<PAGE> 1
800,000 PREFERRED SECURITIES
MBHI CAPITAL TRUST I
10.0% CUMULATIVE PREFERRED SECURITIES
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED
ON A SUBORDINATED BASIS BY
MIDWEST BANC LOGO
------------------------------------------
The preferred securities represent undivided beneficial interests in the assets
of MBHI Capital Trust I. The trust will invest all of the proceeds of this
offering of preferred securities to purchase 10.0% junior subordinated
debentures of Midwest Banc Holdings, Inc.
For each of the preferred securities that you own, you will receive cumulative
cash distributions at an annual rate of 10.0% on March 31, June 30, September 30
and December 31 of each year, beginning September 30, 2000, from payments on the
debentures. We may defer payments of distributions at any time for up to 20
consecutive quarters. The preferred securities are effectively subordinated to
all senior and subordinated indebtedness of Midwest Banc Holdings and its
subsidiaries. The debentures mature and the preferred securities must be
redeemed by June 7, 2030. The trust may redeem the preferred securities, at a
redemption price of $25 per preferred security plus accrued and unpaid
distributions, at any time on or after June 7, 2005, or earlier under
circumstances specified in this prospectus.
The preferred securities have been approved for listing on the American Stock
Exchange under the symbol MBH.Pr.
INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OBLIGATIONS OF ANY BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
------------------------------------------
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
------------- -----------
<S> <C> <C>
Public offering price....................................... $25.00 $20,000,000
Proceeds to the trust....................................... $25.00 $20,000,000
</TABLE>
This is a firm commitment underwriting. Midwest Banc Holdings will pay
underwriting commissions of $0.875 per preferred security, or a total of
$700,000, for arranging the investment in its junior subordinated debentures.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HOWE BARNES INVESTMENTS, INC.
June 2, 2000
<PAGE> 2
[MAP]
[Reflects locations of Midwest Banc Holdings'
banking centers and lists addresses of same.]
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Selected Consolidated Financial Data........................ 6
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 12
Use of Proceeds............................................. 13
Capitalization.............................................. 14
Accounting and Regulatory Treatment......................... 15
Management.................................................. 16
Description of the Trust.................................... 17
Description of the Preferred Securities..................... 18
Description of the Debentures............................... 29
Book-Entry Issuance......................................... 37
Description of the Guarantee................................ 38
Relationship among the Preferred Securities, the Debentures
and the Guarantee......................................... 41
Federal Income Tax Consequences............................. 42
ERISA Considerations........................................ 45
Underwriting................................................ 46
Legal Matters............................................... 47
Where You Can Find Information.............................. 47
Experts..................................................... 48
Documents Incorporated by Reference......................... 48
</TABLE>
------------------------------------------
You should only rely on the information contained or incorporated by
reference in this prospectus. We have not, and our underwriters have not,
authorized any person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and our underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only.
ii
<PAGE> 4
This page intentionally left blank.
iii
<PAGE> 5
SUMMARY
This summary highlights information contained elsewhere in, or incorporated
by reference into, this prospectus. Because this is a summary, it may not
contain all of the information that is important to you. Therefore, you should
also read the more detailed information set forth in this prospectus, our
financial statements and the other information that is incorporated by reference
in this prospectus.
MIDWEST BANC HOLDINGS, INC.
We are a community-based bank holding company headquartered in Melrose
Park, Illinois. We provide a wide range of community banking services, including
traditional deposit and lending activities, personal and corporate trust
services, residential mortgage origination, insurance and retail securities
brokerage services.
Our principal operating subsidiaries are four Illinois community banks. The
banks operate out of 17 locations with 12 banking centers in the Chicago
metropolitan area and five banking centers in Western Illinois. Our banks serve
individuals, small- to medium-sized businesses, government and public entities
and not-for-profit organizations. The markets served by our subsidiaries provide
a mix of real estate, commercial, agricultural and consumer lending
opportunities, as well as a stable core deposit base. The following table
highlights information about our banks:
<TABLE>
<CAPTION>
YEAR BANKING ASSETS (IN MILLIONS)
BANK HEADQUARTERS AFFILIATED CENTERS ATMS AT MARCH 31, 2000
---- ------------ ---------- ------- ---- --------------------
<S> <C> <C> <C> <C> <C>
Midwest Bank and Trust Company... Elmwood Park, IL 1959 5 11 $578.3
Midwest Bank of Hinsdale......... Hinsdale, IL 1991 3 4 $285.6
Midwest Bank of McHenry County... Union, IL 1987 4 3 $268.5
Midwest Bank of Western Monmouth, IL
Illinois....................... 1993 5 8 $195.0
</TABLE>
In addition, two banks have subsidiaries that provide insurance and
investment brokerage services, and we have a subsidiary that provides data
processing services to the three banks operating within the Chicago metropolitan
area.
At March 31, 2000, we had $1.3 billion in assets, $690.9 million in loans,
$985.9 million in deposits and $68.5 million in stockholders' equity. Our first
quarter 2000 net income was $3.4 million, an increase of 34.9% over net income
of $2.5 million for the quarter ended March 31, 1999. Basic and diluted earnings
per share were $0.31 for the quarter ended March 31, 2000, compared to $0.23 for
the similar period in 1999. Our return on average assets was 1.07% for the first
quarter of 2000, up from 0.95% for the same period of 1999, while our return on
average equity increased to 20.86% for the first quarter 2000 from 13.44% for
the prior year period.
Our common stock is quoted on the Nasdaq National Market under the symbol
MBHI. Our executive offices are located at 501 W. North Avenue, Melrose Park,
Illinois 60160 and our telephone number is (708) 865-1053.
We have accomplished significant profitable growth within our markets over
the past ten years. Total assets have increased from $341.5 million at December
31, 1989 to $1.3 billion at December 31, 1999, while net income has increased
from $2.5 million for 1989 to $11.9 million for 1999. We attribute this success
to our selective banking center expansion and our strategy to be positioned as a
lower cost provider of premium rate deposits and competitively priced loan
products within our core markets. The rate of
1
<PAGE> 6
growth in our total assets, loans, deposits and net income over the most recent
one-, three- and ten-year periods are shown below:
<TABLE>
<CAPTION>
1999 ANNUAL THREE YEAR AVERAGE TEN YEAR AVERAGE
PERCENTAGE GROWTH ANNUAL GROWTH RATE ANNUAL GROWTH RATE
----------------- ------------------ ------------------
<S> <C> <C> <C>
Total assets............................... 17.3% 19.9% 26.8%
Total loans................................ 23.9% 17.9% 25.2%
Total deposits............................. 11.7% 12.8% 21.6%
Net income................................. 14.3% 20.9% 37.4%
</TABLE>
Our strategy is to continue to take advantage of opportunities to expand
our business through internal growth as well as possible branch acquisitions,
while maintaining our historically low net overhead ratio. We are seeking to
increase loans as a percentage of total earning assets and to leverage our
customer base by increasing our emphasis on fee-based products and services. Key
aspects of our growth strategy include:
- Increasing loan growth and net interest margins by leveraging our
expertise and strong commercial customer base;
- Building a well-defined sales and service culture to maximize revenues
per household and ensure the highest levels of customer service;
- Improving our overall revenue effectiveness and cost-efficiency,
streamlining decision-making and further centralizing and standardizing
critical support activities;
- Accelerating fee income growth from nonbank financial
services -- primarily insurance and investment brokerage; and
- Expanding our market position through the opening of new banking centers
and the highly selective acquisition of other banks and branches.
As part of our expansion strategy, we opened new banking centers in
McHenry, Island Lake, and Roselle, Illinois during the past 18 months, and
acquired a banking center in Aledo, Illinois in December 1999. Also in 1999, we
began a strategic repositioning to eliminate unprofitable operations, to enhance
our revenues while managing our costs more effectively, and to realign certain
management responsibilities to develop an orderly succession plan and streamline
decision-making. To support our growth, over the last year we have added a
senior credit officer, several experienced loan officers, a sales manager, two
experienced banking center managers, an investment portfolio manager and a
training officer.
MBHI CAPITAL TRUST I
The trust is a newly formed financing subsidiary of Midwest Banc Holdings.
Upon issuance of the preferred securities offered by this prospectus, the
purchasers in this offering will own all of the issued and outstanding preferred
securities of the trust. In exchange for our capital contribution to the trust,
we will own all of the common securities of the trust. The trust exists
exclusively for the following purposes:
- issuing the preferred securities to the public for cash;
- issuing the common securities to us;
- investing the proceeds from the sale of the preferred and common
securities in an equivalent amount of 10.0% junior subordinated
debentures due June 7, 2030, issued by us; and
- engaging in activities that are incidental to those listed above.
The trust's address is 501 West North Avenue, Melrose Park, Illinois 60160,
and its telephone number is (708) 865-1053.
2
<PAGE> 7
THE OFFERING
The issuer................... MBHI Capital Trust I
Securities being offered..... 800,000 preferred securities, which represent
preferred undivided beneficial interests in the
assets of the trust. Those assets will consist
solely of the debentures and payments received on
the debentures.
The trust will sell the preferred securities to
the public for cash. The trust will use that cash
to buy the debentures from us.
Offering price............... $25 per preferred security.
When distributions will be
paid to you.................. If you purchase the preferred securities, you are
entitled to receive cumulative cash distributions
at a 10.0% annual rate. Distributions will
accumulate from the date the trust issues the
preferred securities and are to be paid quarterly
on March 31, June 30, September 30 and December
31 of each year beginning September 30, 2000. As
long as the preferred securities are represented
by a global security, the record date for
distributions on the preferred securities will be
the business day prior to the distribution date.
We may defer the payment of cash distributions,
as described below.
When the preferred securities
must be redeemed............. The debentures will mature and the preferred
securities must be redeemed on June 7, 2030. We
have the option, however, to shorten the maturity
date to a date not earlier than June 7, 2005. We
will not shorten the maturity date unless we have
received the prior approval of the Board of
Governors of the Federal Reserve System, if
required.
Redemption of the preferred
securities before June 7,
2030 is possible............. The trust must redeem the preferred securities
when the debentures are paid at maturity or upon
any earlier redemption of the debentures. We may
redeem all or part of the debentures at any time
on or after June 7, 2005. In addition, we may
redeem, at any time, all of the debentures if:
- the interest we pay on the debentures is no
longer deductible by us for federal tax
purposes; or the trust becomes subject to
federal income tax; or the trust becomes or
will become subject to certain other taxes
or governmental charges;
- there is a change in existing laws or
regulations that requires the trust to
register as an investment company; or
- there is a change in the capital adequacy
guidelines of the Federal Reserve that
results in the preferred securities not
being counted as Tier 1 capital.
We may also redeem debentures at any time, and
from time to time, in an amount equal to the
liquidation amount of any preferred securities we
purchase, plus a proportionate amount of common
securities, but only in exchange for a like
amount of the preferred securities and common
securities then owned by us.
3
<PAGE> 8
Redemption of the debentures prior to maturity
will be subject to the prior approval of the
Federal Reserve, if approval is then required. If
your preferred securities are redeemed by the
trust, you will receive the liquidation amount of
$25 per preferred security plus any accrued and
unpaid distributions to the date of redemption.
We have the option to extend
the interest payment
period....................... The trust will rely solely on payments made by us
under the debentures to pay distributions on the
preferred securities. As long as we are not in
default under the indenture relating to the
debentures, we may, at one or more times, defer
interest payments on the debentures for up to 20
consecutive quarters, but not beyond June 7,
2030. If we defer interest payments on the
debentures:
- the trust will also defer distributions on
the preferred securities;
- the distributions you are entitled to will
accumulate; and
- these accumulated distributions will earn
additional interest at an annual rate of
10.0%, compounded quarterly. At the end of
any deferral period, we will pay to the
trust all accrued and unpaid interest under
the debentures. The trust will then pay all
accumulated and unpaid distributions to you.
You will still be taxed if
distributions on the
preferred securities are
deferred..................... If a deferral of payment occurs, you will still
be required to recognize the deferred amounts as
income for United States federal income tax
purposes in advance of receiving these amounts,
even if you are a cash basis taxpayer.
Our guarantee of payment..... We guarantee the trust will use its assets to pay
the distributions on the preferred securities and
the liquidation amount upon liquidation of the
trust. However, the guarantee does not apply when
the trust does not have sufficient funds to make
the payments. If we do not make payments on the
debentures, the trust will not have sufficient
funds to make payments on the preferred
securities. In this event, your remedy is to
institute a legal proceeding directly against us
for enforcement of payments under the debentures.
We may distribute the
debentures directly to you... We may, at any time, dissolve the trust and
distribute the debentures to you, subject to the
prior approval of the Federal Reserve, if
required. If we distribute the debentures, we
will use our reasonable efforts to list them on a
national securities exchange or comparable
automated quotation system.
How the securities will rank
in right of payment.......... Our obligations under the preferred securities,
debentures and guarantee are unsecured and will
rank as follows with regard to right of payment:
- the preferred securities will rank equally
with the common securities of the trust. The
trust will pay distributions on the
preferred securities and the common
securities pro rata. However, if we default
with respect to the debentures, then no
distributions on the common securities of
the trust or our
4
<PAGE> 9
common stock will be paid until all
accumulated and unpaid distributions on the
preferred securities have been paid;
- our obligations under the debentures and the
guarantee are unsecured and generally will
rank junior in priority to our existing and
future senior and other subordinated
indebtedness; and
- because we are a bank holding company, the
junior subordinated debentures and the
guarantee will effectively be subordinated
to all depositors' claims, as well as
existing and future liabilities of our
subsidiaries.
Voting rights of the
preferred securities......... Except in limited circumstances, holders of the
preferred securities will have no voting rights.
American Stock Exchange
symbol....................... MBH.Pr
You will not receive
certificates................. The preferred securities will be represented by a
global security that will be deposited with and
registered in the name of The Depository Trust
Company, New York, New York, or its nominee. This
means that you will not receive a certificate for
the preferred securities, and your beneficial
ownership interests will be recorded through the
DTC book-entry system.
How the proceeds of this
offering will be used........ The trust will invest all of the proceeds from
the sale of the preferred securities in the
debentures. We estimate that the net proceeds to
us from the sale of the debentures to the trust,
after deducting underwriting expenses and
commissions, will be approximately $19.1 million.
We expect to use approximately $9.0 million of
the net proceeds from the sale of the debentures
to repay a portion of the indebtedness currently
outstanding under our revolving credit line. We
also anticipate that upon completion of this
offering we will contribute approximately $10.0
million of the net proceeds to our banks as
capital to support their internal growth. The
remaining net proceeds will be available to us
for general corporate purposes, including, but
not limited to, additional capital contributions
to the banks to support future growth and to
finance potential future expansion.
Before purchasing the preferred securities being offered, you should
carefully consider the "Risk Factors" beginning on page 7.
5
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below for, and as of the
end of, each of the years in the five-year period ended December 31, 1999, are
derived from our historical financial statements. Our consolidated financial
statements are audited by Crowe, Chizek and Company LLP, independent certified
public accountants. The summary data presented below for the three-month periods
ended March 31, 2000 and 1999, are unaudited. In our opinion, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of results as of or for the three-month periods indicated have been included.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto incorporated by reference into this
prospectus from our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000. Results for past periods are not necessarily indicative of
results to be expected for any future period, and results for the three-month
period ended March 31, 2000, are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Total interest income............. $24,824 $18,911 $84,146 $74,827 $67,326 $57,298 $47,603
Total interest expense............ 13,615 10,207 44,262 41,014 35,311 28,918 22,619
---------- ---------- ---------- ---------- -------- -------- --------
Net interest income............... 11,209 8,704 39,884 33,813 32,015 28,380 24,984
Provision for loan losses......... 355 474 2,203 1,326 2,454 1,718 1,542
---------- ---------- ---------- ---------- -------- -------- --------
Net interest income after
provision for loan losses....... 10,854 8,230 37,681 32,487 29,561 26,662 23,442
Other income...................... 1,577 1,900 6,734 6,787 5,563 4,410 3,522
Other expenses.................... 7,210 6,209 25,774 22,895 21,076 19,167 17,781
---------- ---------- ---------- ---------- -------- -------- --------
Income before income taxes........ 5,221 3,921 18,641 16,379 14,048 11,905 9,183
Provision for income taxes........ 1,818 1,399 6,750 5,974 5,537 4,597 3,151
---------- ---------- ---------- ---------- -------- -------- --------
Net income........................ $3,403 $2,522 $11,891 $10,405 $8,511 $7,308 $6,032
========== ========== ========== ========== ======== ======== ========
PER SHARE DATA(1):
Earnings (basic).................. $ 0.31 $ 0.23 $ 1.08 $ 0.94 $ 0.85 $ 0.73 $ 0.60
Earnings (diluted)................ 0.31 0.23 1.07 0.94 0.85 0.73 0.60
Cash dividends declared........... 0.125 0.075 0.35 0.145 0.055 0.055 0.055
Book value at end of period....... 6.37 6.83 6.22 6.88 5.29 4.29 3.83
Tangible book value at end of
period.......................... 6.15 6.60 6.00 6.65 5.05 4.03 3.55
BALANCE SHEET DATA:
Total assets...................... $1,331,895 $1,089,266 $1,256,462 $1,071,314 $908,642 $786,070 $660,315
Total earning assets.............. 1,257,236 1,033,093 1,184,546 1,014,691 855,675 737,338 611,597
Total loans....................... 690,880 537,914 646,455 521,880 488,099 420,655 359,639
Allowance for loan losses......... 7,444 6,609 7,567 6,576 6,143 5,342 4,603
Total deposits.................... 985,913 895,225 970,954 869,152 794,362 701,205 590,671
Borrowings........................ 222,400 106,900 177,150 107,800 42,575 27,495 16,077
Stockholders' equity.............. 68,547 75,848 67,694 77,629 52,960 42,962 38,387
SELECTED FINANCIAL DATA:
Return on average assets(2)....... 1.07% 0.95% 1.04% 1.04% 1.01% 1.01% 1.02%
Return on average equity(2)....... 20.86 13.44 16.39 14.60 18.36 19.36 18.65
Net interest margin(2)............ 3.80 3.48 3.75 3.61 4.11 4.27 4.67
Nonperforming loans to total
loans........................... 0.31 0.81 0.37 0.90 0.66 1.03 0.60
Net loan charge-offs to average
loans(2)........................ 0.29 0.33 0.21 0.18 0.36 0.26 0.28
Allowance for loan losses to total
loans........................... 1.08 1.23 1.17 1.26 1.26 1.27 1.28
Average equity to average
assets.......................... 5.11 7.04 6.31 7.11 5.51 5.20 5.49
Tier 1 risk-based capital ratio... 9.90 12.90 11.11 13.47 9.60 9.57 7.64
Total risk-based capital ratio.... 10.88 14.00 12.20 14.64 10.78 10.76 8.66
EARNINGS TO FIXED CHARGES:
Including interest on deposits.... 1.38x 1.38x 1.42x 1.40x 1.40x 1.41x 1.41x
Excluding interest on deposits.... 2.59x 3.65x 3.47x 4.29x 6.21x 6.61x 6.38x
</TABLE>
-------------------------
(1) Per share data have been adjusted for stock splits in 1997 and 1996.
(2) Data for the three-month periods have been annualized. The data for the
three months ended March 31, 2000 are not necessarily indicative of results
for the entire year.
6
<PAGE> 11
RISK FACTORS
An investment in the preferred securities involves a number of risks. We
urge you to read all of the information contained in this prospectus. In
addition, we urge you to consider carefully the following factors in evaluating
an investment in the trust before you purchase the preferred securities offered
by this prospectus.
Because the trust will rely on the payments it receives on the debentures
to fund all payments on the preferred securities, and because the trust may
distribute the debentures in exchange for the preferred securities, purchasers
of the preferred securities are making an investment decision that relates to
the debentures being issued by Midwest Banc Holdings as well as the preferred
securities. Purchasers should carefully review the information in this
prospectus about the preferred securities, the debentures and the guarantee.
RISKS RELATED TO AN INVESTMENT IN THE PREFERRED SECURITIES
IF WE DO NOT MAKE INTEREST PAYMENTS UNDER THE DEBENTURES, THE TRUST WILL BE
UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS. THE GUARANTEE WILL NOT
APPLY BECAUSE THE GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS FUNDS
AVAILABLE.
The trust will depend solely on our payments on the debentures to pay
amounts due to you on the preferred securities. If we default on our obligation
to pay the principal or interest on the debentures, the trust will not have
sufficient funds to pay distributions or the liquidation amount on the preferred
securities. In that case, you will not be able to rely on the guarantee for
payment of these amounts because the guarantee only applies if the trust has
sufficient funds to make distributions on or to pay the liquidation amount of
the preferred securities. Instead, you or the property trustee will have to
institute a direct action against us to enforce the property trustee's rights
under the indenture relating to the debentures.
TO THE EXTENT WE MUST RELY ON DIVIDENDS FROM OUR SUBSIDIARIES TO MAKE INTEREST
PAYMENTS ON THE DEBENTURES TO THE TRUST, OUR AVAILABLE CASH FLOW MAY BE
RESTRICTED.
We are a holding company and substantially all of our assets are held by
our subsidiaries. Our ability to make payments on the debentures when due will
depend primarily on available cash resources at the bank holding company and
dividends from our subsidiaries. Dividend payments or extensions of credit from
our banking subsidiaries are subject to regulatory limitations, generally based
on capital levels and current and retained earnings, imposed by the various
regulatory agencies with authority over such subsidiaries. The ability of each
banking subsidiary to pay dividends is also subject to its profitability,
financial condition, capital expenditures and other cash flow requirements. We
cannot assure you that our subsidiaries will be able to pay dividends in the
future.
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN OUR OTHER INDEBTEDNESS AND OUR
HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US TO
THOSE OF OUR SUBSIDIARIES' CREDITORS.
Our obligations under the debentures and the guarantee are unsecured and
will rank junior in priority of payment to our existing and future senior and
subordinated indebtedness, which totaled $269.0 million at March 31, 2000. The
issuance of the debentures and the preferred securities does not limit our
ability or the ability of our subsidiaries to incur additional indebtedness,
guarantees or other liabilities.
Because we are a holding company, the creditors of our subsidiaries,
including depositors, also will have priority over you in any distribution of
our subsidiaries' assets in liquidation, reorganization or otherwise.
Accordingly, the debentures and the guarantee will be effectively subordinated
to all existing and future liabilities of our subsidiaries, and you should look
only to our assets for payments on the preferred securities and the debentures.
7
<PAGE> 12
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR SUBSTANTIAL
PERIODS.
We may, at one or more times, defer interest payments on the debentures for
up to 20 consecutive quarters. If we defer interest payments on the debentures,
the trust will defer distributions on the preferred securities during any
deferral period. During a deferral period, you will be required to recognize as
income for federal income tax purposes the amount approximately equal to the
interest that accrues on your proportionate share of the debentures held by the
trust in the tax year in which that interest accrues, even though you will not
receive these amounts until a later date.
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the preferred securities before the end of
any deferral period. During a deferral period, accrued but unpaid distributions
will increase your tax basis in the preferred securities. If you sell the
preferred securities during a deferral period, your increased tax basis will
decrease the amount of any capital gain or increase the amount of any capital
loss that you may have otherwise realized on the sale. A capital loss, except in
certain limited circumstances, cannot be applied to offset ordinary income. As a
result, deferral of distributions could result in ordinary income, and a related
tax liability for the holder, and a capital loss that may only be used to offset
a capital gain.
We do not currently intend to exercise our right to defer interest payments
on the debentures. However, if we exercise our right in the future, the market
price of the preferred securities would likely be adversely affected. The
preferred securities may trade at a price that does not fully reflect the value
of accrued but unpaid interest on the debentures. If you sell the preferred
securities during an interest deferral period, you may not receive the same
return on investment as someone who continues to hold the preferred securities.
Due to our right to defer interest payments, the market price of the preferred
securities may be more volatile than the market prices of other securities
without the deferral feature.
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT.
The indenture governing the debentures and the trust agreement governing
the trust do not require us to maintain any financial ratios or specified levels
of net worth, revenues, income, cash flow or liquidity, and therefore do not
protect holders of the debentures or the preferred securities in the event we
experience significant adverse changes in our financial condition or results of
operations. In addition, neither the indenture nor the trust agreement limits
our ability or the ability of any subsidiary to incur additional indebtedness.
Therefore, you should not consider the provisions of these governing instruments
as a significant factor in evaluating whether we will be able to comply with our
obligations under the debentures or the guarantee.
WE MAY REDEEM THE DEBENTURES BEFORE JUNE 7, 2030.
Under certain circumstances, we may redeem the debentures before their
stated maturity, including the following:
- We may redeem the debentures, in whole or in part, at any time on or
after June 7, 2005.
- We may redeem the debentures in whole, but not in part, within 180 days
after certain occurrences at any time during the life of the trust. These
occurrences may include adverse tax, investment company or bank
regulatory developments.
You should assume that we will exercise our redemption option if we are
able to obtain capital at a lower cost than we must pay on the debentures or if
it is otherwise in our interest to redeem all or some of the debentures. If
debentures are redeemed, the trust must redeem preferred securities having an
aggregate liquidation amount equal to the aggregate principal amount of
debentures redeemed, and you may be required to reinvest your principal at a
time when you may not be able to earn a return that is as high as you were
earning on the preferred securities.
8
<PAGE> 13
WE CAN DISTRIBUTE THE DEBENTURES TO YOU, WHICH MAY HAVE ADVERSE TAX CONSEQUENCES
FOR YOU AND WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF THE PREFERRED
SECURITIES.
The trust may be dissolved at any time before maturity of the debentures on
June 7, 2030. As a result, and subject to the terms of the trust agreement, the
trustees may distribute the debentures to you.
We cannot predict the market prices for the debentures that may be
distributed in exchange for preferred securities upon liquidation of the trust.
The preferred securities, or the debentures that you may receive if the trust is
liquidated, may trade at a discount to the price that you paid to purchase the
preferred securities. Because you may receive debentures, your investment
decision with regard to the preferred securities will also be an investment
decision with regard to the debentures. You should carefully review all of the
information contained in this prospectus regarding the debentures.
Under current interpretations of United States federal income tax laws
supporting classification of the trust as a grantor trust for tax purposes, a
distribution of the debentures to you upon the dissolution of the trust would
not be a taxable event to you. Nevertheless, if the trust is classified for
United States income tax purposes as an association taxable as a corporation at
the time it is dissolved, the distribution of the debentures would be a taxable
event to you. In addition, if there is a change in law, a distribution of
debentures upon the dissolution of the trust could be a taxable event to you.
THERE IS NO CURRENT PUBLIC MARKET FOR THE PREFERRED SECURITIES AND THEIR MARKET
PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
There is currently no public market for the preferred securities. Although
the preferred securities have been approved for listing on the American Stock
Exchange, there is no guarantee that an active or liquid trading market will
develop for the preferred securities or that the listing of the preferred
securities will continue on the American Stock Exchange. If an active trading
market does not develop, the market price and liquidity of the preferred
securities will be adversely affected. Even if an active public market does
develop, there is no guarantee that the market price for the preferred
securities will equal or exceed the price you pay for the preferred securities.
Future trading prices of the preferred securities may be subject to
significant fluctuations in response to prevailing interest rates, our future
operating results and financial condition, the market for similar securities and
general economic and market conditions. The initial public offering price of the
preferred securities has been set at the liquidation amount of the preferred
securities and may be greater than the market price following the offering.
The market price for the preferred securities, or the debentures that you
may receive in a distribution, is also likely to decline during any period that
we are deferring interest payments on the debentures.
YOU MUST RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS AN
EVENT OF DEFAULT UNDER THE INDENTURE.
You may not be able to directly enforce your rights against us if an event
of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of default
under the trust agreement. In that case, you must rely on the enforcement by the
property trustee of its rights as holder of the debentures against us. The
holders of a majority in liquidation amount of the preferred securities will
have the right to direct the property trustee to enforce its rights. If the
property trustee does not enforce its rights following an event of default and a
request by the record holders to do so, any record holder may, to the extent
permitted by applicable law, take action directly against us to enforce the
property trustee's rights. If an event of default occurs under the trust
agreement that is attributable to our failure to pay interest or principal on
the debentures, or if we default under the guarantee, you may proceed directly
against us. You will not be able to exercise directly any other remedies
available to the holders of the debentures unless the property trustee fails to
do so.
9
<PAGE> 14
AS A HOLDER OF PREFERRED SECURITIES YOU HAVE LIMITED VOTING RIGHTS.
Holders of preferred securities have limited voting rights. Your voting
rights pertain primarily to amendments to the trust agreement. In general, only
we can replace or remove any of the trustees. However, if an event of default
under the trust agreement occurs and is continuing, the holders of at least a
majority in aggregate liquidation amount of the preferred securities may replace
the property trustee and the Delaware trustee.
RISKS RELATED TO AN INVESTMENT IN MIDWEST BANC HOLDINGS, INC.
CREDIT LOSSES ARE INHERENT IN OUR BUSINESS AND OUR ALLOWANCE FOR LOAN LOSSES MAY
NOT BE ADEQUATE TO COVER ACTUAL LOAN LOSSES.
Credit losses are inherent in the lending business and could have a
material adverse effect on our operating results and our ability to make
payments on the debentures. We make various assumptions and judgments about the
collectibility of our loan portfolio and provide an allowance for loan losses
based on a number of factors. The amount of future losses is susceptible to
changes in economic, operating and other conditions, including changes in
interest rates, beyond our control. Such losses may exceed current estimates. If
our assumptions are wrong, our allowance for loan losses may not be sufficient
to cover our losses, thereby having an adverse effect on our operating results,
and may cause us to increase the allowance in the future. Additions to our
allowance for loan losses would decrease our net income.
COMMERCIAL AND COMMERCIAL REAL ESTATE LOANS REPRESENT A SIGNIFICANT PORTION OF
OUR LOAN PORTFOLIO, AND REPAYMENT OF THESE LOANS MAY BE DEPENDENT ON FACTORS
OUTSIDE OUR CONTROL OR THE CONTROL OR OUR BORROWERS.
As of March 31, 2000, commercial real estate loans totaled $345.4 million,
or 50.0%, of our total loan portfolio. Commercial real estate lending typically
involves higher loan principal amounts and the repayment of the loans generally
is dependent, in large part, on sufficient income and cash flow from the
properties securing the loans to cover operating expenses and debt service.
Economic events or governmental regulations outside of the control of the
borrower or lender could negatively impact the future cash flow and market
values of the affected properties.
Commercial loans were $183.5 million, or 26.6% of our total loan portfolio,
as of March 31, 2000. Our commercial loans are primarily made based on the
identified cash flow of the borrower and, to a lesser extent, based on the
underlying collateral provided by the borrower. Most often, this collateral is
accounts receivable, inventory, and machinery. In the case of loans secured by
accounts receivable, the availability of funds for the repayment of these loans
may be substantially dependent on the ability of the borrower to collect amounts
due from its customers. Virtually all loans in this category also include the
personal guaranty of the borrower or principal owner. Credit support provided by
the borrower for most of these loans and the probability of repayment depends on
the liquidation of the pledged collateral and enforcement of a personal
guarantee, if necessary. The collateral securing these loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based on the
success of the business.
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH.
We have achieved significant growth during the past five years and our
strategy contemplates further growth and expansion. Although successfully
managed in the past, our growth strategy involves a variety of risks, including
our ability to:
- to attract the management talent needed to maintain adequate depth of
management throughout our organization as we continue to grow in the
future;
- maintain adequate sources of funding at attractive pricing;
10
<PAGE> 15
- maintain adequate underwriting practices and policies, as well as
monitoring systems, to maintain credit quality and manage a growing loan
portfolio in the future; and
- implement appropriate policies, procedures and operating systems
necessary to support a larger organization while preserving our
historically low net overhead ratios.
Failure to address these issues successfully as we grow could adversely
affect our results of operations and financial condition.
THERE IS NO ASSURANCE THAT WE WILL CONTINUE TO EXPAND.
In addition to developing additional business in our existing markets, we
may expand our markets by establishing new banks or additional branches. If we
expand in this manner, our banks are likely to have higher operating expenses
relative to operating income, which may limit increases in short-term
profitability and could adversely affect our ability to make payments on the
preferred securities. Our ability to achieve profitable growth by establishing
new banks or branch offices is dependent on our identifying advantageous office
locations and generating sufficient levels of deposits and loans from those
locations to become profitable within a reasonable time period, typically 12 to
18 months. Though a successful strategy in the past, we cannot assure investors
that we will be able to establish additional banks or branches on a profitable
basis in the future.
WE RELY HEAVILY ON OUR MANAGEMENT AND THE UNEXPECTED LOSS OF KEY OFFICERS MAY
ADVERSELY AFFECT OUR OPERATIONS.
Our success has been and will continue to be greatly influenced by our
ability to retain the services of existing senior management and, as we expand,
to attract and retain qualified additional senior and middle management. We
recently announced that leadership of the company will be transferred to a new
chief executive officer in connection with the planned retirement of Robert L.
Woods, our current President and Chief Executive Officer effective July 1, 2000.
Uncertainties that may be associated with this management succession, the
unexpected loss of services of any of our key management personnel, or an
inability to recruit and retain qualified personnel in the future, could have an
adverse effect on our operations and financial results. Currently, we or the
banks are beneficiaries under $1,000,000 to $2,000,000 individual key-man life
insurance policies on four key members of management, including Brad A. Luecke,
the current President of Midwest Bank and Trust Company who has been named to
succeed Mr. Woods as President and Chief Executive Officer of Midwest Banc
Holdings.
We also depend upon the experience of the officers of our subsidiaries, the
managers of our banking facilities and on their relationships with the
communities they serve. We may not be able to retain our current key personnel
or attract additional qualified key persons as needed.
CHANGES IN LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR LOAN PORTFOLIO.
Most of our lending and deposit activities are concentrated primarily in
selected communities in greater Chicago and Western Illinois. Adverse changes in
the economy of the Chicago metropolitan area and Western Illinois would likely
reduce our growth rate and could have a negative effect on our business.
Negative effects may include the demand for new loans, the availability of new
deposits as a source of funding, the ability of customers to repay loans and the
value of the collateral pledged as security for loans.
The majority of our agricultural loans and loans to agribusinesses are
concentrated in West Central Illinois and managed by Midwest Bank of Western
Illinois. The concentration of these loans in a specific local geographic area
could affect our ability to be repaid if adverse local weather, soil or economic
conditions interfere with present and projected farming, marketing and
harvesting operations.
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<PAGE> 16
WE HAVE NO CONTROL OVER INTEREST RATES AND OTHER CONDITIONS WHICH IMPACT OUR
RESULTS OF OPERATIONS.
Our primary source of income is the spread between the interest rates
earned on investments and loans and the interest rates paid on deposits and
other interest-bearing liabilities. Like most banking institutions, our net
interest spread and margin will be affected by general economic conditions and
other factors, including fiscal and monetary policies of the federal government,
that influence market interest rates and our ability to respond to changes in
such rates. At any given time, our asset and liabilities mix may be affected
differently by a given change in interest rates. As a result, an increase or
decrease in rates, combined with the length of loan maturities or the mix of
adjustable and fixed rate loans in our portfolio, could have a positive or
negative effect on our net income, capital and liquidity.
THERE IS STRONG COMPETITION IN THE FINANCIAL SERVICES INDUSTRY; WE MAY BE AT A
COMPETITIVE DISADVANTAGE BECAUSE SOME COMPETITORS HAVE GREATER CAPITAL RESOURCES
THAN WE DO AND MAY BE SUBJECT TO LESS REGULATION THAN WE ARE.
We compete for loan and deposit customers with other banks and thrifts, as
well as other financial services organizations such as credit unions, finance
companies, brokerage firms, insurance companies and money market mutual funds,
all of whom aggressively solicit customers within our market areas by
advertising through direct mail, electronic media, including the Internet, and
other means. Many of the competitors in our markets have been in business for
many years, have established customer bases and are substantially larger than
us. In addition, many of these entities have greater capital resources than we
do, and some of these are not subject to the same degree of regulation. As a
result, such nonbank competitors have advantages over us in providing certain
services.
WE HAVE A CONTINUING NEED FOR TECHNOLOGICAL CHANGE, BUT MAY HAVE FEWER RESOURCES
THAN OUR COMPETITORS TO CONTINUE TO INVEST IN TECHNOLOGICAL IMPROVEMENTS.
The financial services industry is undergoing rapid technological changes
with frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success and ability to implement our growth strategy will depend in part upon
our ability to address the needs of our customers by using technology to provide
products and services that will satisfy customer demands for convenience as well
as to create additional efficiencies in our operations. Many of our competitors
have substantially greater resources to invest in technological improvements. We
cannot provide you with assurance that we will be able to effectively implement
new technology-driven products and services or be successful in marketing such
products and services to our customers.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and information incorporated by reference in this
prospectus contains forward-looking statements which describe our future plans,
strategies and expectations. Our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Forward-looking
statements are based on assumptions, many of which are beyond our control, and
involve risks which may cause our actual results, performance or achievements to
differ materially from the results, performance or achievements that we
anticipate. These forward-looking statements are intended to be covered by the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Factors that might affect forward-looking statements include, among other
things:
- a deterioration in the economy or business conditions, either nationally
or in our market areas that could increase credit-related losses and
expenses;
- increases in defaults by borrowers and other loan delinquencies resulting
in increases in our provision for loan losses and related expenses;
- fluctuations in interest rates and loan and deposit pricing, which could
reduce our net interest margins, asset valuations and expense
expectations;
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<PAGE> 17
- uncertainties that may be associated with the recently announced
management succession effective upon the retirement of our current
president and chief executive officer;
- higher than anticipated costs related to our new banking centers or
slower than anticipated earning asset growth which could extend
anticipated breakeven periods at these locations;
- failure to enter new markets successfully, an inability to capitalize on
growth opportunities or difficulties in managing our growth, including
possible limitations on our management depth;
- unanticipated difficulties, costs or delays related to our pending
acquisition of an investment services business;
- the timing, impact and other uncertainties of possible future expansion
opportunities and our success or failure in the integration of acquired
operations, if any;
- significant increases in competition, including nonbank competitors that
are not subject to the same degree of regulation;
- legislative or regulatory changes applicable to bank holding companies or
our banking or other subsidiaries; and
- changes in tax rates, tax laws or tax law interpretations.
We undertake no obligation to publicly update or otherwise revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
events discussed in any forward-looking statements in this prospectus might not
occur.
USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the preferred
securities in the debentures. We anticipate that the net proceeds from the sale
of the debentures will be $19.1 million after deducting underwriting commissions
and offering expenses estimated to be $200,000.
We expect to use approximately $9.0 million of the net proceeds to repay a
portion of the indebtedness currently outstanding under our revolving credit
line with a commercial bank. The credit facility provides for maximum borrowings
of $25.0 million and matures on January 31, 2002. Interest is payable on
outstanding principal balances, at the option of the company, at either the 30-,
60-, 90-, or 180-day LIBOR plus 95 basis points or the prime rate less 25 basis
points. The borrowings outstanding under the line of credit as of May 9, 2000,
mature on various dates in June and July, 2000 and bear interest at an average
annual rate of 7.03%. We plan to keep the credit line available for future
borrowings.
We also anticipate that, upon the completion of this offering, we will
contribute approximately $10.0 million of the net proceeds from the sale of the
debentures to the capital of our banking subsidiaries to support their internal
growth. We will use the remaining net proceeds for general corporate purposes,
including, but not limited to, additional capital contributions to our banks to
support future growth and to finance potential future expansion.
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<PAGE> 18
CAPITALIZATION
The following table sets forth our total deposits, indebtedness and
capitalization at March 31, 2000, on a historical basis and as adjusted for the
offering and the application of the estimated net proceeds from the
corresponding sale of the debentures as if such sale had been consummated on
March 31, 2000. This data should be read in conjunction with the consolidated
financial statements and notes thereto incorporated by reference into this
prospectus from our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and from our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000. See "Documents Incorporated by Reference."
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INDEBTEDNESS:
Short-term borrowings (including securities sold under
agreement to repurchase and federal funds purchased)...... $ 46,607 $ 46,607
Other borrowings
Federal Home Loan Bank advances........................... 210,000 210,000
Revolving credit lines with commercial bank(1)............ 12,250 3,250
Other notes............................................... 150 150
Total indebtedness................................... $269,007 $260,007
======== ========
Guaranteed preferred beneficial interests in the company's
junior subordinated debt.................................. -- $ 20,000
======== ========
STOCKHOLDERS' EQUITY:
Preferred stock............................................. $ -- $ --
Common stock................................................ 114 114
Capital surplus............................................. 29,704 29,704
Retained earnings........................................... 58,901 58,901
Accumulated other comprehensive income...................... (11,414) (11,414)
Treasury stock at cost (612,000 shares)..................... (8,758) (8,758)
-------- --------
Total stockholders' equity........................ $ 68,547 $ 68,547
======== ========
CAPITAL RATIOS(2):
Leverage Ratio(3)........................................... 5.86% 7.42%
Tier 1 Capital Ratio(4)..................................... 9.90 12.50
Total Risk Based Capital Ratio(4)........................... 10.88 13.48
</TABLE>
-------------------------
(1) The notes payable under the revolving credit facility will be partially
repaid with proceeds from the sale of the debentures to the trust.
(2) The capital ratios, as adjusted, are computed including the estimated net
proceeds from the sale of the preferred securities, in a manner consistent
with Federal Reserve regulations.
(3) The leverage ratio is core capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess of
regulatory maximum limits.
(4) The preferred securities have been structured to qualify as Tier 1 capital.
However, in calculating the amount of Tier 1 qualifying capital, the
preferred securities, together with any outstanding cumulative preferred
stock of Midwest Banc Holdings that may be outstanding in the future, can
only be included up to the amount constituting 25% of total Tier 1 capital.
As adjusted for this offering, Midwest Banc Holding's Tier 1 capital as of
March 31, 2000, would have been approximately $95.2 million, of which $20.0
million would have been attributable to the preferred securities.
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<PAGE> 19
ACCOUNTING AND REGULATORY TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in our
consolidated financial statements. The preferred securities will be presented as
a separate line item in our consolidated balance sheet under the caption
"Guaranteed preferred beneficial interests in the company's junior subordinated
debt," or other similar caption. In addition, appropriate disclosures about the
preferred securities, the guarantee and the debentures will be included in the
notes to our consolidated financial statements. For financial reporting
purposes, we will record distributions payable on the preferred securities in
our consolidated statements of income.
Our future reports filed under the Securities Exchange Act of 1934 will
include a footnote to the consolidated financial statements stating that:
- the trust is wholly-owned;
- the sole assets of the trust are the debentures, specifying the
debentures' outstanding principal amount, interest rate and maturity
date; and
- our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under the
preferred securities.
We have not included separate financial statements of the trust in this
prospectus. We do not consider that separate financial statements would be
material to holders of preferred securities because we will own all of the
trust's voting securities, the trust has no independent operations and we
guarantee the payments on the preferred securities to the extent described in
this prospectus.
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<PAGE> 20
MANAGEMENT
The names and ages of the executive officers of Midwest Banc Holdings as of
June 1, 2000, offices held by these officers on that date and other positions
held with Midwest Banc Holdings and its principal operating subsidiaries, are
set forth below.
<TABLE>
<CAPTION>
POSITIONS WITH MIDWEST BANC HOLDINGS
NAME AGE AND PRINCIPAL OPERATING SUBSIDIARIES
---- --- ------------------------------------
<S> <C> <C>
E. V. Silveri........... 69 Chairman of the Board of Directors, Midwest Banc Holdings,
Midwest Bank and Trust Company, and First Midwest Data Corp.
and Director of Midwest Bank of Hinsdale.
Robert L. Woods(1)...... 70 President, Chief Executive Officer and Director of Midwest
Banc Holdings; Chairman of Midwest Bank of Hinsdale;
Director of First Midwest Data Corp.
Brad A. Luecke(1)....... 49 Executive Vice President and Director of Midwest Banc
Holdings; President, Chief Executive Officer and Director of
Midwest Bank and Trust Company; Director of Midwest Bank of
Hinsdale; Director of First Midwest Data Corp.
Edward H. Sibbald....... 51 Senior Vice President and Chief Financial Officer of Midwest
Banc Holdings; Director of Midwest Bank of Western Illinois;
Director of Midwest Bank of McHenry County
Stephen M. Karaba....... 42 Senior Vice President, Midwest Banc Holdings; President and
Director, Midwest Bank of McHenry County; Director of
Midwest One Financial Services, L.L.C.; Director of Midwest
Bank of Western Illinois.
Christopher J. Gavin.... 38 Senior Vice President, Midwest Banc Holdings; President,
Chief Executive Officer and Director, Midwest Bank of
Western Illinois; Director of Porter Insurance Agency, Inc.
Mary M. Henthorn(2)..... 42 President, Chief Executive Officer and Director of Midwest
Bank of Hinsdale.
Michelle T. Holman...... 40 Senior Vice President, Midwest Banc Holdings and Director of
First Midwest Data Corp.
Sheldon Bernstein(1).... 53 Executive Vice President-Lending, Midwest Bank and Trust
Company.
</TABLE>
-------------------------
(1) On May 4, 2000, the Company announced that Mr. Woods has decided to retire
from his position as President and Chief Executive Officer of Midwest Banc
Holdings effective July 1, 2000. Mr. Woods will continue to serve as a
director and will assume the position of Vice Chairman. Mr. Luecke will
succeed Mr. Woods as President and Chief Executive Officer and will also
serve as Vice Chairman and CEO of Midwest Bank and Trust Company. Also
effective July 1, 2000, Mr. Bernstein will become President and Chief
Operating Officer of Midwest Bank and Trust Company.
(2) Ms. Henthorn is the daughter of Mr. Woods.
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<PAGE> 21
DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a trust agreement executed by us, as sponsor for the
trust, and the trustees, and a certificate of trust has been filed with the
Delaware Secretary of State. The trust agreement will be amended and restated in
its entirety in the form filed as an exhibit to the registration statement of
which this prospectus is a part, as of the date the preferred securities are
initially issued. The trust agreement will be qualified under the Trust
Indenture Act of 1939.
The holders of the preferred securities issued pursuant to the offering
described in this prospectus will own all of the issued and outstanding
preferred securities of the trust which have certain prior rights over the other
securities of the trust. We will not initially own any of the preferred
securities. We will acquire common securities in an amount equal to at least 3%
of the total capital of the trust and will initially own, directly or
indirectly, all of the issued and outstanding common securities. The common
securities, together with the preferred securities, are called the trust
securities. The trust exists exclusively for the purposes of:
- issuing the preferred securities to the public for cash;
- issuing its common securities to us in exchange for our capitalization of
the trust;
- investing the proceeds from the sale of the trust securities in an
equivalent amount of debentures; and
- engaging in other activities that are incidental to those listed above.
The rights of the holders of the trust securities are as set forth in the
trust agreement, the Delaware Business Trust Act and the Trust Indenture Act.
The trust agreement does not permit the trust to borrow money or make any
investment other than in the debentures. Other than with respect to the trust
securities, Midwest Banc Holdings has agreed to pay for all debts and
obligations and all costs and expenses of the trust, including the fees and
expenses of the trustees and any income taxes, duties and other governmental
charges, and all costs and expenses related to these charges, to which the trust
may become subject, except for United States withholding taxes that are properly
withheld.
The number of trustees of the trust will initially be five. Three of the
trustees will be persons who are employees or officers of or who are affiliated
with Midwest Banc Holdings. They are the administrative trustees. The fourth
trustee will be an entity that maintains its principal place of business in the
State of Delaware. It is the Delaware trustee. Initially, Wilmington Trust
Company, a Delaware banking corporation, will act as Delaware trustee. The fifth
trustee will also initially be Wilmington Trust Company, which will serve as
institutional trustee under the trust agreement and as indenture trustee for the
purposes of compliance with the provisions of the Trust Indenture Act. It is the
property trustee. Also for purposes of compliance with the Trust Indenture Act,
Wilmington Trust Company will act as guarantee trustee and indenture trustee
under the guarantee agreement and the indenture. See "Description of the
Debentures" and "Description of the Guarantee." We, as holder of all of the
common securities, will have the right to appoint or remove any trustee unless
an event of default under the indenture has occurred and is continuing, in which
case only the holders of the preferred securities may remove the Delaware
trustee or the property trustee. The trust has a term of approximately 31 years
but may terminate earlier as provided in the trust agreement.
The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "payment account" established with Wilmington Trust Company
to hold all payments made on the debentures for the benefit of the holders of
the trust securities. The property trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
trust securities out of funds from the payment account. The guarantee trustee
will hold the guarantee for the benefit of the holders of the preferred
securities. We will pay all fees and expenses related to the trust and the
offering of the preferred securities, including the fees and expenses of the
trustees.
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<PAGE> 22
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities will be issued pursuant to the trust agreement,
which will be amended and restated in connection with this offering, and which
will be qualified as an indenture under the Trust Indenture Act. Wilmington
Trust Company will act as property trustee for the preferred securities under
the trust agreement for purposes of complying with the provisions of the Trust
Indenture Act. The terms of the preferred securities will include those stated
in the trust agreement and those made part of the trust agreement by the Trust
Indenture Act. A form of the trust agreement, as to be amended and restated, has
been filed as an exhibit to the registration statement of which this prospectus
forms a part.
GENERAL
The trust agreement authorizes the administrative trustees, on behalf of
the trust, to issue the trust securities, which are comprised of the preferred
securities to be sold to the public and the common securities. We will own all
of the common securities issued by the trust. The preferred securities will
represent preferred undivided beneficial interests in the assets of the trust,
and the holders of the preferred securities will be entitled to a preference
over the common securities upon an event of default with respect to
distributions and amounts payable on redemption or liquidation. The trust is not
permitted to issue any securities other than the trust securities or incur any
other indebtedness.
The preferred securities will rank equally, and payments on the preferred
securities will be made proportionally, with the common securities, except as
described under " -- Subordination of Common Securities of the Trust" below.
The property trustee will hold legal title to the debentures in trust for
the benefit of the holders of the trust securities. We will guarantee the
payment of distributions out of money held by the trust, and payments upon
redemption of the preferred securities or liquidation of the trust, to the
extent described under "Description of the Guarantee." The guarantee agreement
does not cover the payment of any distribution or the liquidation amount when
the trust does not have sufficient funds available to make these payments.
DISTRIBUTIONS
Source of Distributions. The funds of the trust available for distribution
to holders of the preferred securities will be limited to payments made under
the debentures, which the trust will purchase with the proceeds from the sale of
the trust securities. Distributions will be paid through the property trustee,
which will hold the amounts received from our interest payments on the
debentures in the payment account for the benefit of the holders of the trust
securities. If we do not make interest payments on the debentures, the property
trustee will not have funds available to pay distributions on the preferred
securities.
Payment of Distributions. Distributions on the preferred securities will be
payable at the annual rate of 10.0% of the $25 stated liquidation amount,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, to the holders of the preferred securities on the relevant record dates.
So long as the preferred securities are represented by a global security, as
described below, the record date will be the business day immediately preceding
the relevant distribution date. The first distribution date for the preferred
securities will be September 30, 2000.
Distributions will accumulate from the date of issuance, will be cumulative
and will be computed on the basis of a 360-day year of twelve 30-day months. If
the distribution date is not a business day, then payment of the distributions
will be made on the next day that is a business day, without any additional
interest or other payment for the delay. However, if the next business day is in
the next calendar year, payment of the distribution will be made on the business
day immediately preceding the scheduled distribution date. "Business day" means
any day other than a Saturday, a Sunday, a day on which banking institutions in
New York, New York are authorized or required by law, regulation or executive
order to remain closed or a day on which the corporate trust office of the
property trustee or the indenture trustee is closed for business.
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Extension Period. As long as no event of default under the indenture has
occurred and is continuing, we have the right to defer the payment of interest
on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond June 7, 2030 or end on
a date other than an interest payment date, which dates are the same as the
distribution dates. If we defer the payment of interest, quarterly distributions
on the preferred securities will also be deferred during any such extension
period. Any deferred distributions under the preferred securities will
accumulate additional amounts at the annual rate of 10.0%, compounded quarterly
from the relevant distribution date. The term "distributions" as used in this
prospectus includes those accumulated amounts.
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of our capital stock
into another class of capital stock) or allow any of our subsidiaries to
do the same with respect to their capital stock (other than the payment
of dividends or distributions to us);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the debentures or allow any of our subsidiaries to do the
same;
- make any guarantee payments with respect to any other guarantee by us of
any other debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures (other than payments under
the guarantee); or
- redeem, purchase or acquire less than all of the debentures or any of the
preferred securities.
After the termination of any extension period and the payment of all amounts
due, we may elect to begin a new extension period, subject to the above
requirements.
We do not currently intend to exercise our right to defer distributions on
the preferred securities by deferring the payment of interest on the debentures.
REDEMPTION OR EXCHANGE
General. Subject to the prior approval of the Federal Reserve, if required,
we will have the right to redeem the debentures:
- in whole at any time, or in part from time to time, on or after June 7,
2005; or
- at any time, in whole, within 180 days following the occurrence of a Tax
Event, an Investment Company Event or a Capital Treatment Event, as
defined below; or
- at any time, and from time to time, to the extent of any preferred
securities we repurchase plus a proportionate amount of the common
securities we hold.
Mandatory Redemption. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on June 7, 2030 or earlier, the property
trustee will apply the proceeds to redeem the same amount of the trust
securities, upon not less than 30 days' nor more than 60 days' notice, at the
redemption price. The redemption price will equal 100% of the aggregate
liquidation amount of the trust securities plus accumulated but unpaid
distributions to the date of redemption. If less than all of the debentures are
to be repaid or redeemed on a date of redemption, then the proceeds from such
repayment or redemption will be allocated to redemption of preferred securities
and common securities proportionately.
Distribution of Debentures in Exchange for Preferred Securities. Upon prior
approval of the Federal Reserve, if required, we will have the right at any time
to dissolve, wind-up or terminate the trust and, after satisfaction of the
liabilities of creditors of the trust as provided by applicable law, including,
without limitation, amounts due and owing the trustees of the trust, cause the
debentures to be distributed directly
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to the holders of trust securities in liquidation of the trust. See
"-- Liquidation Distribution Upon Termination."
After the liquidation date fixed for any distribution of debentures in
exchange for preferred securities:
- those trust securities will no longer be deemed to be outstanding;
- certificates representing debentures in a principal amount equal to the
liquidation amount of those preferred securities will be issued in
exchange for the preferred securities certificates;
- we will use our reasonable efforts to list the debentures on the American
Stock Exchange or other exchange as the preferred securities are then
listed or traded;
- any certificates representing trust securities that are not surrendered
for exchange will be deemed to represent debentures with a principal
amount equal to the liquidation amount of those preferred securities,
accruing interest at the rate provided for in the debentures from the
last distribution date on the preferred securities.
- all rights of the trust securityholders other than the right to receive
debentures upon surrender of a certificate representing trust securities
will terminate.
There can be no assurance as to the market prices for the preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur. The preferred securities that an
investor may purchase, or the debentures that an investor may receive on
dissolution and liquidation of the trust, may trade at a discount to the price
that the investor paid to purchase the preferred securities.
Redemption upon a Tax Event, Investment Company Event or Capital Treatment
Event. If a Tax Event, an Investment Company Event or a Capital Treatment Event
occurs, we will have the right to redeem the debentures in whole, but not in
part, and thereby cause a mandatory redemption of the trust securities in whole
at the redemption price. If one of these events occurs and we do not elect to
redeem the debentures, or to dissolve the trust and cause the debentures to be
distributed to holders of the trust securities, then the preferred securities
will remain outstanding and additional interest may be payable on the
debentures. See "Description of the Debentures -- Redemption or Exchange."
"Tax Event" means the receipt by the trust and us of an opinion of counsel
experienced in such matters stating that there is more than an insubstantial
risk that:
- interest payable by us on the debentures is not, or within 90 days of the
date of the opinion will not be, deductible by us, in whole or in part,
for federal income tax purposes;
- the trust is, or will be within 90 days after the date of the opinion,
subject to federal income tax with respect to income received or accrued
on the debentures; or
- the trust is, or will be within 90 days after the date of opinion,
subject to more than an immaterial amount of other taxes, duties,
assessments or other governmental charges, as a result of any amendment
to any tax laws or regulations.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of a change in law or regulation
or a change in interpretation or application of law or regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the preferred
securities as Tier 1 capital for purposes of the current capital adequacy
guidelines of the Federal Reserve, as a result of any amendment to any laws or
any regulations.
For all of the events described above, we or the trust must request and
receive an opinion with regard to the event within a reasonable period of time
after we become aware of the possible occurrence of an event of this kind.
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Redemption of Debentures in Exchange for Preferred Securities We
Purchase. Upon prior approval of the Federal Reserve, if required, we will also
have the right at any time, and from time to time, to redeem debentures in
exchange for any preferred securities we may have purchased in the market. If we
elect to surrender any preferred securities beneficially owned by us in exchange
for redemption of a like amount of debentures, we will also surrender a
proportionate amount of common securities in exchange for debentures. Preferred
securities owned by other holders will not be called for redemption at any time
when we elect to exchange trust securities we own to redeem debentures.
The common securities we surrender will be in the same proportion to the
preferred securities we surrender as is the ratio of the common securities
purchased by us to the preferred securities then issued by the trust. In
exchange for the trust securities surrendered by us, the property trustee will
cause to be released to us for cancellation debentures with a principal amount
equal to the liquidation amount of the trust securities, plus any accumulated
but unpaid distributions, if any, then held by the property trustee allocable to
those trust securities. After the date of redemption involving an exchange by
us, the trust securities we surrender will no longer be deemed outstanding and
the debentures redeemed in exchange will be cancelled.
REDEMPTION PROCEDURES
Preferred securities will be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the preferred securities will be made and the redemption price
will be payable on each redemption date only to the extent that the trust has
funds available for the payment of the redemption price.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date of redemption to each holder of trust securities to be
redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accumulate on the
debentures called for redemption on and after the date of redemption.
If the trust gives notice of redemption of its trust securities, then the
property trustee, to the extent funds are available, will irrevocably deposit
with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust securities
irrevocable instructions and authority to pay the redemption price to the
holders of the trust securities. See "Book-Entry Issuance." If the preferred
securities are no longer in book-entry only form, the property trustee, to the
extent funds are available, will deposit with the designated paying agent for
such preferred securities funds sufficient to pay the aggregate redemption price
and will give the paying agent irrevocable instructions and authority to pay the
redemption price to the holders upon surrender of their certificates evidencing
the preferred securities. Notwithstanding the foregoing, distributions payable
on or prior to the date of redemption for any trust securities called for
redemption will be payable to the holders of the trust securities on the
relevant record dates for the related distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment of the interest will be made on
the immediately preceding business day.
If payment of the redemption price in respect of trust securities called
for redemption is improperly withheld or refused and not paid by the trust, or
by us pursuant to the guarantee, distributions on the trust securities will
continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this case, the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price. See "Description of the Guarantee."
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Payment of the redemption price on the preferred securities and any
distribution of debentures to holders of preferred securities will be made to
the applicable recordholders as they appear on the register for the preferred
securities on the relevant record date. As long as the preferred securities are
represented by a global security, the record date will be the business day
immediately preceding the date of redemption or liquidation date, as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately to those trust securities based upon the relative
liquidation amounts. The particular preferred securities to be redeemed will be
selected by the property trustee from the outstanding preferred securities not
previously called for redemption by a method the property trustee deems fair and
appropriate. This method may provide for the redemption of portions equal to $25
or an integral multiple of $25 of the liquidation amount of the preferred
securities. The property trustee will promptly notify the registrar for the
preferred securities in writing of the preferred securities selected for
redemption and, in the case of any preferred securities selected for partial
redemption, the liquidation amount to be redeemed.
Subject to applicable law, and if we are not exercising our right to defer
interest payments on the debentures, we may, at any time, purchase outstanding
preferred securities.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the preferred
securities and common securities will be made based on the liquidation amount of
these securities. However, if an event of default under the indenture has
occurred and is continuing, no distributions on or redemption of the common
securities may be made. Furthermore, no payments may be made on the common
securities unless payment in full in cash of all accumulated and unpaid
distributions on all of the outstanding preferred securities for all
distribution periods terminating on or before that time, or in the case of
payment of the redemption price, payment of the full amount of the redemption
price on all of the outstanding preferred securities then called for redemption,
has been made or provided for. All funds available to the property trustee will
first be applied to the payment in full in cash of all distributions on, or the
redemption price of, the preferred securities then due and payable.
In the case of the occurrence and continuance of any event of default under
the trust agreement resulting from an event of default under the indenture, we,
as holder of the common securities, will be deemed to have waived any right to
act with respect to that event of default under the trust agreement until the
effect of the event of default has been cured, waived or otherwise eliminated.
Until the event of default under the trust agreement has been so cured, waived
or otherwise eliminated, the property trustee will act solely on behalf of the
holders of the preferred securities and not on our behalf, and only the holders
of the preferred securities will have the right to direct the property trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
We will have the right at any time to dissolve, wind-up or terminate the
trust and cause the debentures to be distributed to the holders of the preferred
securities. This right is subject, however, to us receiving approval of the
Federal Reserve, if required.
In addition, the trust will automatically terminate upon expiration of its
term and will terminate earlier on the first to occur of:
- our bankruptcy, dissolution or liquidation;
- the distribution of a like amount of the debentures to the holders of
trust securities, if we have given written direction to the property
trustee to terminate the trust;
- redemption of all of the preferred securities as described under
"-- Redemption or Exchange -- Mandatory Redemption"; or
- the entry of a court order for the dissolution of the trust.
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With the exception of a redemption as described under "-- Redemption or
Exchange -- Mandatory Redemption," if an early termination of the trust occurs,
the trust will be liquidated by the administrative trustees as expeditiously as
they determine to be possible. After satisfaction of liabilities to creditors of
the trust as provided by applicable law, the trustees will distribute to the
holders of trust securities debentures:
- in an aggregate stated principal amount equal to the aggregate stated
liquidation amount of the trust securities;
- with an interest rate identical to the distribution rate on the trust
securities; and
- with accrued and unpaid interest equal to accumulated and unpaid
distributions on the trust securities.
However, if the property trustee determines that the distribution is not
practical, then the holders of trust securities will be entitled to receive, in
lieu of debentures, a proportionate amount of the liquidation distribution. The
liquidation distribution will be the amount equal to the aggregate of the
liquidation amount plus accumulated and unpaid distributions to the date of
payment. If the liquidation distribution can be paid only in part because the
trust has insufficient assets available to pay in full the aggregate liquidation
distribution, then the amounts payable directly by the trust on the trust
securities will be paid on a proportional basis based on liquidation amounts to
us, as the holder of the common securities, and to the holders of the preferred
securities. However, if an event of default under the indenture has occurred and
is continuing, the preferred securities will have a priority over the common
securities. See "-- Subordination of Common Securities."
Under current United States federal income tax law and interpretations and
assuming that the trust is treated as a grantor trust, as is expected, a
distribution of the debentures should not be a taxable event to holders of the
preferred securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or another circumstance, however, the distribution
could be a taxable event to holders of the preferred securities. See "Federal
Income Tax Consequences -- Receipt of Debentures or Cash Upon Liquidation of the
Trust." If we do not elect to redeem the debentures prior to maturity or to
liquidate the trust and distribute the debentures to holders of the preferred
securities, the preferred securities will remain outstanding until the repayment
of the debentures.
If we elect to dissolve the trust and thus cause the debentures to be
distributed to holders of the preferred securities in liquidation of the trust,
we will continue to have the right to shorten the maturity of the debentures.
See "Description of the Debentures -- General."
LIQUIDATION VALUE
The amount of the liquidation distribution payable on the preferred
securities in the event of any liquidation of the trust is $25 per preferred
security plus accumulated and unpaid distributions to the date of payment, which
may be in the form of a distribution of debentures having a liquidation value
and accrued interest of an equal amount. See "-- Liquidation Distribution Upon
Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
trust agreement with respect to the preferred securities:
- the occurrence of an event of default under the indenture (see
"Description of the Debentures -- Debenture Events of Default");
- a default by the trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days;
- a default by the trust in the payment of any redemption price of any of
the trust securities when it becomes due and payable;
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- a default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement, other than
those defaults covered in the previous two points, and continuation of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the trustee(s) by the holders of at
least 25% in aggregate liquidation amount of the outstanding preferred
securities, a written notice specifying the default or breach and
requiring it to be remedied and stating that the notice is a "Notice of
Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency with respect to the
property trustee and our failure to appoint a successor property trustee
within 60 days.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to the holders of the preferred securities, the
administrative trustees and to us, unless the event of default has been cured or
waived. Midwest Banc Holdings and the administrative trustees are required to
file annually with the property trustee a certificate as to whether or not they
are in compliance with all the conditions and covenants applicable to them under
the trust agreement.
If an event of default under the indenture has occurred and is continuing,
the preferred securities will have preference over the common securities upon
termination of the trust. See "-- Subordination of Common Securities" and
"-- Liquidation Distribution Upon Termination." The existence of an event of
default under the trust agreement does not entitle the holders of preferred
securities to accelerate the maturity thereof, unless the event of default is
caused by the occurrence of an event of default under the indenture and both the
indenture trustee and holders of at least 25% in principal amount of the
debentures fail to accelerate the maturity thereof.
REMOVAL OF THE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, we may remove any trustee at any time. If an event of default under
the indenture has occurred and is continuing, only the holders of a majority in
liquidation amount of the outstanding preferred securities may remove the
property trustee or the Delaware trustee. The holders of the preferred
securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us as the
holder of the common securities. No resignation or removal of a trustee and no
appointment of a successor trustee will be effective until the successor trustee
accepts the appointment in accordance with the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default under the indenture has occurred and is
continuing, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the trust property may
at the time be located, we will have the power to appoint at any time or times,
and upon written request of the property trustee will appoint, one or more
persons or entities either (1) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (2) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the holders of the preferred
securities, the property trustee or the Delaware trustee, undertake a
transaction listed above if the following conditions are met:
- the successor entity either (a) expressly assumes all of the obligations
of the trust with respect to the preferred securities, or (b) substitutes
for the preferred securities other securities having substantially the
same terms as the preferred securities (referred to as "successor
securities") so long as the successor securities rank the same in
priority as the preferred securities with respect to distributions and
payments upon liquidation, redemption and otherwise;
- we appoint a trustee of the successor entity possessing substantially the
same powers and duties as the property trustee in its capacity as the
holder of the debentures;
- the successor securities are listed or traded or will be listed or traded
on any national securities exchange or other organization on which the
preferred securities are then listed, if any;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities (including any
successor securities) in any material respect;
- the successor entity has a purpose substantially identical to that of the
trust;
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from
independent counsel that (a) any transaction of this kind does not
adversely affect the rights, preferences and privileges of the holders of
the preferred securities (including any successor securities) in any
material respect, and (b) following the transaction, neither the trust
nor the successor entity will be required to register as an "investment
company" under the Investment Company Act; and
- we own all of the common securities of the successor entity and guarantee
the obligations of the successor entity under the successor securities at
least to the extent provided by the guarantee.
Notwithstanding the foregoing, the trust may not, except with the consent of
every holder of the preferred securities, enter into any transaction of this
kind if the transaction would cause the trust or the successor entity not to be
classified as a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as described below and under "Description of the
Guarantee -- Amendments and Assignment" and as otherwise required by the Trust
Indenture Act and the trust agreement, the holders of the preferred securities
will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the preferred securities, in the
following circumstances:
- with respect to acceptance of appointment by a successor trustee;
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, as long as the amendment is not inconsistent with
the other provisions of the trust agreement and does not have a material
adverse effect on the interests of any holder of trust securities; or
- to modify, eliminate or add to any provisions of the trust agreement if
necessary to ensure that the trust will be classified for federal income
tax purposes as a grantor trust at all times that any trust
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securities are outstanding or to ensure that the trust will not be
required to register as an "investment company" under the Investment
Company Act.
With the consent of the holders of a majority of the aggregate liquidation
amount of the outstanding trust securities, we and the trustees may amend the
trust agreement if the trustees receive an opinion of counsel to the effect that
the amendment or the exercise of any power granted to the trustees in accordance
with the amendment will not affect the trust's status as a grantor trust for
federal income tax purposes or the trust's exemption from status as an
"investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, the trust agreement may not be
amended to (a) change the amount or timing of any distribution on the trust
securities or otherwise adversely affect the amount of any distribution required
to be made in respect of the trust securities as of a specified date, or (b)
restrict the right of a holder of trust securities to institute suit for the
enforcement of the payment on or after that date.
As long as the property trustee holds any debentures, the trustees will
not, without obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of all outstanding preferred securities:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the property trustee with respect to the debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the debentures will be due and payable; or
- consent to any amendment or termination of the indenture or the
debentures, where the property trustee's consent is required. However,
where a consent under the indenture requires the consent of each holder
of the affected debentures, no consent will be given by the property
trustee without the prior consent of each holder of the preferred
securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the preferred securities except by subsequent vote of the
holders of the preferred securities. The property trustee will notify each
holder of preferred securities of any notice of default with respect to the
debentures. In addition to obtaining the foregoing approvals of the holders of
the preferred securities, prior to taking any of the foregoing actions, the
trustees must obtain an opinion of counsel experienced in these matters to the
effect that the trust will not be classified as an association taxable as a
corporation for federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting of holders of the trust securities convened for the purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which holders of the trust securities are entitled to vote, or of any matter
upon which action by written consent of the holders is to be taken, to be given
to each holder of record of trust securities.
No vote or consent of the holders of preferred securities will be required
for the trust to redeem and cancel its preferred securities in accordance with
the trust agreement.
Notwithstanding the fact that holders of preferred securities are entitled
to vote or consent under any of the circumstances described above, any of the
preferred securities that are owned by Midwest Banc Holdings, the trustees or
any affiliate of Midwest Banc Holdings or any trustee, will, for purposes of the
vote or consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The preferred securities will be represented by one or more global
preferred securities registered in the name of The Depository Trust Company, New
York, New York ("DTC"), or its nominee. A global
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preferred security is a security representing interests of more than one
beneficial holder. Ownership of beneficial interests in the global preferred
securities will be reflected in DTC participant account records through DTC's
book-entry transfer and registration system. Participants are brokers, dealers,
or others having accounts with DTC. Indirect beneficial interests of other
persons investing in the preferred securities will be shown on, and transfers
will be effected only through, records maintained by DTC participants. Except as
described below, preferred securities in definitive form will not be issued in
exchange for the global preferred securities. See "Book-Entry Issuance."
No global preferred security may be exchanged for preferred securities
registered in the names of persons other than DTC or its nominee unless:
- DTC notifies the indenture trustee that it is unwilling or unable to
continue as a depositary for the global preferred security and we are
unable to locate a qualified successor depositary;
- we execute and deliver to the indenture trustee a written order stating
that we elect to terminate the book-entry system through DTC; or
- there shall have occurred and be continuing an event of default under the
indenture.
Any global preferred security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in the
names as DTC shall direct. It is expected that the instructions will be based
upon directions received by DTC with respect to ownership of beneficial
interests in the global preferred security. If preferred securities are issued
in definitive form, the preferred securities will be in denominations of $25 and
integral multiples of $25 and may be transferred or exchanged at the offices
described below.
Unless and until it is exchanged in whole or in part for the individual
preferred securities represented thereby, a global preferred security may not be
transferred except as a whole by DTC to a nominee of DTC, by a nominee of DTC to
DTC or another nominee of DTC or by DTC or any nominee to a successor depositary
or any nominee of the successor.
Payments on global preferred securities will be made to DTC, as the
depositary for the global preferred securities. If the preferred securities are
issued in definitive form, distributions will be payable by check mailed to the
address of record of the persons entitled to the distribution, and the transfer
of the preferred securities will be registrable, and preferred securities will
be exchangeable for preferred securities of other denominations of a like
aggregate liquidation amount, at the corporate office of the property trustee,
or at the offices of any paying agent or transfer agent appointed by the
administrative trustees. In addition, if the preferred securities are issued in
definitive form, the record dates for payment of distributions will be the 15th
day of the month in which the relevant distribution date occurs. For a
description of the terms of DTC arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance."
Upon the issuance of one or more global preferred securities, and the
deposit of the global preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
preferred securities represented by the global preferred security to the
designated accounts of persons that participate in the DTC system. These
participant accounts will be designated by the dealers, underwriters or agents
selling the preferred securities. Ownership of beneficial interests in a global
preferred security will be limited to persons or entities having an account with
DTC or who may hold interests through participants. With respect to interests of
any person or entity that is a DTC participant, ownership of beneficial
interests in a global preferred security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee. With respect to persons or entities who hold interests in a global
preferred security through a participant, the interest and any transfer of the
interest will be shown only on the participant's records. The laws of some
states require that certain purchasers of securities take physical delivery of
securities in definitive form. These laws may impair the ability to transfer
beneficial interests in a global preferred security.
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So long as DTC or another depositary, or its nominee, is the registered
owner of the global preferred security, the depositary or the nominee, as the
case may be, will be considered the sole owner or holder of the preferred
securities represented by the global preferred security for all purposes under
the trust agreement. Except as described in this prospectus, owners of
beneficial interests in a global preferred security will not be entitled to have
any of the individual preferred securities represented by the global preferred
security registered in their names, will not receive or be entitled to receive
physical delivery of any the preferred securities in definitive form and will
not be considered the owners or holders of the preferred securities under the
trust agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the preferred securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of the global preferred security representing the
preferred securities or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global preferred security,
immediately will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global preferred security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in the global preferred security held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." The payments will be the responsibility of
the participants. See "Book-Entry Issuance."
PAYMENT AND PAYING AGENCY
Payments in respect of the preferred securities shall be made to DTC, which
shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the preferred securities are not held by DTC,
the payments shall be made by check mailed to the address of the holder as
listed on the register of holders of the preferred securities. The paying agent
for the preferred securities will initially be the property trustee and any
co-paying agent chosen by the property trustee and acceptable to us and the
administrative trustees. The paying agent for the preferred securities may
resign as paying agent upon 30 days' written notice to the administrative
trustees, the property trustee and us. If the property trustee no longer is the
paying agent for the preferred securities, the administrative trustees will
appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to us and the property trustee.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent for
the preferred securities. Registration of transfers of preferred securities will
be effected without charge by or on behalf of the trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The trust and its registrar and transfer agent will not be
required to register or cause to be registered the transfer of preferred
securities after they have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, until the occurrence and continuance of an event of
default under the trust agreement, undertakes to perform only the duties set
forth in the trust agreement. After an event of default under the trust
agreement, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its own affairs. The
property trustee is under no obligation to exercise any of the powers vested in
it by the trust agreement at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred. If no event of default under the trust
agreement has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous or
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inconsistent provisions in the trust agreement or is unsure of the application
of any provision of the trust agreement, and the matter is not one on which
holders of preferred securities are entitled to vote upon, then the property
trustee will take the action directed in writing by us. If the property trustee
is not so directed, then it will take the action it deems advisable and in the
best interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
- the trust will not be deemed to be an "investment company" required to be
registered under Investment Company Act;
- the trust will not be classified as an association taxable as a
corporation for federal income tax purposes; and
- the debentures will be treated as indebtedness of Midwest Banc Holdings
for federal income tax purposes.
In this regard, we and the administrative trustees are authorized to take any
action not inconsistent with applicable law, the certificate of trust or the
trust agreement, that we and the administrative trustees determine to be
necessary or desirable for these purposes.
Holders of the preferred securities have no preemptive or similar rights.
The trust agreement and the trust securities will be governed by Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the preferred securities, the trust will
invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and Wilmington Trust Company, as indenture trustee. The
indenture will be qualified under the Trust Indenture Act.
The following discussion is subject to, and is qualified in its entirety by
reference to, the indenture and to the Trust Indenture Act. We urge prospective
investors to read the form of the indenture, which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
GENERAL
The debentures will be limited in aggregate principal amount to
$20,618,575. This amount represents the sum of the aggregate stated liquidation
amounts of the trust securities. The debentures will bear interest at the annual
rate of 10.0% of the principal amount. The interest will be payable quarterly on
March 31, June 30, September 30 and December 31 of each year, beginning
September 30, 2000, to the person in whose name each debenture is registered at
the close of business on the 15th day of the last month of the calendar quarter.
It is anticipated that, until the liquidation, if any, of the trust, the
debentures will be held in the name of the property trustee in trust for the
benefit of the holders of the trust securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. If any date on which interest is
payable on the debentures is not a business day, then payment of interest will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next calendar year, payment of interest will be made on the immediately
preceding business day. Accrued interest that is not paid on the applicable
interest payment date will bear additional interest on the amount due at the
annual rate of 10.0%, compounded quarterly.
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The debentures will mature on June 7, 2030, the stated maturity date. We
may shorten this date once at any time to any date not earlier than June 7,
2005, subject to the prior approval of the Federal Reserve, if required.
We will give notice to the indenture trustee and the holders of the
debentures, no more than 180 days and no less than 90 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after June 7, 2005, except
if (a) a Tax Event, an Investment Company Event or a Capital Treatment Event has
occurred, or (b) we repurchase preferred securities in the market, in which case
we can elect to redeem debentures specifically in exchange for a like amount of
preferred securities owned by us plus a proportionate amount of common
securities.
The debentures will be unsecured and will rank junior to all of our senior
and subordinated debt, including indebtedness we may incur in the future.
Because we are a holding company, our right to participate in any distribution
of assets of any of our subsidiaries, upon any subsidiary's liquidation or
reorganization or otherwise, and thus the ability of holders of the debentures
to benefit indirectly from any distribution by a subsidiary, is subject to the
prior claim of creditors of the subsidiary, except to the extent that we may be
recognized as a creditor of the subsidiary. The debentures will, therefore, be
effectively subordinated to all existing and future liabilities of our
subsidiaries, and holders of debentures should look only to our assets for
payment. The indenture does not limit our ability to incur or issue secured or
unsecured senior and junior debt. See "-- Subordination."
The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transaction involving us, nor does it require us to maintain or achieve
any financial performance levels or to obtain or maintain any credit rating on
the debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of 10.0%, compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of preferred securities if they are then
outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Federal Income Tax Consequences -- Interest Payment
Period and Original Issue Discount."
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of capital stock into
another class of capital stock) or allow any of our subsidiaries to do
the same with respect to their capital stock (other than payment of
dividends or distributions to us);
- make or allow any of our subsidiaries to make any payment of principal,
interest or premium on, or repay, repurchase or redeem any debt
securities issued by us that rank equally with or junior to the
debentures;
- make or allow any of our subsidiaries to make any guarantee payments with
respect to any other guarantee by us of any other debt securities of any
of our subsidiaries if the guarantee ranks equally with or junior to the
debentures (other than payments under the guarantee); or
- redeem, purchase or acquire less than all of the debentures or any of the
preferred securities.
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Prior to the termination of any extension period, so long as no event of
default under the indenture is continuing, we may further defer the payment of
interest subject to the above stated requirements. Upon the termination of any
extension period and the payment of all amounts then due, we may elect to begin
a new extension period at any time. We do not currently intend to exercise our
right to defer payments of interest on the debentures.
We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (a) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or (b) the date we are required to give notice of the
record date, or the date the distributions are payable, to the American Stock
Exchange, or other applicable self-regulatory organization, or to holders of the
preferred securities, but in any event at least one business day prior to the
record date.
Other than as described above, there is no limitation on the number of
times that we may elect to begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If the trust is required to pay any additional taxes, duties, assessments
or other governmental charges as a result of the occurrence of a Tax Event, we
will pay as additional interest on the debentures any amounts which may be
required so that the net amounts received and retained by the trust after paying
any additional taxes, duties, assessments or other governmental charges will not
be less than the amounts the trust would have received had the additional taxes,
duties, assessments or other governmental charges not been imposed.
REDEMPTION
Subject to prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
- on or after June 7, 2005, in whole at any time or in part from time to
time;
- in whole at any time within 180 days following the occurrence of a Tax
Event, an Investment Company Event or a Capital Treatment Event; or
- at any time, and from time to time, to the extent of any preferred
securities we purchase plus a proportionate amount of the common
securities we hold.
In each case we will pay a redemption price equal to the accrued and unpaid
interest on the debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount of the redeemed debentures.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of debentures to be redeemed
at its registered address. Redemption of less than all outstanding debentures
must be effected proportionately, by lot or in any other manner deemed to be
fair and appropriate by the indenture trustee. Unless we default in payment of
the redemption price for the debentures, on and after the redemption date
interest will no longer accrue on the debentures or the portions of the
debentures called for redemption.
The debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Termination," under certain circumstances and with the Federal
Reserve's approval, the debentures may be distributed to the holders of the
preferred securities in liquidation of the trust after satisfaction of
liabilities to creditors of the trust. If this occurs, we will use our
reasonable efforts to list the debentures on the American Stock Exchange or
other stock exchange or national quotation system on which the
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preferred securities are then listed, if any. There can be no assurance as to
the market price of any debentures that may be distributed to the holders of
preferred securities.
RESTRICTIONS ON PAYMENTS
We are restricted from making certain payments (as described below) if we
have chosen to defer payment of interest on the debentures, if an event of
default has occurred and is continuing under the indenture, or if we are in
default with respect to our obligations under the guarantee.
If any of these events occur, we will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock (other than the reclassification of any class of our
capital stock into another class of capital stock) or allow any of our
subsidiaries to do the same with respect to their capital stock (other
than payment of dividends or distributions to us);
- make or allow any of our subsidiaries to make any payment of principal,
interest or premium on, or repay or repurchase or redeem any of our debt
securities that rank equally with or junior to the debentures;
- make or allow any of our subsidiaries to make any guarantee payments with
respect to any guarantee by us of the debt securities of any of our
subsidiaries if the guarantee ranks equally with or junior to the
debentures (other than payments under the guarantee); or
- redeem, purchase or acquire less than all of the debentures or any of the
preferred securities.
SUBORDINATION
The debentures are subordinated and junior in right of payment to all of
our senior and subordinated debt (as defined below). Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up or reorganization of Midwest Banc Holdings, whether voluntary or involuntary
in bankruptcy, insolvency, receivership or other proceedings in connection with
any insolvency or bankruptcy proceedings, the holders of our senior and
subordinated debt will first be entitled to receive payment in full of principal
and interest before the holders of debentures will be entitled to receive or
retain any payment in respect of the debentures.
If the maturity of any debentures is accelerated, the holders of all of our
senior and subordinated debt outstanding at the time of the acceleration will
also be entitled to first receive payment in full of all amounts due to them,
including any amounts due upon acceleration, before the holders of the
debentures will be entitled to receive or retain any principal or interest
payments on the debentures.
No payments of principal or interest on the debentures may be made if there
has occurred and is continuing a default in any payment with respect to any of
our senior or subordinated debt or an event of default with respect to any of
our senior or subordinated debt resulting in the acceleration of the maturity of
the senior or subordinated debt, or if any judicial proceeding is pending with
respect to any default.
The term "debt" means, with respect to any person, whether recourse is to
all or a portion of the assets of the person and whether or not contingent:
- every obligation of the person for money borrowed;
- every obligation of the person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of the person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the person;
- every obligation of the person issued or assumed as the deferred purchase
price of property or services, excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business;
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- every capital lease obligation of the person; and
- every obligation of the type referred to in the first five points of
another person and all dividends of another person the payment of which,
in either case, the first person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise.
The term "senior debt" means the principal of, and premium and interest,
including interest accruing on or after the filing of any petition in bankruptcy
or for reorganization relating to us, on, debt, whether incurred on or prior to
the date of the indenture or incurred after the date. However, senior debt will
not be deemed to include:
- any debt where it is provided in the instrument creating the debt that
the obligations are not superior in right of payment to the debentures or
to other debt which is equal with, or subordinated to, the debentures;
- any of our debt that when incurred and without regard to any election
under the federal bankruptcy laws, was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
- any debt that by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the debentures as a result of the subordination provisions of the
indenture would be greater than they otherwise would have been as a
result of any obligation of the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject; and
- debt which constitutes subordinated debt.
The term "subordinated debt" means the principal of, and premium and
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us, on, debt. Subordinated debt
includes debt incurred on or prior to the date of the indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other debt of ours, other than the debentures. However, subordinated debt
will not be deemed to include:
- any of our debt which when incurred and without regard to any election
under the federal bankruptcy laws was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
- any debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the debentures as a result of the subordination provisions of the
indenture would be greater than they otherwise would have been as a
result of any obligation of the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject;
- debt which constitutes senior debt; and
- any debt of ours under debt securities (and guarantees in respect of
these debt securities) initially issued to any trust, or a trustee of a
trust, partnership or other entity affiliated with us that is, directly
or indirectly, our financing vehicle in connection with the issuance by
that entity of preferred securities or other securities which are
intended to qualify for "Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and there is
no limitation under the indenture on the amount we may incur. We had
consolidated senior and subordinated debt of $269.0 million at March 31, 2000.
Although a portion of these amounts is expected to be repaid with a
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portion of the proceeds from the sale of the debentures, we expect to incur
additional senior or subordinated debt in the future.
PAYMENT AND PAYING AGENTS
Generally, payment of principal of and interest on the debentures will be
made at the office of the indenture trustee in Wilmington, Delaware. However, we
have the option to make payment of any interest by (a) check mailed to the
address of the person entitled to payment at the address listed in the register
of holders of the debentures, or (b) wire transfer to an account maintained by
the person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
applicable record date. Payment of any interest on debentures will be made to
the person in whose name the debenture is registered at the close of business on
the regular record date for the interest payment, except in the case of
defaulted interest.
Any moneys deposited with the indenture trustee or any paying agent for the
debentures, or then held by us in trust, for the payment of the principal of or
interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on June
30 of each year. If we hold any of this money in trust, then it will be
discharged from the trust to us and the holder of the debenture will thereafter
look, as a general unsecured creditor, only to us for payment.
REGISTRAR AND TRANSFER AGENT
The indenture trustee will act as the registrar and the transfer agent for
the debentures. Debentures may be presented for registration of transfer, with
the form of transfer endorsed thereon, or a satisfactory written instrument of
transfer, duly executed, at the office of the registrar. Provided that we
maintain a transfer agent in Wilmington, Delaware, we may rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. We may at any time designate additional transfer
agents with respect to the debentures.
If we redeem any of the debentures, neither we nor the indenture trustee
will be required to (a) issue, register the transfer of or exchange any
debentures during a period beginning at the opening of business 15 days before
the day of the mailing of and ending at the close of business on the day of the
mailing of the relevant notice of redemption, or (b) transfer or exchange any
debentures so selected for redemption, except, in the case of any debentures
being redeemed in part, any portion not to be redeemed.
MODIFICATION OF INDENTURE
We and the indenture trustee may, from time to time without the consent of
the holders of the debentures, amend, waive our rights under or supplement the
indenture for purposes which do not materially adversely affect the rights of
the holders of the debentures. Other changes may be made by us and the indenture
trustee with the consent of the holders of a majority in principal amount of the
outstanding debentures. However, without the consent of the holder of each
outstanding debenture affected by the proposed modification, no modification
may:
- extend the maturity date of the debentures; or
- reduce the principal amount or the rate or extend the time of payment of
interest; or
- reduce the percentage of principal amount of debentures required to amend
the indenture.
As long as any of the preferred securities remain outstanding, no
modification of the indenture may be made that requires the consent of the
holders of the debentures, no termination of the indenture may occur, and no
waiver of any event of default under the indenture may be effective, without the
prior consent of the holders of a majority of the aggregate liquidation amount
of the preferred securities.
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DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following events with
respect to the debentures that has occurred and is continuing constitutes an
event of default under the indenture:
- our failure to pay any interest on the debentures for 30 days after the
due date, except where we have properly deferred the interest payment;
- our failure to pay any principal on the debentures when due whether at
maturity, upon redemption or otherwise;
- our failure to observe or perform in any material respect any other
covenants or agreements contained in the indenture for 90 days after
written notice to us from the indenture trustee or the holders of at
least 25% in aggregate outstanding principal amount of the debentures; or
- our bankruptcy, insolvency or reorganization or dissolution of the trust.
The holders of a majority of the aggregate outstanding principal amount of
the debentures have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the indenture trustee. The indenture
trustee, or the holders of at least 25% in aggregate outstanding principal
amount of the debentures, may declare the principal due and payable immediately
upon an event of default under the indenture. The holders of a majority of the
outstanding principal amount of the debentures may rescind and annul the
declaration and waive the default if the default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration, has been deposited with the indenture trustee.
The holders may not annul the declaration and waive a default if the default is
the non-payment of the principal of the debentures which has become due solely
by the acceleration. Should the holders of the debentures fail to annul the
declaration and waive the default, the holders of at least 25% in aggregate
liquidation amount of the preferred securities will have this right.
If an event of default under the indenture has occurred and is continuing,
the property trustee will have the right to declare the principal of and the
interest on the debentures, and any other amounts payable under the indenture,
to be immediately due and payable and to enforce its other rights as a creditor
with respect to the debentures.
We are required to file annually with the indenture trustee a certificate
as to whether or not we are in compliance with all of the conditions and
covenants applicable to us under the indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the event is attributable to the failure by us to pay interest on or
principal of the debentures on the date on which the payment is due and payable,
then a holder of preferred securities may institute a direct action against us
to compel us to make the payment. We may not amend the indenture to remove the
foregoing right to bring a direct action without the prior written consent of
all of the holders of the preferred securities. If the right to bring a direct
action is removed, the trust may become subject to the reporting obligations
under the Securities Exchange Act of 1934.
The holders of the preferred securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the debentures unless there has been an event of
default under the trust agreement. See "Description of the Preferred Securities
-- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not consolidate with or merge into any other entity or convey or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into us
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or sell, convey, transfer or otherwise dispose of its properties and assets
substantially as an entirety to us, unless:
- if we consolidate with or merge into another person or convey or transfer
our properties and assets substantially as an entirety to any person, the
successor person is organized under the laws of the United States or any
State or the District of Columbia, and the successor person expressly
assumes by supplemental indenture our obligations on the debentures;
- immediately after the transaction, no event of default under the
indenture, and no event which, after notice or lapse of time, or both,
would become an event of default under the indenture, has occurred and is
continuing; and
- other conditions as prescribed in the indenture are met.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and we will be deemed to
have satisfied and discharged our obligations under the indenture when all
debentures not previously delivered to the indenture trustee for cancellation:
- have become due and payable;
- will become due and payable at their stated maturity within one year or
are to be called for redemption within one year, and we deposit or cause
to be deposited with the indenture trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the debentures not previously delivered to the indenture
trustee for cancellation, for the principal and interest due to the date
of the deposit or to the stated maturity or redemption date, as the case
may be.
We may still be required to provide officers' certificates, opinions of
counsel and pay fees and expenses due after these events occur.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the law State of Illinois.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable indemnity by the holder against
the costs, expenses and liabilities which might be incurred. The indenture
trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the indenture
trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
MISCELLANEOUS
We have agreed, pursuant to the indenture, for so long as preferred
securities remain outstanding:
- to maintain directly or indirectly 100% ownership of the common
securities of the trust, except that certain successors that are
permitted pursuant to the indenture may succeed to our ownership of the
common securities;
- not to voluntarily terminate, wind up or liquidate the trust without
prior approval of the Federal Reserve, if required;
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- to use our reasonable efforts to cause the trust (a) to remain a business
trust (and to avoid involuntary termination, winding up or liquidation),
except in connection with a distribution of debentures, the redemption of
all of the trust securities of the trust or mergers, consolidations or
amalgamations, each as permitted by the trust agreement; and (b) to
otherwise continue not to be treated as an association taxable as a
corporation or partnership for federal income tax purposes; and
- to use our reasonable efforts to cause each holder of trust securities to
be treated as owning an individual beneficial interest in the debentures.
BOOK-ENTRY ISSUANCE
GENERAL
DTC will act as securities depositary for the preferred securities and may
act as securities depositary for all of the debentures in the event of the
distribution of the debentures to the holders of preferred securities. Except as
described, the preferred securities will be issued only as registered securities
in the name of Cede & Co. (DTC's nominee). One or more global preferred
securities will be issued for the preferred securities and will be deposited
with DTC.
DTC is a limited purpose trust company organized under New York banking
law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, the American Stock Exchange and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of preferred securities within the DTC system must be made by or
through direct participants, which will receive a credit for the preferred
securities on DTC's records. The ownership interest of each actual purchaser of
each preferred security ("beneficial owner") is in turn to be recorded on the
direct and indirect participants' records. Beneficial owners will not receive
written confirmation from DTC of their purchases, but beneficial owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the direct or indirect
participants through which the beneficial owners purchased preferred securities.
Transfers of ownership interests in the preferred securities are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners will not receive certificates representing
their ownership interest in preferred securities, except if use of the
book-entry-only system for the preferred securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the preferred
securities; DTC's records reflect only the identity of the direct participants
to whose accounts the preferred securities are credited, which may or may not be
the beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be accurate, but we and the
trust assume no responsibility for the accuracy thereof. Neither we nor the
trust have any responsibility for the performance by DTC or its participants of
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their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.
NOTICES AND VOTING
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the preferred securities. If less than all of the preferred securities are being
redeemed, the amount to be redeemed will be determined in accordance with the
trust agreement.
Although voting with respect to the preferred securities is limited to the
holders of record of the preferred securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to preferred securities. Under its usual procedures, DTC would mail an
omnibus proxy to the property trustee as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
direct participants to whose accounts the preferred securities are credited on
the record date.
DISTRIBUTION OF FUNDS
The property trustee will make distribution payments on the preferred
securities to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the property trustee, disbursement of the payments to direct participants is
the responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
SUCCESSOR DEPOSITARIES AND TERMINATION OF BOOK-ENTRY SYSTEM
DTC may discontinue providing its services with respect to any of the
preferred securities at any time by giving reasonable notice to the property
trustee or us. If no successor securities depositary is obtained, definitive
certificates representing the preferred securities are required to be printed
and delivered. We also have the option to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary). After an event of
default under the indenture, the holders of a majority in liquidation amount of
preferred securities may determine to discontinue the system of book-entry
transfers through DTC. In these events, definitive certificates for the
preferred securities will be printed and delivered.
DESCRIPTION OF THE GUARANTEE
The preferred securities guarantee agreement will be executed and delivered
by us concurrently with the issuance of the preferred securities for the benefit
of the holders of the preferred securities. The guarantee agreement will be
qualified as an indenture under the Trust Indenture Act. Wilmington Trust
Company, the guarantee trustee, will act as trustee for purposes of complying
with the provisions of the Trust Indenture Act, and will also hold the guarantee
for the benefit of the holders of the preferred securities. Prospective
investors are urged to read the form of the guarantee agreement, which has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
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GENERAL
We agree to pay in full on a subordinated basis, to the extent described in
the guarantee agreement, the guarantee payments (as defined below) to the
holders of the preferred securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the trust may have or assert other than
the defense of payment.
The following payments with respect to the preferred securities are called
the "guarantee payments" and, to the extent not paid or made by the trust and to
the extent that the trust has funds available for those distributions, will be
subject to the guarantee:
- any accumulated and unpaid distributions required to be paid on the
preferred securities;
- with respect to any preferred securities called for redemption, the
redemption price; and
- upon a voluntary or involuntary dissolution, winding up or termination of
the trust (other than in connection with the distribution of debentures
to the holders of preferred securities in exchange for preferred
securities), the lesser of:
(a) the amount of the liquidation distribution; and
(b) the amount of assets of the trust remaining available for distribution
to holders of preferred securities in liquidation of the trust.
We may satisfy our obligations to make a guarantee payment by making a direct
payment of the required amounts to the holders of the preferred securities or by
causing the trust to pay the amounts to the holders.
The guarantee agreement is a guarantee, on a subordinated basis, of the
guarantee payments, but the guarantee only applies to the extent the trust has
funds available for those distributions. If we do not make interest payments on
the debentures purchased by the trust, the trust will not have funds available
to make the distributions and will not pay distributions on the preferred
securities.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks subordinate
and junior in right of payment to all of our senior and subordinated debt in the
same manner as the debentures and senior to our capital stock. We expect to
incur additional indebtedness in the future, although we have no specific plans
in this regard presently, and neither the indenture nor the trust agreement
limits the amounts of the obligations that we may incur.
The guarantee constitutes a guarantee of payment and not of collection. If
we fail to make guarantee payments when required, holders of preferred
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by the trust or upon distribution of the
debentures to the holders of the preferred securities. Because we are a bank
holding company, our right to participate in any distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of that subsidiary, except to the
extent we may be recognized as a creditor of that subsidiary. Our obligations
under the guarantee, therefore, will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and claimants should look only to
our assets for payments under the guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the preferred securities, in which case no vote will be
required, the guarantee may be amended only with the
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prior approval of the holders of a majority of the aggregate liquidation amount
of the outstanding preferred securities. See "Description of the Preferred
Securities -- Voting Rights; Amendment of Trust Agreement."
EVENTS OF DEFAULT; REMEDIES
An event of default under the guarantee agreement will occur upon our
failure to make any required guarantee payments or to perform any other
obligations under the guarantee. The holders of a majority in aggregate
liquidation amount of the preferred securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the guarantee trustee in respect of the guarantee and may direct the exercise of
any power conferred upon the guarantee trustee under the guarantee agreement.
Any holder of preferred securities may institute and prosecute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
We are required to provide to the guarantee trustee annually a certificate
as to whether or not we are in compliance with all of the conditions and
covenants applicable to us under the guarantee agreement.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
- full payment of the redemption price of the preferred securities;
- full payment of the amounts payable upon liquidation of the trust; or
- distribution of the debentures to the holders of the preferred
securities.
If at any time any holder of the preferred securities must restore payment of
any sums paid under the preferred securities or the guarantee, the guarantee
will continue to be effective or will be reinstated with respect to such
amounts.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
our default in performance of the guarantee, undertakes to perform only those
duties as are specifically set forth in the guarantee. When an event of default
has occurred and is continuing, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to those provisions, the guarantee
trustee is under no obligation to exercise any of the powers vested in it by the
guarantee at the request of any holder of any preferred securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
EXPENSE AGREEMENT
We will, pursuant to the Agreement as to Expenses and Liabilities entered
into by us and the trust under the trust agreement, irrevocably and
unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
preferred securities or other similar interests in the trust of the amounts due
to the holders pursuant to the terms of the preferred securities or other
similar interests, as the case may be. Third party creditors of the trust may
proceed directly against us under the expense agreement, regardless of whether
they had notice of the expense agreement.
GOVERNING LAW
The guarantee will be governed by the laws of the State of Illinois.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the preferred
securities, to the extent the trust has funds available for the payment of these
amounts. We and the trust believe that, taken together, our obligations under
the debentures, the indenture, the trust agreement, the expense agreement and
the guarantee agreement provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of distributions
and other amounts due on the preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes a guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the preferred securities.
If and to the extent that we do not make payments on the debentures, the
trust will not pay distributions or other amounts due on the preferred
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of preferred securities is to institute a legal proceeding
directly against us for enforcement of payment of the distributions to the
holder. Our obligations under the guarantee are subordinated and junior in right
of payment to all of our other indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
debentures, these payments will be sufficient to cover distributions and other
payments due on the preferred securities, primarily because:
- the aggregate principal amount of the debentures will be equal to the sum
of the aggregate stated liquidation amount of the trust securities;
- the interest rate and interest and other payment dates on the debentures
will match the distribution rate and distribution and other payment dates
for the preferred securities;
- we will pay for any and all costs, expenses and liabilities of the trust,
except the obligations of the trust to pay to holders of the preferred
securities the amounts due to the holders pursuant to the terms of the
preferred securities; and
- the trust will not engage in any activity that is not consistent with the
limited purposes of the trust.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have been paid in full or any payment default
has been cured or waived. Failure to make required payments on the debentures
would constitute an event of default under the trust agreement.
LIMITED PURPOSE OF THE TRUST
The preferred securities evidence preferred undivided beneficial interests
in the assets of the trust. The trust exists for the exclusive purposes of
issuing the trust securities, investing the proceeds thereof in debentures and
engaging in only those other activities necessary, advisable or incidental
thereto. A principal difference between the rights of a holder of a preferred
security and the rights of a holder of a debenture is that a holder of a
debenture is entitled to receive from us the principal amount of and interest
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accrued on debentures held, while a holder of preferred securities is entitled
to receive distributions from the trust (or from us under the guarantee) if and
to the extent the trust has funds available for the payment of the
distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the trust involving the liquidation of the debentures, the holders of the
preferred securities will be entitled to receive, out of assets held by the
trust, the liquidation distribution in cash. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Termination."
Upon our voluntary or involuntary liquidation or bankruptcy, the property
trustee, as holder of the debentures, would be a subordinated creditor of ours.
Therefore, the property trustee would be subordinated in right of payment to all
of our senior and subordinated debt, but is entitled to receive payment in full
of principal and interest before any of our stockholders receive payments or
distributions. Since we are the guarantor under the guarantee and have agreed to
pay for all costs, expenses and liabilities of the trust other than the
obligations of the trust to pay to holders of the preferred securities the
amounts due to the holders pursuant to the terms of the preferred securities,
the positions of a holder of the preferred securities and a holder of the
debentures relative to our other creditors and to our stockholders in the event
of liquidation or bankruptcy are expected to be substantially the same.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of the material federal income tax considerations
that may be relevant to the purchasers of preferred securities represents the
opinion of Vedder, Price, Kaufman & Kammholz, counsel to Midwest Banc Holdings
and the trust insofar as it relates to matters of law and legal conclusions. The
conclusions expressed herein are based upon current provisions of the Internal
Revenue Code of 1986, regulations thereunder and current administrative rulings
and court decisions, all of which are subject to change at any time, with
possible retroactive effect. Subsequent changes may cause tax consequences to
vary substantially from the consequences described below. Furthermore, the
authorities on which the following summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of preferred securities may
differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of preferred securities.
Moreover, the discussion generally focuses on holders of preferred securities
who are individual citizens or residents of the United States and who acquire
preferred securities on their original issue at their offering price and hold
preferred securities as capital assets. The discussion has only limited
application to dealers in securities, corporations, estates, trusts or
nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the preferred securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of preferred
securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the preferred securities.
Accordingly, each prospective investor should consult, and should rely
exclusively on, the investor's own tax advisors in analyzing the federal, state,
local and foreign tax consequences of the purchase, ownership or disposition of
preferred securities.
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CLASSIFICATION OF THE DEBENTURES
Based on the advice of counsel, we intend to take the position that the
debentures will be classified for federal income tax purposes as indebtedness of
Midwest Banc Holdings under current law, and, by acceptance of a preferred
security, each holder covenants to treat the debentures as indebtedness and the
preferred securities as evidence of an indirect beneficial ownership interest in
the debentures. No assurance can be given, however, that this position will not
be challenged by the Internal Revenue Service or, if challenged, that it will
not be successful. The remainder of this discussion assumes that the debentures
will be classified for federal income tax purposes as indebtedness of Midwest
Banc Holdings.
CLASSIFICATION OF THE TRUST
With respect to the preferred securities, Vedder, Price, Kaufman &
Kammholz, counsel for Midwest Banc Holdings and the trust, has rendered its
opinion generally to the effect that, under then current law and assuming full
compliance with the terms of the trust agreement and indenture, the trust will
be classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for federal income tax
purposes, each holder of preferred securities generally will be treated as
owning an undivided beneficial interest in the debentures, and each holder will
be required to include in its gross income any interest with respect to the
debentures at the time such interest is accrued or is received, in accordance
with the holder's method of accounting. If the debentures were determined to be
subject to the original issue discount ("OID") rules, each holder would instead
be required to include in its gross income any OID accrued with respect to its
allocable share of the debentures whether or not cash were actually distributed
to the holder.
INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
United States persons (including cash basis taxpayers) that hold debt
instruments issued with OID must generally include such OID in income as it
accrues on a constant yield method even if there is not a corresponding receipt
of cash attributable to such income. A debt instrument such as the debentures
will generally be treated as issued with OID if the stated interest on the
instrument does not constitute "qualified stated interest." Qualified stated
interest is generally any one of a series of stated interest payments on an
instrument that are unconditionally payable at least annually at a single fixed
rate. In determining whether stated interest on an instrument is unconditionally
payable and thus constitutes qualified stated interest, remote contingencies as
to the timely payment of stated interest are ignored. In the case of the
debentures, we have concluded that the likelihood of exercising our option to
defer payments of interest is remote. This is in part because we have a history
of declaring dividends on our common stock and we would be unable to continue
paying these dividends, which could adversely affect the market for our common
stock, if we deferred our payments under the debentures.
If the option to defer any payment of interest was determined not to be
"remote" or if Midwest Banc Holdings actually exercises its option to defer the
payment of interest, the debentures would be treated as issued with OID at the
time of issuance or at the time of such exercise, as the case may be, and all
stated interest would thereafter be treated as OID as long as the debentures
remained outstanding. In such event, all of a United States person's taxable
interest income in respect of the debentures would constitute OID that would
have to be included in income on a constant yield method before the receipt of
the cash attributable to such income, regardless of such person's method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income. Consequently, a holder of preferred securities would be required
to include such OID in gross income even though Midwest Banc Holdings would not
make any actual cash payments during an extension period.
The above information is based on recently promulgated Treasury
Regulations, which have not been interpreted by any court decisions or addressed
in any ruling or other pronouncements of the IRS, and it is possible that the
IRS could take a position contrary to the conclusions herein.
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Because income on the preferred securities will constitute interest,
corporate holders of preferred securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the preferred securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of preferred securities other than a holder who purchased the
preferred securities upon original issuance may be considered to have acquired
their undivided interests in the debentures with "market discount" or
"acquisition premium" as these phrases are defined for federal income tax
purposes. Such holders are advised to consult their tax advisors as to the
income tax consequences of the acquisition, ownership and disposition of the
preferred securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Preferred
Securities -- Redemption or Exchange" and "-- Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of preferred
securities upon a liquidation of the trust. Under current federal income tax
law, such a distribution would be treated as a nontaxable event to the holder
and would result in the holder having an aggregate tax basis in the debentures
received in the liquidation equal to the holder's aggregate tax basis in the
preferred securities immediately before the distribution. A holder's holding
period in debentures received in liquidation of the trust would include the
period for which the holder held the preferred securities.
If, however, a Tax Event occurs which results in the trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to holders of the preferred securities. Under certain
circumstances described herein, the debentures may be redeemed for cash and the
proceeds of the redemption distributed to holders in redemption of their
preferred securities. Under current law, such a redemption should, to the extent
that it constitutes a complete redemption, constitute a taxable disposition of
the redeemed preferred securities, and, for federal income tax purposes, a
holder should recognize gain or loss as if the holder sold the preferred
securities for cash.
DISPOSITION OF PREFERRED SECURITIES
A holder that sells preferred securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the preferred
securities and the holder's adjusted tax basis in the preferred securities. A
holder's adjusted tax basis in the preferred securities generally will be its
initial purchase price increased by OID previously includible in the holder's
gross income to the date of disposition and decreased by payments received on
the preferred securities to the date of disposition. A gain or loss of this kind
will generally be a capital gain or loss and will be a long-term capital gain or
loss if the preferred securities have been held for more than one year at the
time of sale.
The preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
debentures. A holder that disposes of its preferred securities between record
dates for payments of distributions thereon will be required to include accrued
but unpaid interest on the debentures through the date of disposition in income
as ordinary income, and to add the amount to its adjusted tax basis in its
proportionate share of the underlying debentures deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax basis a holder
will recognize a capital loss. The adjusted basis would include, in the form of
OID, all accrued but unpaid interest. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for federal income
tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS
Congress and the Clinton Administration have considered certain proposed
tax law changes in the past that would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not
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shown as indebtedness on the issuer's applicable consolidated balance sheet.
Other proposed tax law changes would have denied interest deductions if the term
was in excess of 20 years. Although these proposed tax law changes have not been
enacted into law, there can be no assurance that tax law changes will not be
reintroduced into future legislation which, if enacted after the date hereof,
may adversely affect the federal income tax deductibility of interest payable on
the debentures. Accordingly, there can be no assurance that a Tax Event will not
occur. A Tax Event would permit us, upon approval of the Federal Reserve if then
required to cause a redemption of the preferred securities before, as well as
after, June 7, 2005. See "Description of the Debentures -- Redemption" and
"Description of the Preferred Securities -- Redemption or Exchange -- Redemption
upon a Tax Event, Investment Company Event or Capital Treatment Event."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of qualified stated interest, or, if applicable, OID, accrued on
the preferred securities held of record by individual citizens or residents of
the United States, or certain trusts, estates and partnerships, will be reported
to the Internal Revenue Service on Forms 1099-INT, or, where applicable, Forms
1099-OID, which forms should be mailed to the holders by January 31 following
each calendar year. Payments made on, and proceeds from the sale of, the
preferred securities may be subject to a "backup" withholding tax (currently at
31%) unless the holder complies with certain identification and other
requirements. Any amounts withheld under the backup withholding rules will be
allowed as a credit against the holder's federal income tax liability, provided
the required information is provided to the Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR
SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, or Section 4975 of the Internal Revenue Code, generally
may purchase preferred securities, subject to the investing fiduciary's
determination that the investment in preferred securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by the
plan.
In any case, we and/or any of our affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Internal Revenue Code) with respect to certain
plans. These plans generally include plans maintained or sponsored by, or
contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of preferred securities by a
plan (or by an individual retirement arrangement or other plans described in
Section 4975(e)(1) of the Internal Revenue Code) with respect to which we or any
of our affiliates are considered a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Internal Revenue Code, unless the preferred securities are acquired
pursuant to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates or any
of its affiliates is a party in interest or a disqualified person should not
acquire preferred securities unless the preferred securities are acquired
pursuant to and in accordance with an applicable exemption. Any other plans or
other entities whose assets include plan assets subject to ERISA or Section 4975
of the Internal Revenue Code proposing to acquire preferred securities should
consult with their own counsel.
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<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Midwest Banc Holdings, MBHI Capital Trust I and the underwriters listed on the
table below for whom Howe Barnes Investments, Inc. is acting as representative,
the underwriters have severally agreed to purchase from MBHI Capital Trust I an
aggregate of 800,000 preferred securities in the amounts set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
Howe Barnes Investments, Inc................................ 470,000
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.............................................. 30,000
Fahnestock & Co., Inc....................................... 30,000
First Albany Corporation.................................... 30,000
Pacific Crest Securities.................................... 30,000
Ryan, Beck & Co., Inc....................................... 30,000
Sandler O'Neill & Partners, L.P............................. 30,000
Stifel, Nicolaus & Company, Incorporated.................... 30,000
George K. Baum & Company.................................... 20,000
D.A. Davidson & Company..................................... 20,000
Wayne Hummer Investments LLC................................ 20,000
Kirkpatrick, Pettis, Smith, Polian Inc...................... 20,000
David A. Noyes & Company.................................... 20,000
Sterne, Agee & Leach, Inc................................... 20,000
---------
Total.................................................. 800,000
=========
</TABLE>
The underwriting agreement requires the underwriters to accept and pay for
all of the preferred securities if any are purchased. In addition, the
underwriting agreement requires that certain conditions must be satisfied on the
part of Midwest Banc Holdings and MBHI Capital Trust I before the underwriters
are obligated to purchase the preferred securities. These conditions include the
accuracy of specific representations and warranties and the receipt of opinions
of counsel and reports from accountants as to certain matters relating to
Midwest Banc Holdings, MBHI Capital Trust I and the preferred securities.
The table below shows the price and proceeds on a per security and
aggregate basis.
<TABLE>
<CAPTION>
PER PREFERRED SECURITY TOTAL
---------------------- -----
<S> <C> <C>
Price to investors.......................................... $25 $20,000,000
Proceeds to MBHI Capital Trust I............................ 25 20,000,000
Underwriting commissions.................................... 0.875 700,000
Proceeds to Midwest Banc Holdings........................... 24.125 19,300,000
</TABLE>
All of the proceeds to MBHI Capital Trust I will be used to purchase the
junior subordinated debentures from Midwest Banc Holdings. Midwest Banc Holdings
has agreed to pay the underwriters 3.50% of the public offering price per
preferred security, as compensation for arranging the investment in the junior
subordinated debentures.
The underwriters propose to offer the preferred securities in part directly
to the public at the initial public offering price set forth above, and in part
to securities dealers at this price less a concession not in excess of $0.50 per
preferred security. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $0.25 per preferred security to brokers and dealers.
After the preferred securities are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
underwriters.
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<PAGE> 51
Midwest Banc Holdings and MBHI Capital Trust I have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. Generally, the indemnification provisions in the
underwriting agreement provide for full indemnification of the underwriters in
actions related to the disclosure in this prospectus unless such disclosure was
provided by the underwriters specifically for use in this prospectus.
In connection with the offering, the underwriters may purchase and sell the
preferred securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of bids or purchases for the purpose of preventing or
retarding a decline in the market price of the preferred securities. Syndicate
short positions involve the sale by the underwriters of a greater number of
securities than they agreed to purchase from Midwest Banc Holdings in the
offering. The underwriters also may impose a penalty bid, which means the
syndicate may reclaim selling concessions that had been allocated to syndicate
members or other broker-dealers for preferred securities they were credited for
selling in the offering if those securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the securities, which may be higher than
the price that might otherwise prevail in the open market. These activities, if
commenced, may be discontinued at any time. These transactions may be effected
in the over-the-counter market or otherwise.
The underwriters have advised MBHI Capital Trust I that they will not
confirm any sales of preferred securities to any discretionary accounts. In
connection with the offer and sale of the preferred securities, the underwriters
will comply with Rule 2810 under the NASD Conduct Rules.
LEGAL MATTERS
Legal matters, including matters relating to federal income tax
considerations, for Midwest Banc Holdings and the trust will be passed upon by
Vedder, Price, Kaufman & Kammholz, Chicago, Illinois, counsel to Midwest Banc
Holdings and the trust. Certain legal matters will be passed upon for the
underwriters by Chapman and Cutler, Chicago, Illinois. Vedder, Price, Kaufman &
Kammholz and Chapman and Cutler will rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law.
WHERE YOU CAN FIND INFORMATION
This prospectus is a part of a Registration Statement on Form S-3 filed by
Midwest Banc Holdings and the trust with the SEC under the Securities Act, with
respect to the preferred securities, the debentures and the guarantee. This
prospectus does not contain all the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to Midwest Banc
Holdings and the securities offered by this prospectus, reference is made to the
registration statement, including the exhibits to the registration statement and
documents incorporated by reference. Statements contained in this prospectus
concerning the provisions of such documents are necessarily summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the SEC.
We file periodic reports, proxy statements and other information with the
SEC. Our filings are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also inspect and copy these materials at the
public reference facilities of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, as well as at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 75 Park Place, Room 1400, New York, New York 10007.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information.
The trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934 and although the trust will
become subject to such requirements upon the effectiveness of the
47
<PAGE> 52
registration statement, it is not expected that the trust will be required to
file separate reports under the Securities Exchange Act.
Each holder of the trust securities will receive a copy of our annual
report at the same time as we furnish the annual report to the holders of our
common stock.
EXPERTS
The consolidated financial statements of Midwest Banc Holdings and its
subsidiaries as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999, are incorporated herein by reference
to our Annual Report on Form 10-K for the year ended December 31, 1999. These
consolidated financial statements have been incorporated herein by reference in
reliance upon the report of Crowe, Chizek and Company LLP, independent certified
public accountants, which is incorporated herein by reference, and upon the
authority of that firm as experts in accounting and auditing.
DOCUMENTS INCORPORATED BY REFERENCE
We "incorporate by reference" into this prospectus the information in
documents we file with the SEC, which means that we can disclose important
information to you through those documents. The information incorporated by
reference is an important part of this prospectus. Some information contained in
this prospectus updates the information incorporated by reference and some
information that we file subsequently with the SEC will automatically update
this prospectus. We incorporate by reference the documents listed below:
(a) our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed with the SEC on March 30, 2000;
(b) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed with the SEC on May 8, 2000; and
(c) our Current Report on Form 8-K dated May 3, 2000 filed with the SEC on
May 9, 2000.
We also incorporate by reference any filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the initial filing of the registration statement that contains this prospectus
and before the time that all of the securities offered in this prospectus are
sold.
You may request a copy of these filings at no cost by contacting us at the
following address:
Midwest Banc Holdings, Inc.
501 West North Avenue
Melrose Park, Illinois 60160
Attn: Edward H. Sibbald
(708) 865-1053
48
<PAGE> 53
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
800,000 PREFERRED SECURITIES
MBHI CAPITAL TRUST I
10.0% CUMULATIVE PREFERRED SECURITIES
FULLY, IRREVOCABLY AND UNCONDITIONALLY
GUARANTEED ON A SUBORDINATED BASIS BY
MIDWEST BANC LOGO
-------------------------------
PROSPECTUS
-------------------------------
HOWE BARNES INVESTMENTS, INC.
JUNE 2, 2000
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