a well capitalized depository institution as of June 30, 1997
and December 31, 1996. Capital ratios for the Company are set forth below:
- --------------------------------------------------------------------------
June 30, December 31,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------
Total risk-based capital ratio 11.6% 11.5%
Tier 1 risk-based capital ratio 10.3% 10.2%
Tier 1 leverage ratio 7.4% 7.7%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The improvement in the Company's total risk-based capital ratio and Tier 1
risk-based capital ratio from December 31, 1996 to June 30, 1997 was
attributable to an increase in Tier 1 capital, partially offset by an
increase in the lower risk-weighted asset categories primarily due to
increased balances in short-term, liquid investment securities resulting from
deposit growth exceeding loan growth during the first half of 1997. The
increase in Tier 1 capital was largely due to the aforementioned net income
and capital generated through the Company's employee benefit plans during the
first six months of 1997. The decrease in the Company's Tier 1 leverage ratio
from December 31, 1996 to June 30, 1997 primarily resulted from an increase
in average total assets during the first six months of 1997.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There were no legal proceedings requiring disclosure pursuant to this item
pending at June 30, 1997, or at the date of this report.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on April 17, 1997. Each of the
persons named in the Proxy Statement as a nominee for director was elected;
the Silicon Valley Bancshares 1997 Equity Incentive Plan and options
previously granted thereunder were ratified and approved; and the appointment
of KPMG Peat Marwick LLP as the Company's independent auditors for 1997 was
ratified. The following are the voting results on each of these matters:
Election of Directors In Favor Withheld
- --------------------- -------- --------
Gary K. Barr 8,424,675 28,543
James F. Burns, Jr. 8,424,805 28,413
John C. Dean 8,424,888 28,330
David M. deWilde 8,424,888 28,330
Clarence J. Ferrari, Jr., Esq. 8,424,888 28,330
Daniel J. Kelleher 8,340,583 112,635
James R. Porter 8,424,888 28,330
Michael Roster, Esq. 8,424,688 28,530
Ann R. Wells 8,342,253 110,965
Other Matters In Favor Opposed Abstained Non-Votes
- ------------- -------- ------- --------- ---------
Ratify and approve the Silicon
Valley Bancshares 1997 Equity
Incentive Plan and options
previously granted thereunder 4,731,655 1,882,726 25,214 2,895,230
Ratification of the appointment of
KPMG Peat Marwick LLP as the
Company's independent auditors
for 1997 8,421,267 16,107 15,844 -
27
<PAGE>
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.2 Bylaws of the Company, as amended
10.17(a) First amendment to lease outlined in Exhibit 10.17
incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
10.34 Silicon Valley Bancshares 1997 Equity Incentive Plan
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1997.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SILICON VALLEY BANCSHARES
Date: August 13, 1997 /s/ Christopher T. Lutes
-------------------------------------
Christopher T. Lutes
Senior Vice President and Controller
(Principal Accounting Officer)
29
<PAGE>
BYLAWS
OF
SILICON VALLEY BANCSHARES
AMENDMENT AND RESTATEMENT EFFECTIVE AS OF THE DATE OF
OBTAINING SHAREHOLDER APPROVAL ON APRIL 18, 1996
ARTICLE I
Offices
Section 1.1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of this corporation (the "Corporation") is hereby fixed and located at
3000 Lakeside Drive, Santa Clara, California. The Board of Directors (the
"Board") is hereby granted full power and authority to change the principal
executive office from one location to another. Any such change shall be
noted in the Bylaws by the Secretary, opposite this Section, or this Section
may be amended to state the new location.
Section 1.2. OTHER OFFICES. Other branch offices or places of
business may at any time be established by the Board at any place or places
deemed appropriate.
ARTICLE II
Meetings of Shareholders
Section 2.1. PLACE OF MEETINGS. All annual or other meetings of
shareholders shall be held at the principal executive office of the
Corporation, or at any other place which may be designated either by the
Board or by the written consent of all persons entitled to vote thereat given
either before or after the meeting and filed with the Secretary of the
Corporation.
Section 2.2. ANNUAL MEETINGS.
(a) TIME. The Annual Meeting of shareholders shall be held each
year on a date and at a time designated by the Board. The date so designated
shall be within fifteen months after the last Annual Meeting.
(b) BUSINESS TO BE TRANSACTED. At each Annual Meeting, directors
shall be elected, reports of the affairs of the Corporation shall be
considered and any other business may be transacted which is within the
powers of the shareholders.
(c) NOTICE. Written notice of each Annual Meeting shall be given to
each shareholder entitled to vote, either personally or by first class mail or
other means of written communication, charges prepaid, addressed to such
shareholder at such shareholder's address appearing on the books of the
Corporation, or given by the shareholder to the Corporation for the purpose of
notice, or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which
<PAGE>
the principal executive office is located. If any notice or report addressed
to the shareholder at the address of such shareholder appearing on the books
of the Corporation is returned to the Corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice or report to the shareholder at such address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available for the shareholder upon written
demand of the shareholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the
notice or report to all other shareholders. If a shareholder gives no
address, notice shall be deemed to have been given to the shareholder if sent
by mail or other means of written communication addressed to the place where
the principal executive office of the Corporation is located, or if published
at least once in some newspaper of general circulation in the county in which
the principal executive office is located.
All notices shall be given to each shareholder entitled thereto not
less than ten (10) days nor more than sixty (60) days before each Annual
Meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of
written communication. An affidavit of mailing of any such notice in
accordance with the foregoing provisions, executed by the Secretary,
Assistant Secretary or any transfer agent of the Corporation shall be prima
facie evidence of the giving of the notice. Such notices shall specify:
(i) the place, the date and the hour of each meeting;
(ii) those matters which the Board, at the time of the mailing
of the notice, intends to present for action by the shareholders;
(iii) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by the Board for election;
(iv) the general nature of a proposal, if any, to take action
with respect to approval of: (a) a contract or other transaction with an
interested director, (b) amendment of the Articles of Incorporation, (c) a
reorganization of the Corporation as defined in Section 181 of the California
General Corporation Law, (d) a voluntary dissolution of the Corporation, or
(e) a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and
(v) such other matters, if any, as may be required by law.
Section 2.3. SPECIAL MEETINGS. Special meetings of the
shareholders, for the purpose of taking any action permitted by the
shareholders under the California General Corporation Law and the Articles of
Incorporation of the Corporation, may be called at any time by the Chairman
of the Board or the President, or by the Board, or by one or more
shareholders holding not less than ten percent (10%) of the votes entitled to
be cast at the meeting. Upon request in writing that a special meeting of
shareholders be called for any purpose, directed to the Chairman of the
Board, President, Vice President or Secretary by any person (other than the
Board) entitled to call a special meeting of shareholders, the officer
forthwith shall cause notice to be given to shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other
express provision is made by statute, notice of special meetings shall be
given in the same manner as for annual meetings of
<PAGE>
shareholders. In addition to the matters required by items (i), and if
applicable, (ii) and (iii) of the preceding Section, notice of any special
meeting shall specify the general nature of the business to be transacted,
and no other business may be transacted at such meeting.
Section 2.4. QUORUM. The presence in person or by proxy of the
persons entitled to vote a majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
Section 2.5. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
shareholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of a majority of the shares,
the holders of which are either present in person or represented by proxy
thereat, but in the absence of a quorum no other business may be transacted
at such meeting, except as provided in Section 2.4 above.
When any shareholders' meeting, either annual or special, is
adjourned for forty-five (45) days or more, or if after adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting. Except as
provided above, it shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement of the time and place thereof at the meeting at
which such adjournment is taken.
Section 2.6. VOTING. Unless a record date for voting purposes be
fixed as provided in Section 5.1 of these Bylaws, then, subject to the
provisions of Sections 702 through 704 of the California Corporations Code
(relating to voting of shares held by a fiduciary, in the name of a
corporation or in joint ownership), only persons in whose names shares
entitled to vote stand on the stock records of the Corporation at the close
of business on the business day next preceding the day on which notice of the
meeting is given or if such notice is waived, at the close of business on the
business day next preceding the day on which the meeting of shareholders is
held, shall be entitled to vote at such meeting, and such day shall be the
record date for such meeting. Such vote may be oral or by ballot; provided,
however, that all elections for directors must be by ballot upon demand made
by a shareholder at any election and before the voting begins. If a quorum
is present, except with respect to election of directors, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter (which shares voting affirmatively also constitute at
least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the California General Corporation Law or the Articles of
Incorporation. Subject to the requirements of the next sentence, every
shareholder entitled to vote at any election for directors shall have the
right to cumulate such shareholder's votes and give one candidate a number of
votes equal to the number of directors to be elected, multiplied by the
number of votes to which such shareholder's shares are entitled, or to
distribute his or her votes on the same principal among as many candidates as
the shareholder shall think fit. No shareholder shall be entitled to
cumulate votes unless the name of the candidate or candidates for whom the
votes would be cast has been placed in nomination prior to the voting and at
least one shareholder has given notice at the meeting, prior to the voting,
of the shareholder's intention to cumulate his or
<PAGE>
her votes. The candidates receiving the highest number of affirmative votes
of shares entitled to be voted for them, up to the number of directors to be
elected, shall be elected. Votes against the directors and votes withheld
shall have no legal effect.
Section 2.7. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though
had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy signs a waiver of notice or a consent to the holding of the meeting, or
an approval of the minutes thereof. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of shareholders, except that if action is taken or proposed
to be taken for approval of any of those matters specified in Section
2.2(c)(iv) of these Bylaws, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Section 2.8. ACTION WITHOUT MEETING.
(a) ELECTION OF DIRECTORS. Directors may be elected without a
meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of
directors, provided that, without notice, except as hereinafter set forth, a
director may be elected at any time to fill a vacancy (other than one created
by removal) not filled by the directors, by the written consent of persons
holding a majority of the outstanding shares entitled to vote for the
election of directors.
(b) OTHER ACTION. Any other action which, under any provision of
the California General Corporation Law, may be taken at a meeting of the
shareholders, may be taken without a meeting, and without prior notice except
as hereinafter set forth, if a consent in writing, setting forth the action
so taken, is signed by the holders of outstanding shares having not less than
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Unless the consents of all shareholders entitled to vote have
been solicited in writing:
(i) Notice of any proposed shareholder approval of (a) a
contract or other transaction with an interested director, (b)
indemnification of an agent of the Corporation as authorized by Section 3.17
of these Bylaws, (c) a reorganization of the Corporation as defined in
Section 181 of the California General Corporation Law, or (d) a distribution
in dissolution other than in accordance with the rights of outstanding
preferred shares, if any, without a meeting by less than unanimous written
consent, shall be given at least ten (10) days before the consummation of the
action authorized by such approval; and
<PAGE>
(ii) Prompt notice shall be given at the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have
not consented in writing. Such notices shall be given as provided in Section
2.2(c) of these Bylaws.
Unless, as provided in Section 5.1 of these Bylaws, the Board has
fixed a record date for the determination of shareholders entitled to notice
of and to give such written consent, the record date for such determination
shall be the day on which the first written consent is given. All such
written consents shall be filed with the Secretary of the Corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares, or a personal representative of
the shareholder, or their respective proxyholders, may revoke the consent by
a writing received by the Corporation prior to the time that written consents
by the number of shares required to authorize the proposed action have been
filed with the Secretary of the Corporation, but may not do so thereafter.
Such revocation is effective upon its receipt by the Secretary of the
Corporation.
Section 2.9. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy. A proxy may be in the form of a written
authorization signed or an electronic transmission authorized by a
shareholder or the shareholder's agent. A proxy may be transmitted by an
oral telephonic transmission if it is submitted with information from which
it may be determined that the proxy was authorized by the shareholder or the
shareholder's agent. Any proxy duly executed is not revoked and continues in
full force and effect until (i) an instrument revoking it or a duly executed
proxy bearing a later date is filed with the Secretary of the Corporation
prior to the vote pursuant thereto, (ii) the person executing the proxy
attends the meeting and votes in person, or (iii) written notice of the death
or incapacity of the maker of such proxy is received by the Corporation
before the vote pursuant thereto is counted; provided, that no such proxy
shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the person executing it specifies therein the length of
time for which said proxy is to continue in force.
Section 2.10. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act,
the Chairman of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election
(or persons to replace those who so fail or refuse) at the meeting. The
number of inspectors shall be either one or three. If appointed at a meeting
on the request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.
The duties of the inspectors shall be as prescribed in Section 707
of the California General Corporation Law and shall include: (i) determining
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; (ii) receiving votes, ballots or consents;
(iii) hearing and determining all challenges and questions in any way arising
in connection with the right to vote; (iv) counting and tabulating all votes
<PAGE>
or consents; (v) determining when the polls shall close; (vi) determining the
result; and (vii) such other acts as may be proper to conduct the election or
vote with fairness to all shareholders. In the determination of the validity
and effect of proxies, the dates contained on the forms of proxy shall
presumptively determine the order of execution on the proxies, regardless of
postmark dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially,
in good faith, to the best of their ability and as expeditiously as is
practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Section 2.11. NOMINATION OF DIRECTORS. Nominations for election of
members of the Board may be made by the Board or by any shareholder of any
outstanding class of capital stock of the Corporation entitled to vote for
the election of directors. Notice of intention to make any nominations
(other than for persons named in the notice of the meeting at which such
nomination is to be made) shall be made in writing and shall be delivered or
mailed to the Secretary of the Corporation by the later of: the close of
business twenty-one (21) days prior to any meeting of shareholders called for
election of directors, or ten (10) days after the date of mailing notice of
the meeting to shareholders. Such notification shall contain the following
information to the extent known to the notifying shareholder: (i) the name
and address of each proposed nominee; (ii) the principal occupation of each
proposed nominee; (iii) the number of shares of capital stock of the
Corporation owned by each proposed nominee; (iv) the name and residence
address of the notifying shareholder; (v) the number of shares of capital
stock of the Corporation owned by the notifying shareholder; and (vi) with
the written consent of the proposed nominee, a copy of which shall be
furnished with the notification, whether the proposed nominee has ever been
convicted of or pleaded nolo contendere to any criminal offense involving
dishonesty or breach of trust, filed a petition in bankruptcy or been
adjudged bankrupt. The notice shall be signed by the nominating shareholder
and by the nominee. Nominations not made in accordance herewith shall be
disregarded by the Chairman of the meeting, and upon the Chairman's
instructions, the inspectors of election shall disregard all votes cast for
each such nominee. The restrictions set forth in this paragraph shall not
apply to nomination of a person to replace a proposed nominee who has died or
otherwise become incapacitated to serve as a director between the last day
for giving notice hereunder and the date of election of directors if the
procedure called for in this paragraph was followed with respect to the
nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice
to shareholders of any meeting at which directors are to be elected.
ARTICLE III
Directors
Section 3.1. POWERS. Subject to limitation of the Articles of
Incorporation and of the California General Corporation Law as to action to
be authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by the Bylaws, and subject to the rules and
regulations as may be promulgated from time to time by applicable regulatory
authorities, all corporate powers shall be exercised by or under
<PAGE>
the authority of, and the business and affairs of the Corporation shall be
controlled by, the Board.
Section 3.2 - NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of directors of the Corporation shall not
be less than eight (8) nor more than fifteen (15) until changed by amendment
of the Articles of Incorporation or by a bylaw amending this Section 3.2 duly
adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote, provided that a proposal to reduce the
authorized minimum number of directors below five cannot be adopted. The
exact number of directors shall be fixed from time to time, within the limits
specified in this Section 3.2: (i) by a resolution duly adopted by the
Board; (ii) by a Bylaw or amendment thereof duly adopted by the vote of a
majority of the outstanding shares entitled to vote; or (iii) by approval of
the shareholders (as defined in Section 153 of the California General
Corporation Law). No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one.
Subject to the foregoing provision for changing the number of
directors, the number of directors of this Corporation has been fixed at nine
(9).
Section 3.3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of shareholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors
may be elected at any special meeting of shareholders held for that purpose
or by written consent in accordance with Section 2.8 of these Bylaws. All
directors shall hold office until their respective successors are elected,
subject to the California General Corporation Law and the provisions of these
Bylaws with respect to vacancies on the Board.
Section 3.4 [RESERVED].
Section 3.5. REMOVAL OF DIRECTORS. The entire Board or any
individual director may be removed from office by a vote of shareholders
holding a majority of the outstanding shares entitled to vote at an election
of directors. A material breach of the Corporation's Code of Ethics or a
director's failure to attend at least seventy-five percent (75%) of the Board
meetings held during the director's term of office may constitute grounds for
removal. However, unless the entire Board is removed, no individual director
may be removed when the votes cast against removal, or not consenting in
writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if such action is taken by written consent, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected.
An individual shall not stand for election or re-election to the Board if
such individual will have attained the age of 75 years on or before the date
of the shareholders' meeting where the individual would have been standing
for election (or re-election).
<PAGE>
Section 3.6. VACANCIES. A vacancy in the Board shall be deemed to
exist (i) in case of the death, resignation or removal of any director, (ii)
if a director has been declared of unsound mind by order of court or
convicted of a felony, (iii) if the authorized number of directors be
increased, or (iv) if the shareholders fail, at any annual or special meeting
of shareholders at which any director or directors are elected, to elect the
full authorized number of directors to be voted for at that meeting.
Vacancies in the Board, except for a vacancy created by the removal
of a director, may be filled by a majority of the remaining directors, though
less than a quorum or by a sole remaining director, and each director so
elected shall hold office until his or her successor is elected at an annual
or a special meting of the shareholders. A vacancy in the Board created by
the removal of a director may only be filled by the vote of a majority of the
shares entitled to vote represented at a duly held meeting at which a quorum
is present, or by the written consent of the holders of all of the
outstanding shares.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors. Any such election
by written consent (except to fill a vacancy created by removal) shall
require the consent of holders of a majority of the outstanding shares
entitled to vote.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of the
Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the Board accepts the resignation of a director
tendered to take effect at a future time, the Board or the shareholders shall
have the power to elect a successor to take office when the resignation is to
become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his or her term of
office.
Section 3.7. FREQUENCY AND PLACE OF MEETING. The Board shall hold
a meeting at least once each calendar quarter. Regular meetings of the Board
shall be held at any place and time which has been designated from time to
time by resolution of the Board or by written consent of all members of the
Board. In the absence of such designation, regular meetings shall be held at
the principal executive office of the Corporation. Special meetings of the
Board may be held either at a place so designated or at the principal
executive office.
Section 3.8. ORGANIZATIONAL MEETING. Immediately following each
annual meeting of shareholders, the Board shall hold a regular meeting at the
place of the annual meeting or at such other place as shall be fixed by the
Board, for the purpose of organization, election of officers and the
transaction of other business. Call and notice of such meetings are hereby
dispensed with.
Section 3.9. OTHER REGULAR MEETINGS. Other regular meetings of
the Board shall be held at any place and time which has been designated from
time to time by resolution of the Board or by written consent of all members
of the Board. Notice of all such regular meetings of the Board is hereby
dispensed with.
<PAGE>
Section 3.10. SPECIAL MEETINGS. Special meetings of the Board for
any purpose or purposes may be called at any time by the Chairman of the
Board, the President or by any two directors.
Special meetings shall be held upon four days' notice by mail or
other form of written communication, or 24 hours notice received personally,
by telephone or by facsimile or comparable means of communication. Written
notice of the time and place of special meetings shall be addressed to the
director at the director's address as it is shown upon the records of the
Corporation or, if it is not so shown on such records or is not readily
ascertainable, at the place at which the meetings of the directors are
regularly held.
Any notice shall state the date, place and hour of the meeting and
may state the general nature of the business to be transacted and that other
business may be transacted at the meeting.
Section 3.11. ACTION WITHOUT MEETING. Any action by the Board may
be taken without a meeting if all members of the Board shall individually or
collectively consent in writing to the action. The written consent or
consents shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of the directors.
Section 3.12. ACTION AT A MEETING, QUORUM AND REQUIRED VOTE.
Presence of a majority of the authorized number of directors at a meeting of
the Board constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
(Participation in a meeting as permitted in the preceding sentence
constitutes presence in person at the meeting.) Every act or decision done
or made by a majority of the directors present at a meeting duly held at
which a quorum is present shall be regarded as the act of the Board, unless a
greater number, or the same number after disqualifying one or more directors
from voting, is required by law, by the Articles of Incorporation or by these
Bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of a director or directors,
provided that any action taken is approved by at least a majority of the
required quorum for the meeting.
Section 3.13. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS.
The transactions of any meeting of the Board, however called and noticed or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present,
has prior to the meeting or at its commencement, protested the lack of proper
notice: (i) signs a written waiver of notice or a consent to holding such
meeting or an approval of the minutes thereof; or (ii) waives notice and
withdraws his or her objection. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Section 3.14. ADJOURNMENT. A majority of the directors present at
any directors' meeting, either regular or special, may adjourn to another
time and place.
Section 3.15. NOTICE OF ADJOURNMENT. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place
shall be given prior to the time of the adjourned meeting to the directors
who were not present at the
<PAGE>
time of adjournment. Otherwise notice of the time and place of holding an
adjourned meeting need not be given to absent directors if the time and place
be fixed at the meeting adjourned.
Section 3.16. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement for expenses, as may be fixed or determined by resolution
of the Board.
Section 3.17. INDEMNIFICATION OF AGENTS OF THE CORPORATION; PURCHASE
OF LIABILITY INSURANCE.
(a) For the purposes of this Section: "agent" means any person who
is or was a director, officer, employee or other agent of this Corporation,
or is or was serving at the request of this Corporation as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or was a director,
officer, employee or agent of a foreign or domestic Corporation which was a
predecessor corporation of this Corporation or of another enterprise at the
request of such predecessor Corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or subdivision (e)(4) of this Section.
(b) This Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any proceeding (other than an
action by or in the right of this Corporation) by reason of the fact that
such person is or was an agent of this Corporation, against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with the proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in the best interests of
this Corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of the person was unlawful. The termination of
any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of this Corporation or that
the person had reasonable cause to believe that the person's conduct was
unlawful.
(c) This Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of this Corporation to procure a judgment
in its favor by reason of the fact that the person is or was an agent of this
Corporation, against expenses actually and reasonably incurred by the person
in connection with the defense or settlement of the action if the person
acted in good faith, in a manner the person believed to be in the best
interests of this Corporation and its shareholders. No indemnification shall
be made under this subdivision (c):
(1) In respect to any claim, issue or matter as to which the
person shall have been adjudged to be liable to this Corporation and its
shareholders, in the performance of the person's duty to this Corporation,
unless and only to the extent that the court in which the proceeding is or
was pending shall determine upon application that, in view of all the
circumstances of this case, the person is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine.
<PAGE>
(2) Of amounts paid in settling or otherwise disposing of a
pending action, without court approval.
(3) Of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of this Corporation has been
successful on the merits in defense of any proceedings referred to in
subdivision (b) or (c) or in defense of any claim, issue or matter therein,
the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification
under this Section shall be made by this Corporation only if authorized in
the specific case, upon a determination that indemnification of that agent is
proper in the circumstances because the agent has met the applicable standard
of conduct set forth in subdivision (b) or (c), by any of the following:
(1) A majority vote of a quorum consisting of directors who
are not parties to such proceeding.
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion.
(3) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon.
(4) The court in which the proceeding is or was pending upon
application made by the Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not the
application by the agent, attorney or other person is opposed by the
Corporation.
(f) Expenses incurred in defending any proceeding may be advanced
by this Corporation prior to the final disposition of the proceeding upon
receipt of a written undertaking by or on behalf of the agent to repay such
amount if it shall be determined ultimately that the agent is not entitled to
be indemnified as authorized in this Section.
(g) The indemnification provided by this Section shall not be
deemed exclusive of any additional rights to indemnification that are
authorized in the Articles of Incorporation. Nothing in this Section shall
affect any right to indemnification to which persons other than the directors
and officers may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section,
except as provided in subdivision (d) or subdivision (e)(4) of this Section,
in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, the Bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification.
<PAGE>
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) Upon a determination by the Board, this Corporation may
purchase and maintain insurance on behalf of any agent of the Corporation
against any liability asserted against or incurred by the agent in such
capacity or arising out of the agent's status as such whether or not this
Corporation would have the power to indemnify the agent against such
liability under the provisions of this Section.
(j) This Section does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
that person's capacity as such, even though the person may also be an agent,
as defined in subdivision (a) of this Section, of the Corporation. The
Corporation shall have power to indemnify such a trustee, investment manager
or other fiduciary to the extent permitted by subdivision (f) of Section 207
of the California General Corporation Law.
Section 3.18. COMMITTEES. The Board may, by resolution or
committee charter adopted by a majority of the authorized number of
directors, designate one or more committees, each committee consisting of two
or more directors, to serve at the pleasure of the Board. These committees
may include, without limitation, an Executive Committee, an Audit Committee,
a Stock Committee and any such other committees as the Board may deem
appropriate. Any such committee, to the extent provided in the resolution of
the Board or committee charter, may exercise those powers and
responsibilities so designated, except that no committee shall be authorized
to take action with respect to:
(i) The approval of any action for which shareholder
approval or approval of the outstanding shares is required.
(ii) The filling of vacancies on the Board or in any
committee.
(iii) The amendment or repeal of Bylaws or the adoption of new
Bylaws.
(iv) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable.
(v) The appointment of other committees of the Board or the
members thereof.
(vi) A distribution, except at a rate, in a periodic amount
or within a price range set forth in the Articles of Incorporation or as
determined by the Board.
<PAGE>
ARTICLE IV
Officers
Section 4.1. OFFICERS. The Officers of the Corporation shall be a
Chief Executive Officer, President, Secretary, Chief Financial Officer and,
at the discretion of the Board, such other officers as may be deemed
necessary ("Officers"). Any two or more Officer positions, except those of
the President and Secretary, may be held by the same person. In appropriate
circumstances, an Officer of the Corporation may be excluded by resolution of
the Board or by a provision of the Bylaws from participation, other than in
the capacity of a director if applicable, in major policymaking functions of
the Corporation.
Section 4.2. ELECTION. Except as otherwise provided in these
Bylaws, the Officers of the Corporation shall be chosen by the Board, and
each Officer shall be employed at will, unless employed for a determinate
period of time pursuant to a written employment agreement approved by the
Board, and shall have such authority and perform such duties as are provided
in the Bylaws or as the Board may, from time to time, determine.
Section 4.3. SUBORDINATE OFFICERS. The Corporation may have such
subordinate officers as the business of the Corporation may require
("Subordinate Officers"), including one or more Vice Presidents, a Cashier,
one or more Assistant Cashiers, Operations Officers and Managers.
Subordinate Officers may be chosen by the Board, the Chief Executive Officer
or the President, and such Officers and Subordinate Officers upon whom
authority is conferred by the Board, the Chief Executive Officer or the
President ("Authorized Officers"). Subordinate Officers shall be employed at
will, unless employed for a determinate period of time pursuant to a written
employment agreement approved by the Board, and shall have such authority and
perform such duties as are provided in the Bylaws or as the Board, Chief
Executive Officers, President or Authorized Officers may, from time to time,
determine.
Section 4.4. REMOVAL AND RESIGNATION. Any Officer may be removed,
either with or without cause, by the Board, subject, in each case, to the
rights, if any, of an Officer under any contract or employment. Any
Subordinate Officer may be removed, with or without cause, by the Board,
Chief Executive Officer, President or Authorized Officer, subject to such
rights, if any, of a Subordinate Officer under a written employment
agreement.
Any Officer or Subordinate Officer may resign at any time by giving
written notice to the Board or to the President, or to the Secretary of the
Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to such office.
Section 4.6. CHAIRMAN OF THE BOARD; VICE-CHAIRMAN. The Executive
Committee of the Board shall nominate the Chairman of the Board, subject to
approval
<PAGE>
by the Board. The Chairman of the Board shall also serve as Chairman of the
Executive Committee and shall serve in such capacities for a maximum of three
consecutive one-year terms. The Chairman shall be an officer of the Board
and shall, if present, preside at all meetings of the Board. The Chairman
may exercise and perform such other powers and duties as may be from time to
time be assigned by the Board or prescribed by the Bylaws. The Chairman
shall not, however, be deemed an Officer of the Corporation.
The Executive Committee of the Board shall nominate a Vice-Chairman
of the Board, subject to approval by the Board. Any Vice-Chairman so
approved may serve a maximum of three consecutive one-year terms. The
Vice-Chairman shall have such powers and perform such duties as may be from
time to time be assigned by the Board or the Chairman of the Board and shall
preside at any meeting of the Board at which the Chairman is absent or
otherwise unable to serve. The Vice-Chairman shall not be deemed an Officer
of the Corporation.
Section 4.7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall, subject to the control of the Board, have general supervision,
direction and control of the business and officers of the Corporation. The
Chief Executive Officer shall exercise and perform such other powers and
duties as may be from time to time assigned by the Board or prescribed by the
Bylaws.
Section 4.8. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board, the President
shall preside at all meetings of the shareholders and at all meetings of the
Board when the Chairman of the Board and the Vice-Chairman of the Board are
absent or otherwise unable to serve. The President shall have the general
powers and duties of management usually vested in the office of the President
of a bank and shall have such other powers and duties as may be prescribed by
law, the Board or the Bylaws.
Section 4.9. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
or, if not ranked, the Vice President designated by the Board, shall perform
all the duties of the President, and when so acting shall have all the powers
of, and be subject to all the restrictions upon the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board or the
Bylaws. No Vice President shall preside over meetings of the shareholders or
at meetings of the Board in the absence or disability of the President and
Chairman of the Board unless the Vice President so serving is also a Director.
Section 4.10. SECRETARY. The Secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive
office and such other place or places as the Board may order, a book of
minutes of actions taken at all meetings of directors and shareholders, with
the time and place of holding, whether regular or special, and, if special,
how authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof. In the event of any
meeting in Executive Session or otherwise if the Secretary is not present, an
Acting Secretary shall be designated by the Chairman of the meeting for the
purpose of recording the minutes of actions taken at the meeting or Executive
Session thereof.
The Secretary shall keep, or cause to be kept, a copy of the Bylaws
of the Corporation at the principal executive office or business office in
accordance with Section 213 of the California General Corporation Law.
<PAGE>
The Secretary shall keep, or cause to be kept, at the principal
executive office, or at the office of the Corporation's transfer agent, a
share register, or a duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, or the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board required by the Bylaws or by
law to be given and shall have such other powers and perform such other
duties as may be prescribed by the Board or by the Bylaws.
Section 4.11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
of the Corporation shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the Corporation, and shall send or cause to be sent to the
shareholders of the Corporation such financial statements and reports as are
required to be sent to them by law or these Bylaws.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board. The Chief Financial Officer
shall disburse, or cause to be disbursed, the funds of the Corporation as may
be ordered by the Board, shall render to the President and directors,
whenever they request it, an account of all transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board or the Bylaws.
ARTICLE V
Miscellaneous
Section 5.1. RECORD DATE. The Board may fix a time in the future
as a record date for the determination of the shareholders entitled to notice
of and to vote at any meetings of shareholders or entitled to give consent to
corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights or to
exercise rights in respect to any change, conversion or exchange of shares.
The record date so fixed shall be not more than sixty (60) days or less than
ten (10) days prior to the date of any meeting or other event for the purpose
of which it is fixed. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at any such
meeting, to give consent without a meeting, to receive any report, to receive
a dividend, distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of
the Corporation after the record date.
Section 5.2. INSPECTION OF CORPORATE RECORDS. Except as
restricted or limited by applicable law, including Sections 1600 through 1605
of the California General Corporation Law, the accounting books and records,
the record of shareholders and minutes of proceedings of the shareholders and
the Board and committees of the Board of this Corporation and any subsidiary
of this Corporation shall be open to inspection upon the written demand on
the Corporation of any shareholder or holder of a
<PAGE>
voting trust certificate at any reasonable time during usual business hours,
for a purpose reasonably related to such holder's interest as shareholder or
as the holder of such voting trust certificate. Such inspection by a
shareholder or holder of a voting trust certificate may be made in person or
by agent or attorney, and the right of inspection includes the right to copy
and make extracts.
Section 5.3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, shall
be signed or endorsed by such person or persons and in such manner as, from
time to time, shall be determined by resolution of the Board.
Section 5.4. ANNUAL AND OTHER REPORTS. The Board of the
Corporation shall cause an annual report to be sent to the shareholders not
later than 120 days after the close of the fiscal or calendar year.
Notwithstanding the foregoing sentence, however, the requirement for such
annual report is dispensed with so long as this Corporation has less than 100
shareholders of record. If required to be sent to shareholders, the annual
report shall contain a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
Corporation that such statements were prepared without audit from the books
and records of the Corporation.
Section 5.5. CONTRACTS, ETC., HOW EXECUTED. The Board, except as
in the Bylaws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 5.6. CERTIFICATE OF SHARES. Every holder of shares in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chairman or Vice Chairman of the Board or the President or
a Vice President and by the Chief Financial Officer or an assistant treasurer
or the Secretary or any assistant secretary, certifying the number of shares
and the class or series of shares owned by the shareholder. Any of the
signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time.
The Board may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification
of the Corporation, as the Board shall determine.
Section 5.7. INSPECTION OF BYLAWS. The Corporation shall keep in
its principal executive office the original or a copy of the Bylaws as
amended or otherwise altered to date, certified by the Secretary, which shall
be open to inspection by the shareholders at all reasonable times during
office hours.
<PAGE>
Section 5.8. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporation Law shall govern
the construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the
singular, number includes the plural and the plural number includes the
singular, and the term "person" includes a Corporation as well as a natural
person.
ARTICLE VI
Amendments
Section 6.1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the affirmative vote of a majority
of the outstanding shares entitled to vote, or by written assent of
shareholders entitled to vote such shares, except as otherwise provided by
law or by the Articles of Incorporation.
Section 6.2. POWER OF DIRECTORS. Subject to the right of
shareholders as provided in Section 6.1 to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board provided, however,
that the Board may adopt a bylaw or amendment thereof changing the authorized
number of directors only for the purpose of fixing the exact number of
directors within the limits specified in Section 3.2 of these Bylaws.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Principal Executive Office. . . . . . . . . . . . . . . . . 1
Section 1.1. Other Offices . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Meetings of Shareholders . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5 Adjourned Meetings and Notice Thereof. . . . . . . . . . . . 3
Section 2.6 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Validation of Defectively Called or Noticed Meetings . . . . 4
Section 2.8 Action Without Meeting . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10 Inspectors of Election. . . . . . . . . . . . . . . . . . . 6
Section 2.11 Nomination of Directors . . . . . . . . . . . . . . . . . . 6
ARTICLE III Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Number and Qualification of Directors . . . . . . . . . . . 7
Section 3.3. Election and Term of Office . . . . . . . . . . . . . . . . 8
<PAGE>
Section 3.4 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.5. Removal of Directors. . . . . . . . . . . . . . . . . . . . 8
Section 3.6. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7. Frequency and Place of Meeting. . . . . . . . . . . . . . . 9
Section 3.8. Organizational Meeting. . . . . . . . . . . . . . . . . . . 9
Section 3.9. Other Regular Meetings. . . . . . . . . . . . . . . . . . . 9
Section 3.10. Special Meetings . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11. Action Without Meeting . . . . . . . . . . . . . . . . . . 10
Section 3.12. Action at a Meeting, Quorum and Required Vote. . . . . . . 10
Section 3.13. Validation of Defectively Called or Noticed Meetings . . . 10
Section 3.14. Adjournment. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.15. Notice of Adjournment. . . . . . . . . . . . . . . . . . . 10
Section 3.16. Fees and Compensation. . . . . . . . . . . . . . . . . . . 11
Section 3.17. Indemnification of Agents of the Corporation;
Purchase of Liability Insurance . . . . . . . . . . . . . 11
Section 3.18. Committees . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.2. Election. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3. Subordinate Officers. . . . . . . . . . . . . . . . . . . . 14
Section 4.4. Removal and Resignation . . . . . . . . . . . . . . . . . . 14
Section 4.5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
Section 4.6. Chairman of the Board; Vice-Chairman. . . . . . . . . . . . 15
Section 4.7. Chief Executive Officer . . . . . . . . . . . . . . . . . . 15
Section 4.8. President . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.9 Vice President. . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.10. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.11. Chief Financial Officer. . . . . . . . . . . . . . . . . . 16
ARTICLE V Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1. Record Date . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2. Inspection of Corporate Records . . . . . . . . . . . . . . 17
Section 5.3. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . 17
Section 5.4. Annual and Other Reports. . . . . . . . . . . . . . . . . . 17
Section 5.5. Contracts, Etc., How Executed . . . . . . . . . . . . . . . 18
Section 5.6. Certificate of Shares . . . . . . . . . . . . . . . . . . . 18
Section 5.7 Inspection of Bylaws . . . . . . . . . . . . . . . . . . . 18
Section 5.8. Construction and Definitions. . . . . . . . . . . . . . . . 18
ARTICLE VI Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.1. Power of Shareholders . . . . . . . . . . . . . . . . . . . 19
Section 6.2. Power of Directors. . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
Lake Marriott Business Park
Santa Clara, California
("the Project")
FIRST AMENDMENT
Date: June 10, 1997
LANDLORD: Beacon Properties, L.P., successor-in-interest to WRC
Properties, Inc.
TENANT: Silicon Valley Bank, a California banking corporation
LEASE EXECUTION DATE:
March 8, 1995
EXISTING PREMISES:
The entirety of the building now known as and numbered 3003
Tasman Drive, Santa Clara, California. The Existing Premises
consist of two floors and contain approximately 100,729
rentable square feet. The Existing Premises are shown on
Exhibit A to the Lease.
TERMINATION DATE:
May 31, 2005
PREVIOUS LEASE AMENDMENTS:
None
ADDITIONAL PREMISES:
The entirety of the two-story Building in the Project, known
as 3001 Tasman Drive. The Additional Premises contain
approximately 56,448 rentable square feet and are
substantially as shown on Exhibit A, First Amendment, Sheets 1
and 2.
WHEREAS, Tenant desires to lease additional premises in the Project, to
wit, the Additional Premises;
WHEREAS, Landlord is willing to lease the Additional Premises to Tenant on
the terms and conditions hereinafter set forth;
NOW THEREFORE, the above-referenced lease ("Lease") is hereby amended as
follows:
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1. DEMISE OF ADDITIONAL PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from the Landlord, the Additional Premises for a term commencing as of
the Commencement Date in respect of the Additional Premises, as hereinafter
defined. Said demise of the Additional Premises shall be upon the terms and
conditions set forth in this First Amendment and upon all of the terms and
conditions of the Lease applicable to the Existing Premises (including,
without limitation, Tenant's extension options pursuant to Paragraph 40 of
the Lease, which shall apply to the Existing Premises together with the
Additional Premises) to the extent not inconsistent with the provisions of
this First Amendment.
2. COMMENCEMENT DATE IN RESPECT OF THE ADDITIONAL PREMISES; TENANT'S
TERMINATION RIGHT
A. The Commencement Date in respect of the Additional Premises shall be
the later of: (x) December 1, 1997, or (y) the date that the present tenant
("Present Tenant") of the Additional Premises vacates the Additional Premises.
B. Notwithstanding anything to the contrary herein contained, if, for
any reason the Commencement Date has not occurred on or before May 1, 1998,
then Tenant shall have the right to cancel this First Amendment as follows.
Tenant may exercise its cancellation right under this Subparagraph B by
giving Landlord written notice ("Cancellation Notice") at any time after May
1, 1998, but on or before the occurrence of the Commencement Date. If the
Commencement Date does not occur on or before the date thirty (30) days after
Landlord receives the Cancellation Notice, then this First Amendment shall be
void and without further force or effect and neither party shall have any
further obligation to the other party with respect to this First Amendment.
If the Commencement Date does occur on or before the date thirty (30) days
after Landlord receives the Cancellation Notice, then Tenant shall have no
right to cancel this First Amendment.
C. Landlord hereby agrees that if the Present Tenant holds over in the
Additional Premises after November 30, 1997:
(i) Landlord shall take all reasonable measures (including, without
limitation, promptly commencing and diligently prosecuting summary
proceedings) to recover possession of the Additional Premises as promptly as
possible; and
(ii) Landlord shall pay to Tenant the amount of Premium Hold-Over
Rent, as hereinafter defined, which Landlord actually receives from the Present
Tenant on account of the occupancy of the Additional Premises by the Present
Tenant after November 30, 1997, after first deducting any costs incurred by
Landlord (including, attorneys fees) which are not otherwise paid or reimbursed
by Present Tenant in collecting such Premium Hold-Over Rent. Tenant shall have
no right to receive any
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Premium Hold-Over Rent unless and until Landlord has been fully paid for all
other amounts due from the Present Tenant on account of its occupancy of the
Additional Premises (including, without limitation, all rental due in respect
of the period prior to November 30, 1997 and the Base Hold-Over Rent, as
hereinafter defined).
D. Landlord represents to Tenant that, pursuant to Landlord's lease
with the Prior Tenant, if the Prior Tenant holds over in the Additional
Premises after November 30, 1997, the Prior Tenant is required to pay to
Landlord a hold over charge in the amount of one hundred twenty-five (125%)
percent of the amount of base rent which was payable by the Prior Tenant
immediately preceding November 30, 1997. Landlord represents to Tenant that
said hold over charge is equal to the monthly base rent payable by the Prior
Tenant immediately preceding November 30, 1997 in the amount of
approximately $80,600.00 (which amount is referred to herein as "Base
Hold-Over Rent") plus a monthly premium charge in the amount of approximately
$20,150.00 (which charge is referred to herein as "Premium Hold-Over Rent").
3. RENT COMMENCEMENT DATE IN RESPECT OF THE ADDITIONAL PREMISES
A. Tenant's obligation to pay net Monthly Rent and other charges due
under the Lease in respect of the Additional Premises shall not commence to
accrue until the date ("Rent Commencement Date") which is the earliest to
occur of the following dates: (i) the date that Tenant substantially
completes Tenant's Additional Premises Work, as hereinafter defined, (ii) the
date that Tenant first commences to use the Additional Premises, or any
portion thereof, for business purposes, or (ii) the Outside Date, as
hereinafter defined.
B. The "Outside Date" shall be defined as one hundred twenty (120) days
after the Commencement Date, provided however, that in the event of any
Landlord Delay, as hereinafter defined, the Outside Date shall be extended
the length of time that Tenant is in fact delayed in the performance of
Tenant's Additional Premises Work by reason of such Landlord Delay.
C. For the purposes hereof, a "Landlord Delay" shall be defined as: (i)
any act by Landlord taken without justification pursuant to the Lease, or
(ii) the failure of performance by Landlord of any obligation under the Lease
within the time period in which Landlord is required, under the Lease, to
act, to the extent that such failure is not justified under the Lease.
Except (if applicable) with respect to the removal of the Prior Tenant
Fixtures in the circumstances set forth in Paragraph 5.B(ii) of this First
Amendment, no event shall be considered to be a Landlord Delay unless: (iv)
Landlord has received written notice ("Delay Notice") from Tenant advising
Landlord of such Event and of the fact that such Event may cause a Landlord
Delay, and (v) Landlord fails to eliminate such cause for delay on or before
the date five (5) business days after Landlord receives the Delay Notice.
Tenant agrees to use reasonable efforts to mitigate the impact of any
Landlord Delay, provided however, that this sentence shall not be
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construed to impose on Tenant the obligation to engage extra work crews, or
pay overtime, or otherwise incur any extraordinary cost in order to expedite
Tenant's build-out, unless Landlord agrees in writing to pay for the cost of
such measures.
D. When the actual Commencement Date in respect of the Additional
Premises and Rent Commencement Date are determined, the parties shall execute
a Commencement Date Memorandum setting forth such dates, substantially in the
form attached to the Lease as Exhibit E.
4. NET MONTHLY RENT PAYABLE IN RESPECT OF THE ADDITIONAL PREMISES
A. The Net Monthly Rent payable in respect of the Additional Premises
shall be as follows:
LEASE YEAR NET MONTHLY RENT
1 $85,800.96
2 $89,233.00
3 $92,802.32
4 $96,514.41
5 $100,374.99
6 $104,389.99
7 $108,565.58
8 $112,908.21
B. For the purposes of this First Amendment, "Lease Year" shall be
defined as any twelve month period during the term of the Lease in respect of
the Additional Premises commencing as of the Rent Commencement Date, or as of
any anniversary of the Rent Commencement Date.
C. The net Monthly Rent in respect of the Additional Premises shall be
subject to adjustment as provided in Paragraph 7 of this First Amendment.
Additionally, Tenant shall pay, together with the net Monthly Rent in respect
of the Additional Premises, the estimated monthly Building Maintenance
Expenses in respect of the Additional Premises, and Tenant's Percentage in
respect of the Additional Premises of the estimated monthly Common Area
Expenses, as adjusted from time to time hereunder, and a management fee not
to exceed two (2.0%) percent of the net Monthly Rent payable in respect of
the Additional Premises.
D. Tenant shall, on the Rent Commencement Date, pay to Landlord the
following amounts to be applied toward the Rent due in respect of the
Additional Premises for the first month of the first Lease Year:
Monthly Rent (net) $85,800.96
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Building Maintenance Expenses
and Tenant's Percentage of
Common Area Expenses $14,489.00
--------------------------------------------------
Total $100,289.96
5. CONDITION OF ADDITIONAL PREMISES; REMOVAL OF PRIOR TENANT FIXTURES
A. Except as provided in Paragraphs 5.B and 5.C of this First Amendment
and except for the Landlord agreements as set forth in Paragraphs 11 and 12
of this First Amendment, Tenant shall take the Additional Premises "as-is",
in the condition in which the Additional Premises are in as of the
Commencement Date in respect of the Additional Premises, without any
obligation on the part of the Landlord to prepare or construct the Additional
Premises for Tenant's occupancy, and without any representation or warranty
by Landlord as to the condition of the Additional Premises. Without limiting
the foregoing, the following provisions of the Lease shall have no
applicability to the Additional Premises:
- The first two sentences of Paragraph 10
- Paragraph 11.B(ii)
- Paragraph 7 of Exhibit D
- Exhibit F
B. Reference is made to the facts that: (i) the prior tenant of the
Additional Premises ("ACS") has installed certain fixtures in the Additional
Premises, referred to herein as the "Prior Tenant Fixtures" and described in
this Paragraph 5.B, and (ii) ACS is required, pursuant to its lease with
Landlord, to remove the Prior Tenant Fixtures from the Additional Premises on
or before the expiration of the term of its lease with Landlord. The
following provisions of this Paragraph 5.B are intended to deal with the
possibility that ACS may not remove the Prior Tenant Fixtures from the
Additional Premises on a timely basis.
(i) The "Prior Tenant Fixtures" are defined as the following items
presently located in the Additional Premises:
- Raised computer room flooring on the first floor;
- Computer room Leibert units and condensers;
- UPS and batteries;
- Computer room fire protection equipment, including halon system
and permanent water leak detection panel;
- Back-up generator (located exterior to the Additional Premises).
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(ii) If, on or before November 30, 1997, the Prior Tenant fails to
remove the Prior Tenant Fixtures from the Additional Premises and to repair
any damage to the concrete slab floor, the exterior doors (including, without
limitation, any roll-up doors), and/or exterior door frames caused by the
removal of the Prior Tenant Fixtures from the Additional Premises (such
removal and repair obligations being collectively referred to herein as the
"Removal Obligations"), then: (x) Landlord shall, at no cost to Tenant,
perform the Removal Obligations, and (y) if the Removal Obligations are not
completed on or before December 7, 1997, such failure shall, without the
requirement of any notice from Tenant, be considered to be a Landlord Delay
(provided however, that no period of time prior to December 7, 1997 when the
Removal Obligations are not completed shall be considered to be a Landlord
Delay).
C. Landlord and Tenant shall work together to determine a mutually
agreeable solution as to where to place or retain the existing trash
enclosures located between the Additional Premises and the Existing Premises.
If requested by Tenant, Landlord will remove, at its sole cost and expense,
the existing auxiliary structure which currently houses the back-up generator
and replace it with landscaping to match the balance of the Project.
6. TENANT IMPROVEMENT ALLOWANCE
A. Landlord shall provide the following allowances to Tenant (referred
to collectively herein as the "Tenant Improvement Allowance with respect to
the Additional Premises"):
(i) An allowance ("Initial Allowance") for the planning and
construction of the Additional Premises of up to One Million Two Hundred
Forty-One Thousand Eight Hundred Fifty-Six ($1,241,856.00) Dollars (the
"Maximum Initial Allowance"); and
(ii) If Tenant uses all of the Initial Additional Premises
Allowance, Landlord shall, at Tenant's election, provide an additional
allowance ("Additional Allowance") for the planning and construction of the
Additional Premises of up to Five Hundred Sixty-Four Thousand Four Hundred
Eighty ($564,480.00) Dollars ("Maximum Additional Allowance").
B. The provisions of Paragraph 4 of Exhibit D shall apply to the Tenant
Improvement Allowance with respect to the Additional Premises. Without
limiting the foregoing, a construction management fee in the amount of one
(1%) percent of the amount of the Tenant Improvement Allowance with the
respect to the Additional Premises actually disbursed by Landlord shall be
payable to Landlord's managing agent and may be deducted by Landlord from the
Tenant Improvement Allowance with respect to the Additional Premises to
permit Landlord to make direct payment of such fee to Landlord's managing
agent. For example, if Tenant uses all of the Initial Allowance, but
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no portion of the Additional Allowance, then the construction management fee
shall be $12,418.56.
C. Tenant shall have no right to use any unused portion of the Tenant
Improvement Allowance with respect to the Additional Premises.
D. Provided that and so long as the Lease is in full force and effect
at the time that Tenant submits any requisition on account of Tenant
Improvement Allowance with respect to the Additional Premises, Landlord shall
pay the cost of the work shown on each requisition (as hereinafter defined)
submitted by Tenant to Landlord within thirty (30) days of submission thereof
by Tenant to Landlord.
E. For the purposes hereof, a "requisition" shall mean written
documentation (including, without limitation, invoices from Tenant's
contractor, written conditional lien waivers [provided however, that
Tenant shall not be required to provide lien waivers from any subcontractor
who is being paid less than $25,000 on account of the work which is being
requisitioned] and such other documentation as Landlord's mortgagee may
reasonably request) showing in reasonable detail the costs of the
improvements installed to date in the Additional Premises, accompanied by
certifications from Tenant, Tenant's architect, or Tenant's contractor that
the work performed to date has been performed, in all material respects, in
accordance with applicable laws and in accordance with Tenant's approved
plans, and that the amount of the requisition in question does not exceed the
amount of the work covered by such requisition. Each requisition shall be
accompanied by evidence reasonably satisfactory to Landlord that all work
covered by previous requisitions has been fully paid by Tenant. Landlord
shall have the right, upon reasonable advance notice to Tenant, to inspect
Tenant's books and records relating to each requisition in order to verify
the amount thereof. Tenant shall submit requisition(s) no more often than
monthly.
F. Notwithstanding anything to the contrary herein contained:
(i) Landlord shall have no obligation to advance funds on account
of Tenant Improvement Allowance with respect to the Additional Premises
unless and until Landlord has received the requisition in question, together
with the certifications required by Subparagraph E hereof, certifying that
the work shown on the requisition has been performed, in all material
respects, in accordance with applicable law and in accordance with Tenant's
plans.
(ii) Except with respect to work and/or materials previously paid
for by Tenant, as evidenced by paid invoices and written lien waivers
provided to Landlord, Landlord shall have the right to have Tenant
Improvement Allowance with respect to the Additional Premises paid to both
Tenant and Tenant's contractor(s) and vendor(s) jointly.
(iii) Tenant shall not be entitled to any portion of the Tenant
Improvement Allowance with respect to the Additional Premises, and Landlord
shall
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<PAGE>
have no obligation to pay Tenant Improvement Allowance with respect to the
Additional Premises in respect of any requisition submitted after December
31, 1999, provided however, that said December 31, 1999 date shall be
extended by the number of days, if any, that the Outside Date, as defined in
Paragraph 3.B of this First Amendment, is extended as the result of Landlord
Delays.
7. CONSTRUCTION RENT
A. Commencing as of the Rent Commencement Date (if the Rent
Commencement Date is the first day of a calendar month, or otherwise on the
first day of the calendar month next following the Rent Commencement Date),
and continuing on the first day of each month thereafter throughout the term
of the Lease, Tenant shall pay to Landlord, as additional rent, Construction
Rent, as hereinafter defined, based upon the amount of the Additional
Allowance, as defined in Paragraph 6.A of this First Amendment, actually
disbursed by Landlord. Tenant's monthly payments of Construction Rent shall
be equal to the amount of equal monthly payments of principal and interest
which would be necessary to repay a loan in the amount of the Additional
Allowance, together with interest at the rate of eleven (11%) percent per
annum, on a level direct reduction basis over a term equal to the term of the
Lease in respect of the Additional Premises. Monthly payments of Construction
Rent shall be payable at the same time and in the same manner as net Monthly
Rent is payable under the Lease.
B. Construction Rent shall not be abated or reduced for any reason
whatsoever (including, without limitation, untenantability of the premises or
termination of the Lease). Without limiting the foregoing, the rent
abatement provisions of Paragraphs 16, 17.A, and 23.F of the Lease shall not
apply to Construction Rent (provided that the provisions of this Subparagraph
B shall not affect the operation of said Paragraphs 16, 17.A and 23.F of the
Lease in any context other than the payment of Construction Rent).
C. Since the payment of Construction Rent represents a reimbursement to
Landlord of the Additional Allowance, Tenant, if there is any default (beyond
the expiration of any applicable grace periods) of any of Tenant's
obligations under the Lease (including, without limitation, its obligation to
pay Construction Rent), or if the term of this Lease is terminated for any
reason whatsoever prior to the termination of the term of the Lease, Tenant
shall pay to Landlord, immediately upon demand, the unamortized balance of
the Additional Allowance, and Tenant shall have no obligation to pay
Construction Rent which would have been payable after such demand. Tenant's
obligation to pay the unamortized balance of the Additional Allowance shall
be in addition to all other rights and remedies which Landlord has based upon
any default of Tenant under the Lease.
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8. TENANT'S ADDITIONAL PREMISES WORK
All of Alterations, as defined in Paragraph 3.A of the Lease, affecting
the Additional Premises and all improvements to be made by Tenant to the
Additional Premises (collectively referred to herein as "Tenant's Additional
Premises Work") shall be performed in accordance with and subject to the
provisions of the Lease, including, without limitation, Paragraph 13 and
Exhibit D, except:
A. The fourth sentence of Paragraph 1 of Exhibit D shall have no
applicability to the Additional Premises. Landlord hereby approves Robinson,
Mills & Williams to act as Tenant's architect in connection with Tenant's
Additional Premises Work.
B. Any contractor engaged by Tenant to perform Tenant's Additional
Premises Work shall be subject to Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Landlord hereby
approves Toensikoetter & Breeding, Inc. to perform the Additional Premises
Work.
C. Paragraphs 5, 6 and 7 of Exhibit D of the Lease shall have no
applicability to the Additional Premises.
D. For the purposes Paragraph 9 of Exhibit D of the Lease, Tenant's
Additional Premises Work shall be substituted in place of Tenant Improvements
and the Exterior Improvements.
E. Tenant shall have the right, to install a bridge or covered walkway
("Bridge Work") between the Existing Premises and the Additional Premises,
subject to the following conditions:
(i) Tenant obtains Landlord's prior written approval of Tenant's
plans and specifications with respect to the Bridge Work. Landlord agrees
that it will not unreasonably withhold its approval to the Bridge Work, so
long as the Bridge Work is, in Landlord's sole, but bona fide business
judgment, aesthetically compatible with Landlord's master plan for the
Project;
(ii) Tenant obtains all necessary governmental permits and
approvals in connection with the Bridge Work;
(iii) Tenant pays for one hundred (100%) percent of any increase
in real estate or other taxes imposed on the Project arising from the
Bridge Work;
(iv) The Bridge Work is performed at the sole cost and expense of
Tenant, except that Tenant shall have the right to use the Additional
Allowance
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(but not the Initial Allowance) for costs incurred by Tenant in
connection with the Bridge Work.
(v) At Landlord's election, Landlord shall, at the termination of the
term of the Lease, remove the Bridge Work and restore both the Existing
Premises and the Additional Premises to the condition in which they were in
immediately preceding the performance of the Bridge Work. The cost of such
removal and restoration work shall be shared equally between Landlord and
Tenant. Tenant shall, within thirty (30) days of billing therefor,
reimburse Landlord for one-half of the cost of such removal and restoration
work.
(vi) Tenant complies with all other provisions of the Lease
relating to the performance of alterations and improvements to the premises
in performing such work.
(vii) Tenant shall not be required to pay Net Monthly Rent in
respect of the Bridge Work.
(viii) Tenant's Percentage shall not be adjusted by reason of the
Bridge Work.
(ix) Tenant shall be responsible for maintaining the Bridge Work in
good condition throughout the term of the Lease, reasonable wear and tear,
fire and other casualty excepted.
9. DEFINITION OF BUILDING
Wherever the term "Building" is used in the Lease, such term shall, with
respect to the Additional Premises, be deemed to refer to 3001 Tasman Drive.
10. TENANT'S PERCENTAGE
Tenant's Percentage, as defined in Paragraph 3.S of the Lease, with
respect to the Additional Premises, shall be 14.01% (i.e. 56,448 rentable
square feet divided by 402,867 rentable square feet).
11. WARRANTY COMPONENTS OF THE ADDITIONAL PREMISES
A. Notwithstanding anything to the contrary herein or in the Lease
contained, Landlord hereby agrees that if, with respect to any of the Warranty
Components of the Additional Premises, Landlord shall receives written notice
from Tenant of the need for repair or replacement of such Warranty Component
within the applicable Warranty Period, Landlord shall, at no cost to Tenant,
make such repair or replacement as is necessary to maintain such Component in
good operating condition, unless the need for
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such repair or replacement arises from the fault, abuse, negligence, or
misconduct of Tenant, or Tenant's agents, employees, contractors, or invitees.
B. For the purposes of this Paragraph 11, the following portions of the
Building shall be considered the respective "Warranty Components" and
"Warranty Periods":
WARRANTY COMPONENT LAST DAY OF WARRANTY PERIOD
Base Building electrical system First anniversary of Rent Commencement Date
Base Building plumbing system First anniversary of Rent Commencement Date
Roof system First anniversary of Rent Commencement Date
Base Building HVAC system Six months after Rent Commencement Date
C. Landlord further agrees that for the period between the date six
months after the Rent Commencement Date and the third anniversary of the Rent
Commencement Date, if the compressors serving the base Building HVAC fail,
and if Landlord receives written notice from Tenant of such failure within
such period, Landlord shall, at no cost to Tenant, replace such compressors,
unless the need for such repair or replacement arises from the fault, abuse,
negligence, or misconduct of Tenant, or Tenant's agents, employees,
contractors, or invitees.
D. Except as set forth in this Paragraph 11, Tenant shall continue to
be obligated to pay for all Building Maintenance Expenses and Tenant's
Percentage of all Common Area Expenses, each as defined in Paragraph 17 of
the Lease.
12. ADA COMPLIANCE
Tenant, at its sole cost and expense (except to the extent that Tenant
uses the Tenant Improvement Allowance in respect of the Additional Premises
for such purposes pursuant to Paragraph 6 of this First Amendment) shall
comply with the ADA (including, the obligation to make any alterations or
improvements) so far it affects the Building in which the Additional Premises
are located in any way, or Tenant's use of said Building. Landlord, at no
cost to Tenant, shall comply with the ADA (including, the obligation to make
alterations or improvements), to the extent that: (i) the ADA is in force and
effect as of the Execution Date of this First Amendment, and (ii) the ADA
requires alterations or improvements to the exterior of the Additional
Premises; provided however, that any alterations or improvements required to
be made to the doors (including any roll-up doors) to the Additional Premises
shall be Tenant's responsibility rather than Landlord's responsibility.
13. SIGNAGE
The first three sentences of Paragraph 20 of the Lease shall have no
applicability to the Additional Premises and the following shall be
substituted in their place:
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"Subject to Tenant's receipt of all necessary governmental approvals, and
provided that such signage conforms to Landlord's master plan for the Project
and the provisions of Paragraph 20 of the Lease, Tenant may, at is sole cost
and expense, install Tenant identification signage on: (i) the Tasman Drive
exterior of the Building, (ii) the Old Ironsides Drive exterior of the
Building, and (iii) the monument in front of the Building."
14. CASUALTY AND TAKING
A. For the purposes of determining whether either party may exercise
its termination rights pursuant to Paragraph 23 of the Lease in the event of
a casualty, the Existing Premises and the Additional Premises shall be
considered to be separate premises, and, subject to the provisions of
Subparagraph C of this Paragraph 14, the termination rights in respect of
each portion of the Premises shall be exercised independently and separately
from the termination rights with respect to the other portion of the
Premises. For example, if there is a casualty which affects the Existing
Premises which would give the Landlord the right to terminate the Lease in
respect of the Existing Premises but that casualty does not affect the
Additional Premises, then, based upon such casualty, Landlord shall have the
right to terminate the Lease with respect to the Existing Premises, but
Landlord shall not have the right to terminate the Lease with respect the
Additional Premises.
B. For the purposes of determining whether the Lease shall terminate
pursuant to Paragraph 24 of the Lease in the event of a taking, the Existing
Premises and the Additional Premises shall be considered to be separate
premises, and, subject to the provisions of Subparagraph C of this Paragraph
14, a taking affecting only one of the portion of the Premises shall not
cause the termination of the Lease with respect to the other portion of the
Premises.
C. Notwithstanding the provisions of Subparagraphs A and B of this
Paragraph 14, in the event of a casualty or taking which affects the Existing
Premises which would give Tenant the right to terminate the Lease in respect
of the Existing Premises, but that casualty does not affect the Additional
Premises, Tenant shall nevertheless have the right to terminate the Lease in
respect of the Additional Premises, at the same time that Tenant exercises
its right to terminate the Lease in respect of the Existing Premises. Such
termination of the term of the Lease of the Additional Premises shall be
effective as of the same date that the term of the Lease of the Existing
Premises terminates.
15. SUBLETTING
A. It is the intention of the parties that, subject to obtaining
Landlord's prior written consent in accordance with Paragraph 25 of the Lease
and the other provisions of Paragraph 25 of the Lease, Tenant may, not later
than the third anniversary of the Rent
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<PAGE>
Commencement Date, enter into a sublease or subleases aggregating up of to
28,224 rentable square feet of the Additional Premises without Landlord
having the right to recapture the premises proposed to be so subleased.
Therefore, in addition to Tenant's rights under Paragraph 25, Tenant shall
have the following supplemental rights with respect to the Additional
Premises:
(i) For the purposes of this Paragraph 15, "Non-Recapture
Subleases" shall be defined as a sublease or subleases subleasing portions of
the Additional Premises which contain, in the aggregate, no more than 28,224
rentable square feet, and which is entered into by Tenant and approved by
Landlord on or before the third anniversary of the Rent Commencement Date.
(ii) Landlord shall not have the right to elect the options set
forth in clauses (i) and (ii) of Paragraph 25.D of the Lease with respect to
Non-Recapture Subleases; and the last sentence of Paragraph 25.D of the Lease
shall not apply to Non-Recapture Subleases.
B. In lieu of the third and fourth sentences of Paragraph 25.D of the
Lease, the following shall apply to the Additional Premises:
"If Landlord consents to the Sublet with respect to the Additional
Premises, Tenant may thereafter enter into a valid Sublet of the Premises or
portion thereof, upon substantially the same terms and conditions and with
the proposed Subtenant set forth in the information furnished by Tenant to
Landlord pursuant to Paragraph 25.C, subject, however, at Landlord's
election, to the condition, that forty (40%) percent of any excess of the
Subrent over the Rent required to be paid by Tenant under this Lease ("Excess
Rental") shall be paid to Landlord. In determining the Excess Rental Tenant
shall first be allowed to recover, out of any such Excess, the following
costs in connection with any such Sublet before any Excess Rental is paid to
Landlord: cost of leasehold improvements made for the benefit of the proposed
Subtenant, architectural and engineering fees in connection with any such
Sublet, and brokerage commissions and legal fees in connection with such
Sublet. In addition, to the extent that the portion of the Additional
Premises is improved by leasehold improvements funded by Tenant prior to such
Sublet, and such leasehold improvements are used by the Subtenant, the
unamortized (i.e. on a straight-line basis over the initial term of this
Lease) cost of such leasehold improvements may also be deducted out of any
Excess before any Excess Rental is paid to Landlord (i.e. this sentence shall
have no effect if leasehold improvements paid for by Tenant in the portion of
the Additional Premises to be subleased are demolished so that new leasehold
improvements can be made).
16. ADDITIONAL LETTER OF CREDIT
Whereas Landlord is unwilling to lease the Additional Premises to Tenant
unless Tenant provides additional security for Tenant's obligations under the
Lease, Tenant shall, on or before the Rent Commencement Date, deposit with
Landlord an irrevocable
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<PAGE>
letter of credit ("Additional Letter of Credit") in the amount of Fifty
Thousand ($50,000.00) Dollars issued by a bank (other than Silicon Valley
Bank) acceptable to Landlord in Landlord's sole discretion as security for
the full and faithful performance of Tenant's obligations under the Lease.
Landlord hereby approves both Wells Fargo and Bank of America as issuing
banks for such Additional Letter of Credit. The provisions of Paragraph 7.B
shall apply to the Additional Letter of Credit. Landlord shall have no
obligation to proceed against any security which it holds for Tenant's
obligations under the Lease in any particular order.
17. BROKERAGE
The first sentence of Paragraph 35 of the Lease shall have no
applicability to this First Amendment, and in lieu thereof, the following
shall apply:
"Tenant warrants and represents that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this First
Amendment, except for Investment Development Services, Inc. and Ernst & Young
LLP, and that it knows of no other real estate broker or agent who is or
might be entitled to a commission in connection with this Lease."
18. PARKING
The second and third sentences of Paragraph 38 of the Lease shall have no
applicability to the Additional Premises, and in lieu thereof, the following
shall apply:
"Tenant shall have the right, as appurtenant to its demise of the
Additional Premises, to use up to two hundred twenty-eight (228) parking
spaces within the Project, twenty-five (25) of which shall be reserved spaces
and the remaining two hundred three (203) spaces shall be non-exclusive,
unreserved spaces. Tenant shall be permitted to locate such unreserved
parking spaces anywhere within the area shown on Exhibit G, First Amendment."
19. TENANT'S RIGHT OF FIRST OFFER
Since the Additional Premises constitute the Additional Space, as defined
in Paragraph 39, Tenant desires to be provided with further expansion rights.
Therefore, the first sentence of Paragraph 39 of the Lease is hereby deleted
in its entirety and the following is substituted in its place:
"Provided that Tenant is not in default hereunder at the time of
exercise, during the initial Term of the Lease, and so long as, at the time
of exercise, Silicon Valley Bank itself occupies the entirety of the premises
then demised to Tenant, Tenant shall have the right of first offer to lease
Building 1 and/or Building 5, as shown on Exhibit G attached hereto on the
following terms and conditions. Each Building contains approximately
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<PAGE>
56,400 square feet of rentable area and shall, for the purposes of Paragraph
39 of the Lease, be considered to be an Additional Space."
20. As hereby amended, the Lease is ratified, confirmed, and approved in
all respects.
EXECUTED as of the date first above written.
LANDLORD:
BEACON PROPERTIES, L.P.
By BEACON PROPERTIES CORPORATION,
General Partner
By /s/ Douglas S. Mitchell Date Signed: 7/22/97
----------------------------- ------------
Douglas S. Mitchell
Senior Vice President
TENANT:
SILICON VALLEY BANK
By /s/ John C. Dean Date Signed: 7/16/97
----------------------------- ------------
John C. Dean
Chief Executive Officer
By /s/ Adele G. Francisco Date Signed: 7/16/97
----------------------------- ------------
Adele G. Francisco
Executive Vice President
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SILICON VALLEY BANCSHARES
1997 EQUITY INCENTIVE PLAN
ADOPTED DECEMBER 19, 1996
APPROVED BY SHAREHOLDERS APRIL 17, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Silicon Valley Bancshares, a California corporation.
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(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board or
the chief executive officer of the Company, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of common stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Company's common stock) on the day of determination, as reported
in THE WALL STREET JOURNAL or such other source as the Board deems reliable.
(2) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is
not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(w) "PLAN" means this 1997 Equity Incentive Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
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(z) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(aa) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(cc) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees of the Board composed of one (1) or more members (the "Committee").
In the discretion of the Board, the Committee may be composed of two (2) or more
Non-Employee Directors and/or
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Outside Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, (and references in this Plan to
the Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate nine hundred thousand (900,000) shares of the
Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than two hundred fifty thousand (250,000)
shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
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(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Option (whether an Incentive
Stock Option or a Nonstatutory Stock Option) may be granted with an exercise
price lower than that set forth in the preceding sentence if such Option is
granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other common stock of the
Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration acceptable to the Board. In the case of
any deferred payment arrangement, interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option
shall only be transferable by the Optionee upon such terms and conditions as
are set forth in the Option Agreement for such Nonstatutory Stock Option, as
the Board or the Committee shall determine in its sole discretion. The
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem
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appropriate. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability or for Cause), the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for
issuance under the Plan.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates for Cause, then the Option shall immediately terminate,
and the shares covered by such Option shall revert to and again become
available for issuance under the Plan. "Cause" shall be defined as an act of
embezzlement, fraud, dishonesty, or breach of fiduciary duty to the Company,
a deliberate disregard of the rules of the Company which results in loss,
damage or injury to the Company, any unauthorized disclosure of any of the
secrets or confidential information of the Company, inducing any client or
customer of the Company to break any contract with the Company or inducing
any principal for whom the Company acts as agent to terminate such agency
relations, or engaging in any conduct which constitutes unfair competition
with the Company, or any act which results in Optionee being removed from any
office of the Company by any bank regulatory agency.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration of the term of
the Option, or (ii) the expiration of a period of three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation
of such registration requirements.
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(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of Optionee's
death, the Option may be exercised (to the extent the Optionee was entitled
to exercise the Option as of the date of death) by the Optionee's estate, by
a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period
ending on the earlier of (i) the date twelve (12) months following the date
of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares
so purchased may be subject to a repurchase right in favor of the Company or
to any other restriction the Board determines to be appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent
8
<PAGE>
(85%) of the stock's Fair Market Value on the date such award is made.
Notwithstanding the foregoing, the Board or the Committee may determine that
eligible participants in the Plan may be awarded stock pursuant to a stock
bonus agreement in consideration for past services actually rendered to the
Company or for its benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board or the Committee shall determine in its discretion, so long as stock
awarded under such Stock Award Agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate amount
of cash payments the Company may make under the Plan in connection with the
exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section
9
<PAGE>
8, be subject to the same terms and conditions applicable to the particular
Option grant to which it pertains. Tandem Stock Appreciation Rights will
require the holder to elect between the exercise of the underlying Option for
shares of stock and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable on the
exercised Tandem Right shall be in cash (or, if so provided, in an equivalent
number of shares of stock based on Fair Market Value on the date of the
Option surrender) in an amount up to the excess of (A) the Fair Market Value
(on the date of the Option surrender) of the number of shares of stock
covered by that portion of the surrendered Option in which the Optionee is
vested over (B) the aggregate exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on
an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They
shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an
amount equal to the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution payable on
the exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the
affected holders of Options and/or Stock Appreciation Rights, the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
10
<PAGE>
but having an exercise price per share not less than eighty-five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option) or, in the case of a 10%
shareholder (as described in subsection 5(b)) receiving a new grant of an
Incentive Stock Option, not less than one hundred ten percent (110%) of the
Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a
transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 9 shall continue to be counted against the maximum award of Options
and Stock Appreciation Rights permitted to be granted pursuant to subsection
5(c) of the Plan. The repricing of an Option and/or Stock Appreciation Right
under this Section 9, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and/or Stock Appreciation
Right and the grant of a substitute Option and/or Stock Appreciation Right; in
the event of such repricing, both the original and the substituted Options and
Stock Appreciation Rights shall be counted against the maximum awards of Options
and Stock Appreciation Rights permitted to be granted pursuant to subsection
5(c) of the Plan. The provisions of this subsection 9(b) shall be applicable
only to the extent required by Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act either the Plan, any Stock Award or any stock issued
or issuable pursuant to any such Stock Award. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Stock
Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11
<PAGE>
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director as provided in the
Company's Bylaws and the provisions of the California Corporations Code, or the
right to terminate the relationship of any Consultant subject to the terms of
such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
12
<PAGE>
then applicable securities laws. The Company may, upon advice of counsel to
the Company, place legends on stock certificates issued under the Plan as
such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person during any calendar year pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the type(s)
and number of securities and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company.)"
(b) In the event of "Change in Control," all outstanding Stock Awards
shall immediately become one hundred percent (100%) vested, and the Board shall
notify all participants that their outstanding Stock Awards shall be fully
exercisable for a period of three (3) months (or such other period of time not
exceeding six (6) months as is determined by the Board at the time of grant)
from the date of such notice, and any unexercised Stock Awards shall terminate
upon the expiration of such period.
"Change in Control" means the occurrence of any of the following events:
(1) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in beneficial owners of the total voting power in the
election of directors represented by the voting securities ("Voting Securities")
of the Company outstanding immediately prior thereto continuing to beneficially
own securities representing (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total
13
<PAGE>
Voting Securities of the Company, or of such surviving entity, outstanding
immediately after such merger or consolidation;
(2) the shareholders of the Company approve a plan of liquidation or
dissolution of the Company or approve an agreement for the sale, lease, exchange
or other transfer or disposition by the Company of all or substantially all of
the Company's assets;
(3) any person (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than (A) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or (B) a corporation
owned directly or indirectly by the shareholders of the Company in substantially
the same proportions as their beneficial ownership of stock in the Company, is
or becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, of the securities of the Company
representing fifty percent (50%) or more of the Voting Securities; or
(4) (A) (1) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in beneficial owners of Voting Securities
of the Company outstanding immediately prior thereto continuing to
beneficially own securities representing (either by remaining outstanding or
by being converted into voting securities of the surviving entity) more than
twenty-five percent (25%) of the total Voting Securities of the Company, or
of such surviving entity, outstanding immediately after such merger or
consolidation, or (2) any person (as such term is used in Sections 13(d) or
14(d) of the Exchange Act), other than (a) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or (b) a
corporation owned directly or indirectly by the shareholders of Company in
substantially the same proportions as their ownership of stock in the
Company, is or becomes the beneficial owner (within the meaning or Rule 13d-3
under the Exchange Act), directly or indirectly, of the securities of the
Company representing twenty-five percent (25%) or more of the Voting
Securities of such corporation, and
(B) within twelve (12) months of the occurrence of such event,
a change in the composition of the Company's Board occurs as a result of
which sixty percent (60%) or fewer of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof;
(B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors of the Company
who are Incumbent Directors described in (A) above at the time of such
election or nomination; or
(C) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors of the Company
who are Incumbent Directors described in (A) or (B) above at the time of such
election or nomination.
14
<PAGE>
Notwithstanding the foregoing, "Incumbent Directors" shall not include an
individual whose election or nomination to the Board occurs in order to
provide representation for a person or group of related persons who have
initiated or encouraged an actual or threatened proxy contest relating to the
election of directors of the Company.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding Stock Awards granted under the Plan. However,
except as provided in paragraph 13 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 18, 2006 which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the shareholders of the Company, whichever is earlier. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
15
<PAGE>
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Stock Award was
granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the shareholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES AND
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINED IN THE REPORT ON FORM 10-Q FILED
BY SILICON VALLEY BANCSHARES FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 116,893
<INT-BEARING-DEPOSITS> 307
<FED-FUNDS-SOLD> 365,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 693,833
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,038,212
<ALLOWANCE> 37,300
<TOTAL-ASSETS> 2,215,784
<DEPOSITS> 2,055,016
<SHORT-TERM> 0
<LIABILITIES-OTHER> 10,081
<LONG-TERM> 0
0
0
<COMMON> 70,170
<OTHER-SE> 80,517
<TOTAL-LIABILITIES-AND-EQUITY> 2,215,784
<INTEREST-LOAN> 49,525
<INTEREST-INVEST> 18,123
<INTEREST-OTHER> 6,965
<INTEREST-TOTAL> 74,613
<INTEREST-DEPOSIT> 23,674
<INTEREST-EXPENSE> 23,674
<INTEREST-INCOME-NET> 50,939
<LOAN-LOSSES> 5,966
<SECURITIES-GAINS> 45
<EXPENSE-OTHER> 30,420
<INCOME-PRETAX> 22,360
<INCOME-PRE-EXTRAORDINARY> 12,969
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,969
<EPS-PRIMARY> 1.29
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