<PAGE>
Registration No. 333-87179
Registration No. 333-87179-01
As filed with the Securities and Exchange Commission on October 1, 1999
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HEARTLAND FINANCIAL USA, INC. HEARTLAND FINANCIAL CAPITAL TRUST I
(Exact name of the registrant and co-registrant as specified in their charters)
<TABLE>
<CAPTION>
DELAWARE 42-1405748 DELAWARE 51-6512637
<S> <C> <C> <C>
(State or other jurisdiction of (I.R.S. Employer (State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.) of incorporation or organization) Identification No.)
</TABLE>
1398 CENTRAL AVENUE 1398 CENTRAL AVENUE
DUBUQUE, IOWA 52001 DUBUQUE, IOWA 52001
(319) 589-2000 (319) 589-2000
(Addresses, including zip codes, and telephone numbers of registrant's and
co-registrant's principal executive offices)
JOHN K. SCHMIDT
EXECUTIVE VICE PRESIDENT
HEARTLAND FINANCIAL USA, INC.
1398 CENTRAL AVENUE
DUBUQUE, IOWA 52001
(319) 589-2000
(Name, address and telephone number of agent for service)
WITH COPIES TO:
JOHN E. FREECHACK, ESQ. DAVE M. MUCHNIKOFF, P.C.
KRISTA A. ENDRES, ESQ. SILVER, FREEDMAN & TAFF, L.L.P.
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG 1100 NEW YORK AVENUE, N.W.
333 W. WACKER DRIVE, SUITE 2700 SUITE 7000
CHICAGO, ILLINOIS 60606 WASHINGTON, D.C. 20005-3934
(312) 984-3100 (202) 414-6100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box: / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered Price per Unit Aggregate Offering Price Fee(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
___% Capital Securities of Heartland 1,000,000 $25.00 $25,000,000 $6,950.00
Financial Capital Trust I
___% Junior Subordinated Debentures(2) of
Heartland Financial USA, Inc. (2)
Guarantee(3) of Capital Securities (3)
</TABLE>
(1) The registration fee is calculated in accordance with Rule 457 (a),
(i) and (n), and was paid in connection with the initial filing of
this Registration Statement.
(2) The Debentures will be purchased by Heartland Financial Capital Trust
I with the proceeds from the sale of Capital Securities. Such
securities may later be distributed for no additional consideration to
the holders of the Capital Securities of Heartland Financial Capital
Trust I upon its dissolution.
(3) This Registration Statement is deemed to cover the Debentures of
Heartland Financial USA, Inc., the rights of holders of Debentures of
Heartland Financial USA, Inc. under the Indenture, and the rights of
holders of the Capital Securities under the Trust Agreement, the
Guarantee and the Expense Agreement entered into by Heartland Financial
USA, Inc. No separate consideration will be received for the Guarantee.
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Subject to completion, dated October , 1999
PROSPECTUS
1,000,000 Capital Securities
HEARTLAND FINANCIAL CAPITAL TRUST I
_____% Cumulative Capital Securities
fully, irrevocably and unconditionally guaranteed by
HEARTLAND FINANCIAL USA, INC.
---------------
The capital securities represent undivided beneficial interests in the assets of
Heartland Financial Capital Trust I. The trust will invest the proceeds of this
offering of capital securities in the % junior subordinated debentures of
Heartland Financial USA, Inc.
For each of the capital securities that you own, you will receive cumulative
cash distributions at an annual rate of % on March 31, June 30, September 30
and December 31 of each year, beginning December 31, 1999, from payments on the
debentures. We may defer payments of distributions at any time for up to 20
consecutive quarters. The capital securities are effectively subordinated to all
senior and subordinated indebtedness of Heartland Financial USA, Inc. and its
subsidiaries. The debentures mature and the capital securities must be redeemed
by September 30, 2029. The trust may redeem the capital securities, at a
redemption price of $25 per capital security plus accrued and unpaid
distributions, at any time on or after September 30, 2004, or earlier under
certain circumstances.
Application has been made to have the capital securities listed on the American
Stock Exchange under the symbol "HFT.Pr" upon completion of this offering.
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.
Investing in the capital securities involves risks. See "Risk Factors" beginning
on
page 9.
---------------------
<TABLE>
<CAPTION>
Per Capital
Security Total
-------------- -------------
<S> <C> <C>
Public offering price............................ $25.00 $25,000,000
Underwriting fees to be paid by Heartland
Financial USA, Inc............................. $ $
Proceeds to the trust............................ $25.00 $25,000,000
</TABLE>
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.
------------------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
HOWE BARNES INVESTMENTS, INC.
---------------
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................ 2
Summary Consolidated Financial Data................ 8
Risk Factors....................................... 9
Cautionary Statements.............................. 16
Use of Proceeds.................................... 17
Capitalization..................................... 18
Accounting and Regulatory Treatment................ 19
Management......................................... 20
Description of the Trust........................... 22
Description of the Capital Securities.............. 23
Description of the Debentures...................... 34
Book-Entry Issuance................................ 42
Description of the Guarantee....................... 44
Relationship Among the Capital
Securities, the Debentures and
the Guarantee.................................... 46
Federal Income Tax Consequences.................... 48
ERISA Considerations............................... 51
Underwriting....................................... 51
Legal Matters...................................... 52
Where You Can Find Information..................... 53
Experts............................................ 53
Incorporation of Documents
by Reference..................................... 53
</TABLE>
Certain persons participating in this offering may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
capital securities being offered, including over-allotting the capital
securities and bidding for and purchasing capital securities at a level above
that which otherwise might prevail in the open market. For a description of
these activities, see "Underwriting." Such stabilizing transactions, if
commenced, may be discontinued at any time. In connection with this offering,
certain underwriters (and selling group members) may engage in passive market
making transactions in the capital securities on the American Stock Exchange
or otherwise in accordance with Rule 103 of the Securities and Exchange
Commission's Regulation M. See "Underwriting."
<PAGE>
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.
HEARTLAND FINANCIAL USA, INC.
BACKGROUND
Heartland Financial USA, Inc. is a diversified financial services holding
company headquartered in Dubuque, Iowa. We offer full-service community
banking through six banking subsidiaries with a total of 24 banking locations
in Iowa, Illinois, Wisconsin and New Mexico. In addition, we have separate
subsidiaries in the consumer finance, vehicle leasing/fleet management,
insurance agency and investment management businesses. Our primary strategy
is to balance our focus on increasing profitability with asset growth and
diversification through acquisitions, DE NOVO bank formations, branch
openings and expansion into non-bank subsidiary activities. At June 30, 1999,
we had total assets of $1.0 billion, net loans and leases of $693.1 million,
deposits of $729.9 million and stockholders' equity of $85.5 million.
Our largest bank subsidiary, Dubuque Bank and Trust Company, was
organized in 1935 and was reorganized into the current holding company
structure with Heartland Financial in 1982. From this beginning, we have
grown significantly and have expanded geographically, acquiring entities or
establishing DE NOVO operations in selected other markets in Iowa, Illinois,
Wisconsin and New Mexico. The following table details our principal operating
subsidiaries:
<TABLE>
<CAPTION>
NUMBER ASSETS AT
YEAR OF JUNE 30, 1999
NAME HEADQUARTERS AFFILIATED LOCATIONS (IN MILLIONS) BUSINESS
- --------------------------- ----------------- ---------- --------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
BANKING SUBSIDIARIES:
Dubuque Bank and Trust Dubuque, IA 1982 8 $582.7 Community banking
Company and trust services
Galena State Bank and Trust Galena, IL 1992 3 133.9 Community banking
Company and trust services
First Community Bank, FSB Keokuk, IA 1994 3 99.6 Community banking
and trust services
Riverside Community Bank Rockford, IL 1995 2 66.3 Community banking
Wisconsin Community Bank Cottage Grove, WI 1997 4 79.9 Community banking
and trust services
New Mexico Bank & Trust Albuquerque, NM 1998 4 60.0 Community banking
and trust services
NON-BANKING SUBSIDIARIES:
Citizens Finance Co. Dubuque, IA 1988 4 14.3 Consumer finance
ULTEA, Inc. Madison, WI 1996 2 41.0 Vehicle leasing/fleet
management
</TABLE>
On July 23, 1999, we acquired Bank One Corporation's branch in Monroe,
Wisconsin, which had approximately $94.5 million in deposits at the time of
the acquisition. In addition, on August 17, 1999, we announced the expansion
of our New Mexico operations through the pending acquisition of National
Bancshares, Inc., the one-bank holding company of First National Bank of
Clovis, located in Clovis, New Mexico. At June 30, 1999, National Bancshares
had $111.9 million in assets, $97.9 million in deposits and $68.6 million in
loans, primarily agricultural loans.
2
<PAGE>
Our principal executive offices are located at 1398 Central Avenue,
Dubuque, Iowa 52001, and our telephone number is (319) 589-2000.
OPERATING STRATEGY
Our primary operating strategy is to differentiate ourselves as a
growing consortium of strong community banks through community involvement,
active boards of directors, local presidents and local decision making. As
part of our operating strategy, we encourage all of our directors, officers
and employees to maintain a strong ownership interest in Heartland Financial.
As of June 30, 1999, these individuals owned approximately 54% of our
outstanding common stock.
We believe that the personal and professional service that we offer to
our customers provides an appealing alternative to the "megabanks" that have
resulted from the recent mergers and acquisitions in the financial services
industry. While we employ a community banking philosophy, we believe that our
size, combined with our full line of financial products and services, is
sufficient to effectively compete in our market areas. At the same time, we
realize that to remain price competitive we must manage expense levels by
centralizing our back office support functions to gain economies of scale.
In order to accomplish our strategic objectives, we have focused on
improving the performance of our existing subsidiaries while simultaneously
pursuing an acquisition and expansion strategy. With respect to our existing
subsidiaries, we have primarily focused on the following strategies:
- de-emphasizing lower-yielding, single-family mortgage loans
while increasing the emphasis on commercial and consumer loans
which yield higher risk-adjusted returns;
- improving our bank subsidiaries' funding costs by reducing the
levels of higher-cost certificates of deposit, increasing the
percentage of lower-cost transaction accounts such as checking,
savings and money market accounts, emphasizing relationship
banking and capitalizing on cross-selling opportunities;
- emphasizing the expansion of our non-traditional sources of
income, including trust and investment services, consumer
finance and vehicle leasing and fleet management;
- centralizing back office support functions to enable us to
operate as efficiently as possible; and
- continually evaluating new technology and acquiring it when
the expected return justifies the cost.
EXPANSION STRATEGY
Another aspect of our primary strategy is to diversify both our market
area and asset base while increasing profitability through acquisitions and
through expansion of our current subsidiaries. Our goal is to expand through
the acquisition of established financial services organizations, primarily
commercial banks or thrifts, when suitable candidates can be identified and
acceptable business terms negotiated. We have also formed DE NOVO banking
institutions in market areas where we have identified market potential and
management with banking expertise and philosophies similar to our own. In
evaluating expansion and acquisition opportunities, we have focused on
geographic areas in the Midwest or Southwest with growth potential.
Our acquisitions have historically focused on traditional community
banks and thrifts located in stable or growing areas of Iowa, Wisconsin and
Illinois. For example, in 1994 we acquired Keokuk Bancshares, Inc., the
holding company of First Community Bank, FSB. First Community, with its
headquarters in Keokuk, Iowa, had assets of $97.9 million at the time of the
acquisition. In March 1997, we acquired Cottage Grove State Bank
(subsequently renamed Wisconsin Community Bank,) a Wisconsin state bank
located in the Madison metropolitan area with $39.0 million in assets at the
time of acquisition. As discussed above, in July 1999, we significantly
increased our Wisconsin operations when we acquired a branch office of Bank
One in Monroe, Wisconsin, and as a result, obtained $94.5 million in
deposits, $38.8 million in loans and $46.7 million in trust assets.
3
<PAGE>
We continually seek and evaluate opportunities to establish branches,
loan production offices or other business facilities as a means of expanding
our presence in current or new market areas. We established Riverside
Community Bank in Rockford, Illinois as a DE NOVO bank in October 1995. Since
then, it has grown to approximately $66.3 million in total assets. We also
opened a new branch of Riverside Community Bank in southeastern Rockford in
July 1999. In addition, Wisconsin Community Bank established offices in Green
Bay, Sheboygan and Eau Claire in 1999.
We also look for opportunities beyond the Midwest and beyond the
categories of community banks and thrifts when we believe that the
opportunity will provide a desirable strategic fit without posing undue
risks. In May 1998, we enhanced our geographic diversity by establishing New
Mexico Bank & Trust as a DE NOVO institution, in Albuquerque, New Mexico.
This is a joint venture with local investors, executive officers and
directors in which we became the 80% owner. Prior to May 5, 2003, each of the
investors has the right to require us to purchase their shares at a price
that will provide the investor with a 10% compounded return on their
investment. On May 5, 2003, we are required to purchase any remaining
outstanding shares at a price determined by an appraisal of New Mexico Bank &
Trust. The purchase price is payable in cash, our common stock or a
combination of both. In no event may we pay a price that will give the
investors less than a 10% return on their investment. In the event that New
Mexico Bank & Trust has over $200 million in assets and a 12% return on
equity at the time of the repurchase, then we must pay a price that will give
the investors at least a 15% return on their investment.
In the third quarter of 1998, we further diversified our asset base by
significantly enlarging our motor vehicle fleet leasing operations through
the acquisition of Lease Associates Group of Milwaukee, Wisconsin. The merger
of that company with our vehicle leasing and fleet management subsidiary,
ULTEA, Inc., created the largest fleet management company based in Wisconsin,
with total assets of $41.0 million at June 30, 1999. ULTEA specializes in
motor vehicle fleet leasing and management for small to medium sized
companies with strong credit histories.
We also acquired Citizens Finance, a consumer finance company, in
November 1988. Citizens Finance specializes in making consumer loans to
borrowers with past credit problems or limited credit histories. While it is
headquartered in Dubuque, Citizens Finance has opened locations in Madison
and Appleton, Wisconsin and Rockford, Illinois. Citizens Finance has
experienced significant growth during 1999 with total assets increasing to
$14.3 million at June 30, 1999.
In August 1999, we agreed to acquire National Bancshares, Inc., the
one-bank holding company of First National Bank of Clovis. The bank has four
locations, with $111.9 million in assets and $97.9 million in deposits. The
total purchase price for National Bancshares will be approximately $23.3
million, of which up to $5.8 million may be paid in our common stock. The
largest stockholder of National Bancshares, owning approximately 30% of its
outstanding capital stock, is also a director and stockholder of New Mexico
Bank & Trust. The acquisition is expected to close by the end of 1999 or
during the first quarter of 2000, pending stockholder and regulatory
approvals. We expect to merge the Clovis bank into New Mexico Bank & Trust
after the closing of the acquisition. As a result of this acquisition, our
ownership interest in New Mexico Bank & Trust will rise to approximately 86%.
At June 30, 1999 we had an 8.49% leverage ratio, a 10.21% tier 1
risk-based ratio and a total risk based ratio of 11.32%. As adjusted for this
offering, as well as for the acquisition of the Bank One branch in Monroe,
Wisconsin and the proposed acquisition of National Bancshares, these ratios
would have been 7.71%, 9.26% and 10.39%, respectively at June 30, 1999. In
addition, the combined assets of New Mexico Bank & Trust at June 30, 1999,
adjusted for the proposed acquisition of National Bancshares, would increase
from $60.0 million to $179.9 million.
4
<PAGE>
HEARTLAND FINANCIAL CAPITAL TRUST I
Upon issuance of the capital securities offered by this prospectus, the
purchasers in this offering will own all of the issued and outstanding
capital 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 for the following purposes:
- issuing the capital securities to the public for cash;
- issuing the common securities to us;
- investing the proceeds from the sale of the capital and common
securities in an equivalent amount of ____% junior subordinated
debentures due September 30, 2029 issued by us; and
- engaging in other activities that are incidental to those listed
above.
The trust's address is 1398 Central Avenue, Dubuque, Iowa 52001, and its
telephone number is (319) 589-2000.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
The issuer................................ Heartland Financial Capital Trust I
Securities being offered.................. 1,000,000 capital securities,
which represent preferred
undivided beneficial interests in
the assets of the trust. Those
assets will consist solely of the
debentures and payments received
thereunder.
The trust will sell the capital
securities to the public for cash.
The trust will use that cash to
buy the debentures from us.
Offering price............................ $25 per capital security.
Payment of distributions.................. If you purchase the capital
securities, you are entitled to
receive cumulative cash
distributions at a _____% annual
rate. Distributions will
accumulate from the date the trust
issues the capital securities and
will be paid quarterly on March
31, June 30, September 30 and
December 31 of each year beginning
December 31, 1999. The record date
for distributions on the capital
securities will be the business
day prior to the distribution
date. Please note that we may
defer the payment of cash
distributions, as more fully
described below.
Maturity.................................. The debentures will mature and the
capital securities must be redeemed
on September 30, 2029. We have the
option, however, to shorten the
maturity date to a date not earlier
than September 30, 2004. 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 capital securities is
possible.............................. The trust must redeem the capital
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 September 30, 2004. In
addition, we may redeem, at any
time, all of the debentures if:
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- 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;
- there is a change in the
Investment Company Act of
1940 that requires the trust
to register under that law;
or
- there is a change in the
capital adequacy guidelines
of the Federal Reserve that
results in the capital
securities not being counted
as Tier 1 capital.
Redemption of the debentures prior
to maturity will be subject to the
prior approval of the Federal
Reserve, if required. If the
capital securities are redeemed by
the trust, you will receive the
liquidation amount of $25 per
capital 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 capital 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 September 30, 2029. If we
defer interest payments on the
debentures:
- the trust will also defer
distributions on the capital
securities;
- the distributions you are
entitled to will accumulate;
and
- these accumulated
distributions will earn
additional interest at an
annual rate of ______%,
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 capital 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 capital 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 capital securities. In this
event, your remedy is to institute
a legal proceeding directly against
us for enforcement of payments
under the debentures.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 capital
securities, debentures and
guarantee are unsecured and will
rank as follows with regard to
right of payment:
- the capital securities will
rank equally with the
common securities of the
trust. The trust will pay
distributions on the
capital securities and
the common securities pro
rata. However, if we
default with respect to
the debentures, then no
distributions on the
common securities will be
paid until all
accumulated and unpaid
distributions on the
capital 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 holding
company, the junior
subordinated debentures
and the guarantee will
effectively be
subordinated to all
existing and future
liabilities of our
subsidiaries.
Voting rights of the capital
securities............................ Except in limited circumstances,
holders of the capital securities
will have no voting rights.
Proposed American Stock Exchange
symbol.............................. "HFT.Pr"
Book-entry................................ The capital 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 capital
securities.
Use of proceeds........................... The trust will invest all of the
proceeds from the sale of the
capital securities in the
debentures. We will use the net
proceeds from the sale of the
debentures, which we estimate to be
approximately $____ million, to
repay approximately $15.0 million
of indebtedness existing on our
revolving credit line currently
outstanding with The Northern Trust
Company. We will use the remaining
net proceeds for general corporate
purposes, including, but not
limited to, investments in and
extensions of credit to our
subsidiaries, possible common stock
repurchases and financing potential
acquisitions.
</TABLE>
Before purchasing the capital securities offered by this prospectus, you
should carefully consider the "Risk Factors" beginning on page 10.
7
<PAGE>
SUMMARY 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, 1998,
are derived from our consolidated financial statements, which have been
audited by KPMG LLP, independent certified public accountants. The summary
data presented below for the six-month periods ended June 30, 1999 and 1998,
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 six-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, 1998 and our Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1999 and June 30, 1999. Results for past periods are not
necessarily indicative of results to be expected for any future period, and
results for the six-month period ended June 30, 1999 are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ---------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------------------- ---------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income....................... $ 33,739 $ 31,599 $ 64,517 $ 59,261 $ 51,886 $ 49,149 $ 43,373
Interest expense...................... 18,556 17,245 36,304 31,767 27,644 25,529 20,128
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net interest income................... 15,183 14,354 28,213 27,494 24,242 23,620 23,245
Provision for loan and lease losses... 1,296 585 951 1,279 1,408 820 811
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net interest income after provision
for loan and lease losses.......... 13,887 13,769 27,262 26,215 22,834 22,800 22,434
Noninterest income.................... 12,824 5,849 17,297 8,565 7,364 4,981 4,965
Noninterest expense................... 20,715 13,087 31,781 22,927 19,507 17,323 17,244
---------- ---------- ---------- ---------- ---------- ---------- -----------
Pre-tax income........................ 5,996 6,531 12,778 11,853 10,691 10,458 10,155
Provision for income taxes............ 1,784 1,959 3,757 3,338 2,685 2,884 3,015
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net income............................ $ 4,212 $ 4,572 $ 9,021 $ 8,515 $ 8,006 $ 7,574 $ 7,140
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
BALANCE SHEET:
Total assets.......................... $1,027,833 $ 880,037 $ 953,785 $ 852,060 $ 736,552 $ 677,313 $ 626,490
Securities and federal funds sold..... 219,774 250,437 259,964 234,666 183,966 171,726 162,968
Loans and leases, net of unearned
interest........................... 693,058 558,654 590,133 556,406 484,085 454,905 422,216
Allowance for loan and lease losses... 9,171 8,100 7,945 7,362 6,191 5,580 5,124
Deposits.............................. 729,914 660,551 717,877 623,532 558,343 534,587 513,239
Stockholders' equity.................. 85,467 76,499 84,270 77,772 70,259 64,506 56,930
KEY RATIOS:
Return on average total assets (1).... 0.87% 1.08% 1.01% 1.09% 1.16% 1.18% 1.18%
Return on average stockholders'
equity (1)......................... 10.03 11.79 11.26 11.59 12.00 12.28 12.82
Net interest margin (1)(2)(3)......... 3.59 3.78 3.58 3.89 3.98 4.13 4.32
Efficiency ratio (2)(4)............... 74.82 67.06 71.58 64.77 63.03 59.15 59.40
Nonperforming assets to total assets.. 0.25 0.34 0.28 0.34 0.34 0.28 0.17
Allowance for loan and lease
losses to total loans and leases... 1.32 1.45 1.35 1.32 1.28 1.23 1.21
Net charge-offs (recoveries) to
average loans and leases........... 0.01 (0.03) 0.07 0.08 0.17 0.08 0.03
Average equity to average assets...... 8.66 9.17 9.01 9.39 9.66 9.59 9.22
Earnings to fixed charges:
Excluding interest on deposits..... 2.45x 2.76x 2.65x 2.97x 3.38x 3.97x 5.30x
Including interest on deposits..... 1.32 1.38 1.35 1.37 1.39 1.41 1.50
</TABLE>
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(1) The six-month ratios are annualized.
(2) Exclusive of the interest recorded on the debt of ULTEA, the net interest
margin for the six-month period ended June 30, 1999 was 3.83%. Similarly,
the efficiency ratio was 67.43% for the six-month period ended June 30,
1999 when considering only the banking subsidiaries.
(3) Tax-equivalent using a 34% rate.
(4) Noninterest expense divided by the sum of net interest income before
provision for loan losses and noninterest income.
8
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RISK FACTORS
AN INVESTMENT IN THE CAPITAL 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 US, OUR BUSINESS AND THE TRUST BEFORE YOU PURCHASE THE CAPITAL
SECURITIES OFFERED BY THIS PROSPECTUS.
BECAUSE THE TRUST WILL RELY ON THE PAYMENTS IT RECEIVES ON THE
DEBENTURES TO FUND ALL PAYMENTS ON THE CAPITAL SECURITIES, AND BECAUSE THE
TRUST MAY DISTRIBUTE THE DEBENTURES IN EXCHANGE FOR THE CAPITAL SECURITIES,
PURCHASERS OF THE CAPITAL SECURITIES ARE MAKING AN INVESTMENT DECISION THAT
RELATES TO THE DEBENTURES AS WELL AS THE CAPITAL SECURITIES. PURCHASERS
SHOULD CAREFULLY REVIEW THE INFORMATION IN THIS PROSPECTUS ABOUT THE CAPITAL
SECURITIES, THE DEBENTURES AND THE GUARANTEE.
RISKS RELATED TO AN INVESTMENT IN HEARTLAND FINANCIAL
OUR CURRENT BUSINESS STRATEGY INVOLVES CHANGING THE FOCUS OF OUR LOAN
PORTFOLIO, WHICH MAY INCREASE OUR CONSOLIDATED CREDIT RISK
Our business strategy centers around increasing our commercial banking
activities. In order to realize this objective, one of our main strategies is
to replace lower-yielding one- to four-family residential mortgage loans with
commercial and consumer loans and leases with higher risk-adjusted returns.
As this process takes place, a gradual increase in our consolidated credit
risk is likely to occur, which means that there is a greater risk that
borrowers will be unable to repay their loans from us or make all required
lease payments to us. Borrower defaults resulting in losses in excess of our
allowance for loan and lease losses could have a material adverse effect on
our business, profitability and financial condition.
OUR CONCENTRATION OF ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS MAY
RESULT IN LOWER YIELDS AND PROFITABILITY. One- to four-family residential
mortgage loans comprised $160.1 million, or 23.0%, of our loan and lease
portfolio at June 30, 1999, and are secured primarily by properties located
in the Midwest. Our concentration of these loans results in lower yields and
lower profitability for us. These loans are generally made on the basis of
the borrower's ability to make repayments from his or her employment and the
value of the property securing the loan.
OUR COMMERCIAL REAL ESTATE LOANS INVOLVE HIGHER PRINCIPAL AMOUNTS
THAN OTHER LOANS, AND REPAYMENT OF THESE LOANS MAY BE DEPENDENT ON FACTORS
OUTSIDE OUR CONTROL OR THE CONTROL OF OUR BORROWERS. At June 30, 1999,
commercial real estate loans totaled $202.5 million, or 29.1%, of our total
loan and lease 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 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. From time to time, we have purchased participation
interests in commercial real estate loans. We apply the same approval
standards and procedures to participation interests as to the loans we
originate directly. There is no assurance, however, that we may not
experience future delinquencies from these participation interests. At June
30, 1999, participation interests included in our total commercial real
estate loan and lease portfolio totaled $43.7 million.
REPAYMENT OF OUR COMMERCIAL LOANS AND LEASES IS OFTEN DEPENDENT ON
CASH FLOWS OF THE BORROWER, WHICH MAY BE UNPREDICTABLE, AND COLLATERAL
SECURING THESE LOANS MAY FLUCTUATE IN VALUE. Our commercial loans and leases
are primarily made based on the identified cash flow of the borrower and
secondarily on the underlying collateral provided by the borrower. Most
often, this collateral is accounts receivable, inventory, machinery or real
estate. Credit support provided by the borrower for most of these loans and
leases and the probability of repayment is based on the liquidation of the
pledged collateral and enforcement of a personal guarantee, if any exists. As
a result, 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. The collateral securing other loans and equipment leases may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business. Commercial loans and leases were $123.2
million, or 17.7% of our total loan and lease portfolio, as of June 30, 1999.
This amount does not include $37.2 million of leases held by ULTEA. These
leases require the lessee to pay an amount over the life of the lease equal
to the total of all costs related to the purchase and use of the automobile
and ULTEA's fleet management fees less the amount received
9
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upon sale of the leased automobile. In the event the lessee fails to pay the
total required payment, ULTEA may incur a loss.
OUR COMMERCIAL CONSTRUCTION LOANS ARE BASED UPON ESTIMATES OF COSTS AND
VALUE ASSOCIATED WITH THE COMPLETE PROJECT. THESE ESTIMATES MAY BE
INACCURATE. At June 30, 1999, commercial construction loans, including land
acquisition and development, totaled $28.3 million, or 4.1%, of our total
loan and lease portfolio. Construction and land acquisition and development
lending involve additional risks because funds are advanced upon the security
of the project, which is of uncertain value prior to its completion. Because
of the uncertainties inherent in estimating construction costs, as well as
the market value of the completed project and the effects of governmental
regulation of real property, it is relatively difficult to evaluate
accurately the total funds required to complete a project and the related
loan-to-value ratio. As a result, commercial construction loans often involve
the disbursement of substantial funds with repayment dependent, in part, on
the success of the ultimate project and the ability of the borrower to sell
or lease the property, rather than the ability of the borrower or guarantor
to repay principal and interest. If our appraisal of the value of the
completed project proves to be overstated, we may have inadequate security
for the repayment of the loan upon completion of construction of the project.
OUR AGRICULTURAL LOANS INVOLVE A GREATER DEGREE OF RISK THAN OTHER
LOANS, AND THE ABILITY OF THE BORROWER TO REPAY MAY BE AFFECTED BY MANY
FACTORS OUTSIDE THE BORROWER'S CONTROL. At June 30, 1999, agricultural real
estate loans totaled $56.6 million, or 8.1%, of our total loan and lease
portfolio. Agricultural real estate lending involves a greater degree of risk
and typically involves larger loans to single borrowers than lending on
singlefamily residences. Payments on agricultural real estate loans are
dependent on the profitable operation or management of the farm property
securing the loan. The success of the farm may be affected by many factors
outside the control of the farm borrower, including adverse weather
conditions that prevent the planting of a crop or limit crop yields (such as
hail, drought and floods), loss of livestock due to disease or other factors,
declines in market prices for agricultural products (both domestically and
internationally) and the impact of government regulations (including changes
in price supports, subsidies and environmental regulations). In addition,
many farms are dependent on a limited number of key individuals whose injury
or death may significantly affect the successful operation of the farm. If
the cash flow from a farming operation is diminished, the borrower's ability
to repay the loan may be impaired. The primary crops in our market areas are
corn and soybean. Accordingly, adverse circumstances affecting corn and
soybean crops could have an adverse effect on our agricultural real estate
loan portfolio.
We also originate agricultural operating loans. At June 30, 1999, these
loans totaled $27.6 million, or 4.0%, of our total loan and lease portfolio.
As with agricultural real estate loans, the repayment of operating loans is
dependent on the successful operation or management of the farm property.
Likewise, agricultural operating loans involves a greater degree of risk than
lending on residential properties, particularly in the case of loans that are
unsecured or secured by rapidly depreciating assets such as farm equipment or
assets such as livestock or crops. The primary livestock in our market areas
include dairy cows, hogs and feeder cattle. In these cases, any repossessed
collateral for a defaulted loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation.
National Bancshares, Inc. had $32.1 million in agricultural operating
loans and $8.0 million in agricultural real estate loans at June 30, 1999.
These loans were heavily concentrated in the cattle industry as well as in
grain operations. Because National Bancshares' underwriting standards are
different than ours, this portion of the loan portfolio may initially involve
more risk. At June 30, 1999, National Bancshares had $1.1 million in
nonperforming loans, which was 1.6% of its total loan portfolio.
OUR CONSUMER LOANS GENERALLY HAVE A HIGHER RISK OF DEFAULT THAN OUR
OTHER LOANS. At June 30, 1999, consumer loans totaled $88.3 million, or
12.7%, of our total loan and lease portfolio. Consumer loans typically have
shorter terms and lower balances with higher yields as compared to one- to
four-family residential mortgage loans, but generally carry higher risks of
default. Consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be affected by adverse
personal circumstances. Furthermore, the application of various federal and
state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on these loans. Our consumer loan portfolio at June
30, 1999 included $16.8 million of consumer loans made by Citizens Finance to
borrowers with past credit problems or limited credit histories. Lending to
these borrowers entails a greater risk of default than does lending to
individuals who have a better credit history. We expect to incur a higher
level of credit losses on Citizens Finance's loans as compared to our other
consumer loans.
10
<PAGE>
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH
As part of our general strategy, we may acquire banks and related
businesses that we believe provide a strategic fit with our business. To the
extent that we grow through acquisitions, we cannot assure you that we will
be able to adequately and profitably manage such growth. Acquiring other
banks and businesses, including our proposed acquisition of National
Bancshares, will involve risks commonly associated with acquisitions,
including:
- potential exposure to unknown or contingent liabilities of
banks and businesses we acquire;
- exposure to potential asset quality issues of the acquired
bank or related business;
- difficulty and expense of integrating the operations and
personnel of banks and businesses we acquire;
- potential disruption to our business;
- potential diversion of our management's time and attention;
- the possible loss of key employees and customers of the
banks and businesses we acquire; and
- incurrence of goodwill if we account for an acquisition as a
purchase.
In addition to acquisitions, we may expand into additional communities
or attempt to strengthen our position in our current markets by undertaking
additional DE NOVO bank formations or branch openings. Based on our
experience, we believe that it generally takes up to two years for new
banking facilities to first achieve operational profitability, due to the
impact of organization and overhead expenses and the start-up phase of
generating loans and deposits. To the extent that we undertake additional
branching and DE NOVO bank and business formations, we are likely to continue
to experience the effects of higher operating expenses relative to operating
income from the new operations, which may have an adverse effect on our
levels of reported net income, return on average equity and return on average
assets.
OUR ALLOWANCE FOR LOAN AND LEASE LOSSES MAY NOT BE ADEQUATE TO COVER ACTUAL
LOAN LOSSES
As a lender, we are exposed to the risk that our customers will be
unable to repay their loans according to their terms and that any collateral
securing the payment of their loans may not be sufficient to assure
repayment. 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
potential losses based on a number of factors. If our assumptions are wrong,
our allowance for loan and lease 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 and lease losses would decrease our net income.
CHANGES IN LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR LOAN PORTFOLIO
Most of our business is located in adjoining portions of Iowa, Illinois
and Wisconsin with a substantial amount concentrated in the Dubuque, Iowa
area. Unfavorable or worsening economic conditions in these areas could have
a material adverse effect on us in a number of ways. The ability of our
borrowers to repay their loans and the value of the collateral securing these
loans would be negatively impacted by adverse changes in local economic
conditions. In addition, these regions are heavily dependent on the
agricultural industry, which has a history of fluctuating economic conditions.
11
<PAGE>
WE HAVE NO CONTROL OVER INTEREST RATES AND OTHER CONDITIONS WHICH
IMPACT OUR RESULTS OF OPERATIONS
Our profitability is in part a function of 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 assets
and liabilities will be such that they are affected differently by a given
change in interest rates. As a result, an increase or decrease in rates, the
length of loan terms 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. At June 30, 1999, we had a liability sensitive gap at one year
and in time periods exceeding one year. With a liability sensitive gap, a
decrease in interest rates will generally have a positive effect on net
interest income, while increases in interest rates will generally have a
negative effect on net interest income.
WE RELY HEAVILY ON OUR MANAGEMENT AND THE LOSS OF ANY OF OUR
SENIOR OFFICERS MAY ADVERSELY AFFECT OUR OPERATIONS
We are dependent upon the efforts and services of Lynn B. Fuller, our
president and chief executive officer and our other senior officers. The loss
of the services of Mr. Fuller, or any of our other senior officers, could
have a material adverse effect on our operations. Because Mr. Fuller has
taken on increased responsibilities at the holding company level, we are in
the process of searching for a replacement president of Dubuque Bank and
Trust, our largest bank subsidiary, where Mr. Fuller has been president since
1987. Until this occurs, Mr. Fuller will continue to hold this position.
Our success also depends on the experience of the officers of our
subsidiaries, the managers of our banking facilities and on their
relationships with the communities they serve. The loss of these key persons
could negatively impact the affected banking operations. We may not be able
to retain our current key personnel or attract additional qualified key
persons as needed.
WE HAVE A CONTINUING NEED FOR TECHNOLOGICAL CHANGE AND WE MAY HAVE LESS
RESOURCES THAN OUR COMPETITORS TO CONTINUE TO INVEST IN TECHNOLOGICAL
IMPROVEMENT
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 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.
UNCERTAINTY EXISTS WITH RESPECT TO THE YEAR 2000 AND OUR OPERATIONS
MAY BE INTERRUPTED
The year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operational programs may be
unable to distinguish the year 2000 from the year 1900. If not effectively
addressed, this problem could result in the production of inaccurate data,
or, in the worst cases, the inability of the systems to continue to function
altogether. Financial institutions are particularly vulnerable due to the
industry's dependence on electronic data processing systems. We could
experience interruptions in our business and suffer significant losses if we,
or a supplier or vendor with whom we contract, are unable to achieve year
2000 readiness before January 1, 2000. In addition, our bank subsidiaries'
customers may withdraw their deposits due to uncertainty of the impact of
year 2000 issues, resulting in decreased liquidity.
12
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THERE IS STRONG COMPETITION IN THE FINANCIAL SERVICES INDUSTRY AND OUR
COMPETITORS MAY HAVE GREATER CAPITAL RESOURCES THAN WE DO
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.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION AND ANY CHANGES MAY
ADVERSELY AFFECT OUR OPERATIONS
The banking industry is heavily regulated under both federal and state
law. These regulations are primarily intended to protect customers, not our
creditors or stockholders. We are also subject to extensive regulation by the
Federal Reserve Board, in addition to other regulatory and self-regulatory
organizations. Regulations affecting banks and financial services companies
undergo continuous change, and we cannot predict the ultimate effect of such
changes, which could have a material adverse effect on our profitability or
financial condition. Regulations and laws may be modified at any time, and
new legislation may be enacted that adversely affects us and our subsidiaries.
RISKS RELATED TO AN INVESTMENT IN THE CAPITAL 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 capital 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
capital 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 capital 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 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 approximately $195.4 million at June
30, 1999. The issuance of the debentures and the capital securities does not
limit our ability or the ability of our subsidiaries to incur additional
indebtedness, guarantees or other liabilities.
13
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Because we are a holding company, the creditors of our subsidiaries 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 capital securities and the debentures.
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 capital 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 capital securities before the end of
any deferral period. During a deferral period, accrued but unpaid
distributions will increase your tax basis in the capital securities. If you
sell the capital 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 capital securities would likely be adversely
affected. The capital 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 capital securities during an interest deferral period, you may not
receive the same return on investment as someone who continues to hold the
capital securities. Due to our right to defer interest payments, the market
price of the capital 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 capital 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 SEPTEMBER 30, 2029
Under the following circumstances, we may redeem the debentures before
their stated maturity:
- We may redeem the debentures, in whole or in part, at any
time on or after September 30, 2004.
- We may redeem the debentures in whole, but not in part, within
90 days after certain occurrences at any time during the life
of the trust. These occurrences may include adverse tax,
Investment Company Act 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 the debentures. If
14
<PAGE>
the debentures are redeemed, the trust must redeem capital 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 capital securities.
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
CAPITAL SECURITIES
The trust may be dissolved at any time before maturity of the debentures
on September 30, 2029. 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 capital securities upon liquidation of the trust.
The capital 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 capital securities. Because you may receive debentures, your investment
decision with regard to the capital 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 United States federal income tax laws, 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 CAPITAL SECURITIES AND THEIR MARKET
PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS
There is currently no public market for the capital securities. Although
we have applied to list the capital securities on the American Stock
Exchange, there is no guarantee that an active or liquid trading market will
develop for the capital securities or that listing of the capital securities
will continue on the American Stock Exchange. If an active trading market
does not develop, the market price and liquidity of the capital securities
will be adversely affected. Even if an active public market does develop,
there is no guarantee that the market price for the capital securities will
equal or exceed the price you pay for the capital securities.
Future trading prices of the capital 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 capital securities has been set at the liquidation amount of the
capital securities and may be greater than the market price following the
offering.
The market price for the capital 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. If this were the
case, the capital securities or the debentures would not trade at a price
that accurately reflects the value of accumulated but unpaid interest 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 capital
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
15
<PAGE>
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.
AS A HOLDER OF CAPITAL SECURITIES YOU HAVE LIMITED VOTING RIGHTS
Holders of capital 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 capital securities
may replace the property trustee and the Delaware trustee.
THE CAPITAL SECURITIES ARE NOT FDIC INSURED
Neither the Federal Deposit Insurance Corporation nor any other
governmental agency has insured the capital securities.
CAUTIONARY STATEMENTS
This prospectus contains forward-looking statements which describe our
future plans, strategies and expectations. All forward-looking statements are
based on assumptions and involve risks and uncertainties, many of which are
beyond our control and which may cause our actual results, performance or
achievements to differ materially from the results, performance or
achievements that we anticipate. Factors that might affect forward-looking
statements include, among other things:
- the demand for our products;
- our inability to sustain or improve the performance of our
subsidiaries;
- our ability to enter new markets successfully and
capitalize on growth opportunities;
- our inability to identify suitable future acquisition candidates;
- the timing, impact and other uncertainties of our future
acquisitions and our success or failure in the integration of
their operations;
- increased costs or other difficulties relating to our pending
acquisition of National Bancshares, Inc.;
- our inability to achieve the financial goals in our strategic plans,
including any financial goals related to both contemplated and
consummated acquisitions;
- increases in defaults by borrowers and other loan delinquencies
resulting in increases in our provision for losses on loans and
related expenses;
- our ability to manage growth, including the successful expansion
of the customer support, administrative infrastructure and
internal management systems necessary to manage such growth;
- adverse changes in the economy or business conditions, either
nationally or in our market areas that could increase
credit-related losses and expenses;
- the consequences of continued bank acquisitions and mergers in our
market areas, resulting in fewer but much larger and financially
stronger competitors, and actions taken by our competitors which
could increase competition for financial services to our detriment;
- fluctuations in interest rates and market prices, which could
reduce our net interest margins, asset valuations and expense
expectations;
- changes in legislative or regulatory requirements applicable to
bank holding companies and our present and future banking and
other subsidiaries;
- changes in tax requirements, including tax rate changes, new tax
laws and revised tax law interpretations;
- general economic conditions;
- year 2000 (Y2K) computer, embedded chip and related data processing
issues; and
- other factors discussed in "Risk Factors."
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.
You should 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.
-16-
<PAGE>
USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the capital
securities in the debentures. We will use the net proceeds from the sale of
the debentures, which we estimate to be approximately $____ million, to repay
$15.0 million of indebtedness existing on our revolving credit line currently
outstanding with The Northern Trust Company. The interest rate on the
revolving line of credit is currently a weighted average of the rates on
overnight Federal fund transactions plus 60 to 90 basis points, based on our
total debt to tangible net worth ratio. The interest rate fluctuates daily
because the interest rate is tied to Federal funds. Under the loan agreement,
we are required to reduce the total outstanding principal on this revolving
credit line by $15.0 million by December 31, 1999. The revolving line of
credit matures on July 23, 2000. We used $20.0 million of the proceeds of
this revolving credit line to capitalize Wisconsin Community Bank after the
acquisition of the Monroe bank branch in July 1999, and used the balance for
other general corporate purposes.
We will use the remaining net proceeds from the sale of the debentures
for general corporate purposes, including, but not limited to, investments in
and extensions of credit to our subsidiaries, possible common stock
repurchases and financing of potential acquisitions, including the
acquisition of National Bancshares, Inc., the holding company for First
National Bank of Clovis.
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<PAGE>
CAPITALIZATION
The following table sets forth our total deposits, indebtedness and
capitalization at June 30, 1999, on an 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
June 30, 1999. These 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, 1998 and Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999 (See "Incorporation of Documents by
Reference").
<TABLE>
<CAPTION>
JUNE 30, 1999
ACTUAL AS ADJUSTED
------------- -------------
(Dollars in thousands)
<C> <C>
DEPOSITS:
Noninterest-bearing deposits............................................. $ 80,580 $ 80,580
Interest-bearing deposits................................................ 649,334 649,334
------------- -------------
Total deposits...................................................... $ 729,914 $ 729,914
------------- -------------
------------- -------------
INDEBTEDNESS:
Short-term borrowings (including short-term portion of Federal
Home Loan Bank advances and contracts payable)...................... $ 140,992 $ 140,992
Other borrowings
Federal Home Loan Bank advances..................................... 19,112 19,112
Notes payable on leased assets...................................... 14,109 14,109
Credit lines with The Northern Trust Company(1)..................... 20,000 20,000
Contracts payable to previous stockholders of
Lease Associates Group for acquisition.......................... 643 643
Contracts payable to previous stockholders of
Wisconsin Community Bank for acquisition........................ 583 583
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated debentures.......... - 25,000
------------- -------------
Total indebtedness.................................................. $ 195,439 $ 220,439
------------- -------------
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, authorized 200,000 shares.............. $ - $ -
Common stock, $1.00 par value, authorized 12,000,000
shares; issued 9,707,252 shares..................................... 9,707 9,707
Capital surplus.......................................................... 15,281 15,281
Retained earnings........................................................ 62,844 62,844
Accumulated other comprehensive income................................... (381) (381)
Treasury stock at cost (118,433 shares).................................. (1,984) (1,984)
------------- -------------
Total stockholders' equity.......................................... 85,467 85,467
------------- -------------
TOTAL DEPOSITS, INDEBTEDNESS AND STOCKHOLDERS' EQUITY.................... $ 1,010,820 $ 1,035,820
------------- -------------
------------- -------------
</TABLE>
- -----------------------------
(1) In July 1999, we entered into an Amended and Restated Loan Agreement with
The Northern Trust Company to establish a term credit line as well as to
increase the availability under an existing revolving credit line. Under
this agreement, we incurred an additional $20.0 million of indebtedness,
a majority of the proceeds were used to fund the acquisition of Bank
One's branch in Monroe, Wisconsin. The total principal amount outstanding
under the loan agreement with Northern Trust was $40.0 million at
October 1, 1999. We will repay $15.0 million of this amount with the
net proceeds from the sale of the debentures.
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<PAGE>
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 capital securities will be
presented as a separate line item in our consolidated balance sheet under the
caption "Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures," and appropriate
disclosures about the capital 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
capital 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 and
specifying the debentures' 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
capital securities.
The capital securities have been structured to qualify as Tier 1
capital. However, the capital securities cannot be used to constitute,
together with any outstanding cumulative preferred stock of Heartland
Financial, more than 25% of Heartland Financial's total Tier 1 capital. As
adjusted for this offering as well as for the acquisition of Bank One's
branch in Monroe, Wisconsin and the pending acquisition of National
Bancshares, Heartland Financial's Tier 1 capital as of June 30, 1999 would
have been approximately $88.3 million, of which $22.1 million would have been
attributable to the capital securities. At the close of this offering, we
anticipate that the total net proceeds will qualify as Tier 1 capital.
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<PAGE>
MANAGEMENT
The names and ages of the executive officers of Heartland Financial as
of September 1, 1999, offices held by these officers on that date and other
positions held with Heartland Financial and its principal operating
subsidiaries are set forth below.
<TABLE>
<CAPTION>
POSITIONS WITH HEARTLAND FINANCIAL
NAME AGE AND PRINCIPAL OPERATING SUBSIDIARIES
---------------- -------------------------- ------------------------------------------------------
<S> <C> <C>
Lynn B. Fuller 50 Director, President and Chief Executive Officer of
Heartland Financial and Dubuque Bank and Trust;
Director of Galena State Bank, First Community Bank,
Riverside Community Bank, Wisconsin Community Bank,
New Mexico Bank & Trust and Keokuk Bancshares;
Director and President of Citizens Finance; Director
and Chairman of ULTEA
Lynn S. Fuller 74 Chairman of the Board of Heartland Financial;
Director and Vice Chairman of the Board of Dubuque
Bank and Trust; Director of Citizens Finance
James A. Schmid 76 Vice Chairman of the Board of Heartland Financial;
Chairman of the Board of Dubuque Bank and Trust;
Director of Citizens Finance
John K. Schmidt 40 Executive Vice President and Chief Financial Officer
of Heartland Financial; Senior Vice President and
Chief Financial Officer of Dubuque Bank and Trust;
Treasurer of Citizens Finance and ULTEA
Kenneth J. Erickson 48 Senior Vice President of Heartland Financial; Senior
Vice President, Lending of Dubuque Bank and Trust;
Senior Vice President of Citizens Finance; Senior
Vice President and Director of ULTEA
Edward H. Everts 48 Senior Vice President, Heartland Financial; Senior
Vice President of Operations and Retail Banking of
Dubuque Bank and Trust
Douglas J. Horstmann 46 Senior Vice President, Lending of Dubuque Bank and
Trust
Paul J. Peckosh 54 Senior Vice President, Trust of Dubuque Bank and Trust
</TABLE>
Mr. Lynn B. Fuller is the son of Mr. Lynn S. Fuller. There are no other
family relationships among any of the directors or executive officers of
Heartland Financial.
LYNN B. FULLER has been a director of Heartland Financial and of Dubuque
Bank and Trust since 1984 and has been President of Heartland Financial and
Dubuque Bank and Trust since 1987. In May 1999, Mr. Fuller became Chief
Executive Officer of Heartland Financial, a position which he has held at
Dubuque Bank and Trust since 1986. He has been a director of Galena State
Bank since its acquisition by Heartland Financial in 1992 and of Keokuk
Bancshares and First Community Bank since the merger in 1994. Mr. Fuller
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<PAGE>
joined Dubuque Bank and Trust in 1971 as a consumer loan officer and was
named Dubuque Bank and Trust's Executive Vice President and Chief Executive
Officer in 1986. He was named Chairman and director of Riverside Community
Bank in conjunction with the opening of the DE NOVO operation in 1995,
director of Wisconsin Community Bank in conjunction with the purchase of
Cottage Grove State Bank in 1997 and director of New Mexico Bank & Trust in
conjunction with the opening of the DE NOVO bank in 1998.
LYNN S. FULLER has been a director of Heartland Financial since its
formation in 1981 and of Dubuque Bank and Trust since 1964. Mr. Fuller began
his banking career in 1946 in Minnesota, and he returned to Iowa in 1949 to
serve as Executive Vice President and Cashier of Jackson State Savings Bank
in Maquoketa. Mr. Fuller joined Dubuque Bank and Trust in 1964. He was later
named President of Dubuque Bank and Trust and held this position until 1987.
Mr. Fuller currently serves as the Chairman of the Board of Heartland and
Vice Chairman of Dubuque Bank & Trust.
JAMES A. SCHMID has been a director of Heartland Financial since its
formation in 1981 and of Dubuque Bank and Trust since 1966. Mr. Schmid also
currently serves as the Vice Chairman of Heartland Financial and as the
Chairman of the Board of Dubuque Bank and Trust.
JOHN K. SCHMIDT has been Heartland Financial's Executive Vice President
and Chief Financial Officer since 1991. He has been employed by Dubuque Bank
and Trust since September 1984 and became Dubuque Bank and Trust's Vice
President, Finance in 1986, and Senior Vice President and Chief Financial
Officer in January, 1991. Mr. Schmidt is a certified public accountant and
worked at KPMG Peat Marwick in Des Moines, Iowa, from 1982 until joining
Dubuque Bank and Trust.
KENNETH J. ERICKSON has been Senior Vice President of Heartland
Financial since 1992 and Senior Vice President, Lending of Dubuque Bank and
Trust since 1989. Mr. Erickson joined Dubuque Bank and Trust in 1975 and was
appointed Vice President, Commercial Loans in 1985.
EDWARD H. EVERTS was appointed as Senior Vice President of Heartland
Financial in 1996. Mr. Everts joined Dubuque Bank and Trust as Senior Vice
President, Operations and Retail Banking in 1992. Prior to his service with
Dubuque Bank and Trust, Mr. Everts was Vice President and Lead Retail Banking
Manager of First Bank, Duluth, Minnesota.
DOUGLAS J. HORSTMANN has been Senior Vice President, Lending, of Dubuque
Bank and Trust since 1989. Mr. Horstmann joined Dubuque Bank and Trust in
1980 and was appointed Vice President, Commercial Loans in 1985. Prior to
joining Dubuque Bank and Trust, Mr. Horstmann was an examiner for the Iowa
Division of Banking.
PAUL J. PECKOSH has been Senior Vice President, Trust, of Dubuque Bank
and Trust since 1991. Mr. Peckosh joined Dubuque Bank and Trust in 1975 as
Assistant Vice President, Trust and was appointed Vice President, Trust in
1980. Mr. Peckosh is an attorney and graduated from the Marquette University
School of Law in 1970.
21
<PAGE>
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 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 the prospectus is a part, as of the date the capital
securities are initially issued. The trust agreement will be qualified under
the Trust Indenture Act of 1939.
The holders of the capital securities issued pursuant to the
offering described in this prospectus will own all of the issued and
outstanding capital securities. We will not initially own any of the capital
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 (together
with the capital securities, the "trust securities"). The trust exists for
the purposes of:
- issuing the capital 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, Heartland Financial 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 Heartland Financial (the "administrative trustees"). The fourth
trustee will be an entity that maintains its principal place of business in the
State of Delaware (the "Delaware trustee"). Initially, First Union Trust
Company, National Association, a national banking association ("First Union"),
will act as Delaware trustee. The fifth trustee will be a financial institution
that is unaffiliated with us and 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 (the "property trustee"). Initially, First
Union will also be the property trustee. For the purpose of compliance with the
Trust Indenture Act, First Union will also 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 shall have occurred
and be continuing, in which case only the holders of the capital securities may
remove the indenture 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 "property account" 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 property account. The guarantee trustee will hold the
22
<PAGE>
guarantee for the benefit of the holders of the capital securities. We will
pay all fees and expenses related to the trust and the offering of the
capital securities, including the fees and expenses of the trustees.
DESCRIPTION OF THE CAPITAL SECURITIES
The capital securities will be issued pursuant to the trust
agreement, which will be qualified as an indenture under the Trust Indenture
Act. First Union will act as property trustee for the capital securities
under the trust agreement for purposes of complying with the provisions of
the Trust Indenture Act. The terms of the capital 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 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 capital securities to be sold to the public and the common securities. We
will own all of the common securities issued by the trust. The capital
securities will represent preferred undivided beneficial interests in the
assets of the trust, and the holders of the capital 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 capital securities will rank equally, and payments on the
capital 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 capital 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 capital 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 property 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 capital securities.
PAYMENT OF DISTRIBUTIONS. Distributions on the capital securities
will be payable at the annual rate of _____% 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 capital securities on the relevant record
dates. The record date will be the business day immediately preceding the
relevant distribution date. The first distribution date for the capital
securities will be December 31, 1999.
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
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<PAGE>
York, New York or Wilmington, Delaware are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office
of the property trustee or the indenture trustee is closed for business.
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 September 30, 2029 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 capital securities will also be deferred during any such
extension period. Any deferred distributions under the capital securities will
accumulate additional amounts at the annual rate of ______%, 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 capital 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 capital securities by extending the interest payment
period 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
September 30, 2004; or
- at any time, in whole, within 90 days following the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event,
as defined below.
MANDATORY REDEMPTION. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on September 30, 2029 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 and Additional Interest (as defined below) 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 the capital securities and the common securities
proportionately.
24
<PAGE>
"Additional Interest" means the additional amounts as may be necessary
to be paid by us in order that the amount of distributions then due and payable
by the trust on the outstanding trust securities will not be reduced as a result
of any additional taxes, duties and other governmental charges to which the
trust has become subject.
DISTRIBUTION OF DEBENTURES. 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 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 capital securities:
- those capital securities will no longer be deemed to be outstanding;
- any certificates representing capital securities will be deemed to
represent debentures with a principal amount equal to the
liquidation amount of those capital securities, and bearing accrued
and unpaid interest in an amount equal to the accumulated and unpaid
distributions on the capital securities until the certificates are
surrendered to the administrative trustees in exchange for
certificates representing the debentures.
There can be no assurance as to the market prices for the capital
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur. The capital 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 capital 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
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 capital securities will
remain outstanding and Additional Interest may be payable on the debentures. See
"Description of 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
25
<PAGE>
capital 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.
REDEMPTION PROCEDURES
Capital securities will be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the capital 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. See "--Subordination of
Common Securities."
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 upon surrender of their certificates
evidencing the trust securities. See "Book-Entry Issuance." If the capital
securities are no longer in book-entry form, the property trustee, to the
extent funds are available, will deposit with the designated paying agent for
such capital 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 capital 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."
Payment of the redemption price on the capital securities and any
distribution of debentures to holders of capital securities will be made to
the applicable recordholders as they appear on the register for the capital
securities on the relevant record date. 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
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liquidation amounts. The particular capital securities to be redeemed will be
selected by the property trustee from the outstanding capital 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
capital securities. The property trustee will promptly notify the registrar
for the capital securities in writing of the capital securities selected for
redemption and, in the case of any capital 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 capital securities.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the
capital 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. Further, no payments may be
made on the common securities unless payment in full in cash of all
accumulated and unpaid distributions (including Additional Interest, if any
is required) on all of the outstanding capital 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 capital securities then called for
redemption, has been made or provided. All funds available to the property
trustee will first be applied to the payment in full in cash of all
distributions (including Additional Interest, if any is required) on, or the
redemption price of, the capital 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 capital securities and not on our
behalf, and only the holders of the capital 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
capital 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 its trust securities, if we have given written direction to the
property trustee to terminate the trust;
- redemption of all of the capital securities as described under
"--Redemption or Exchange--Mandatory Redemption;" or
- the entry of a court order for the dissolution of the trust.
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:
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- 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 to us, as the holder of the common
securities, and the holders of the capital securities on a proportional basis
based on liquidation amounts. However, if an event of default under the
indenture has occurred and is continuing, the capital 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 capital 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 capital
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 capital securities, the capital 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 capital 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 capital
securities in the event of any liquidation of the trust is $25 per capital
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 capital 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;
- 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
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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 capital 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 capital securities, the
administrative trustees and to us, unless the event of default has been cured or
waived. Heartland Financial 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 capital 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
capital 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 capital securities may remove the property
trustee or the Delaware trustee. The holders of the capital 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 entity 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.
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
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described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the holders of the capital
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 capital securities, or
(b) substitutes for the capital securities other securities having
substantially the same terms as the capital securities (referred to
as "successor securities") so long as the successor securities rank
the same in priority as the capital 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 will be listed on any national
securities exchange or other organization on which the capital
securities are then listed;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the capital 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 capital 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 capital 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
capital 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 capital
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
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- 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
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:
- 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 consent is required, without obtaining the
prior approval of the holders of a majority in aggregate
liquidation amount of all outstanding trust securities. 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
trust securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the trust securities except by subsequent vote of the
holders of the trust securities. The property trustee will notify each holder
of trust securities of any notice of default with respect to the debentures.
In addition to obtaining the foregoing approvals of the holders of the trust
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 capital securities will be
required for the trust to redeem and cancel its capital securities in
accordance with the trust agreement.
Notwithstanding the fact that holders of capital securities are
entitled to vote or consent under any of the circumstances described above,
any of the capital securities that are owned by Heartland Financial, the
trustees or any affiliate of Heartland Financial or any trustee, will, for
purposes of the vote or consent, be treated as if they were not outstanding.
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GLOBAL CAPITAL SECURITIES
The capital securities will be represented by one or more global
capital securities registered in the name of The Depository Trust Company,
New York, New York ("DTC") or its nominee. A global capital security is a
security representing interests of more than one beneficial holder.
Beneficial interests in the global capital securities will be shown on, and
transfers will be effected only through, records maintained by participants.
Participants are brokers, dealers, or others with accounts with DTC. Except
as described below, capital securities in definitive form will not be issued
in exchange for the global capital securities. See "Book-Entry Issuance."
No global capital security may be exchanged for capital 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 capital 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 capital 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 capital security. If capital securities are issued in
definitive form, the capital 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 capital securities represented thereby, a global capital 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 capital securities will be made to DTC, as the
depositary for the global capital securities. If the capital securities are
issued in definitive form, distributions will be payable, the transfer of the
capital securities will be registrable, and capital securities will be
exchangeable, for capital 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. However, payment of any distribution may be made
at the option of the administrative trustees by check mailed to the address
of record of the persons entitled to the distribution or by wire transfer. In
addition, if the capital 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 capital securities, and the
deposit of the global capital 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 capital securities represented by the global capital security to
the accounts of persons that have accounts with DTC. These accounts will be
designated by the dealers, underwriters or agents with respect to the capital
securities. Ownership of beneficial interests in a global capital security
will be limited to persons or entities with an account with DTC or who may
hold interest through any person or entity with an account that may hold
interests through participants. With respect to interests of any person or
entity with an account with DTC, ownership of beneficial interests in a
global capital security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the applicable
depositary or its nominee. With respect to persons or entities who hold
interest in a global capital security through a participant, the interest and
any transfer of the interest will be shown on the
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participant's records. The laws of some states require that certain
purchasers of securities take physical delivery of these securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global capital security.
So long as DTC or another depositary, or its nominee, is the
registered owner of the global capital security, the depositary or the
nominee, as the case may be, will be considered the sole owner or holder of
the capital securities represented by the global capital security for all
purposes under the trust agreement. Except as described in this prospectus,
owners of beneficial interests in a global capital security will not be
entitled to have any of the individual capital securities represented by the
global capital security registered in their names, will not receive or be
entitled to receive physical delivery of any the capital securities in
definitive form and will not be considered the owners or holders of the
capital securities under the trust agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the capital 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 capital security
representing the capital 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 capital
security, immediately will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the
aggregate liquidation amount of the global capital 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 capital 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 capital securities shall be made to DTC,
which shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the capital 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 capital securities. The paying agent
for the capital 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 capital 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 capital 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 capital securities. Registration of transfers of capital
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 capital 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
capital securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred. If no event of
default
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under the trust agreement has occurred and is continuing and the property
trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the trust agreement or is unsure of the application
of any provision of the trust agreement, and the matter is not one on which
holders of capital 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 the 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 Heartland
Financial 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 capital securities have no preemptive or similar rights.
The trust agreement and the capital securities will be governed by Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the capital 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 First Union, as trustee (the "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
$25.77 million. 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 _____% of the principal amount. The interest
will be payable quarterly on March 31, June 30, September 30 and December 31
of each year, beginning December 31, 1999, to the person in whose name each
debenture is registered at the close of business on the business day
immediately preceding the day interest is due. 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 the interest will
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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 _____%, compounded
quarterly. The term "interest," includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable interest
payment date and additional interest, as applicable.
The debentures will mature on September 30, 2029, the stated
maturity date. We may shorten this date once at any time to any date not
earlier than September 30, 2004, 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 September 30, 2004,
except if a Tax Event, an Investment Company Event or a Capital Treatment
Event has occurred, or to the extent we have repurchased capital securities.
The debentures will be unsecured and will rank junior to all of our
senior and subordinated indebtedness. 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
_____%, compounded quarterly. During an extension period, interest will
continue to accrue and holders of debentures, or the holders of capital
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
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- redeem, purchase or acquire less than all of the debentures or any of
the capital securities.
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 capital 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 or
other governmental charges as a result of the occurrence of a Tax Event, we
will pay as additional amounts 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 or other governmental charges will not be
less than the amounts the trust would have received had the additional taxes,
duties or other governmental charges not been imposed.
REDEMPTION OR EXCHANGE
Subject to prior approval of the Federal Reserve, if required, we
may redeem the debentures prior to maturity:
- on or after September 30, 2004, in whole at any time or in part
from time to time;
- in whole at any time within 90 days following the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event;
or
- at any time, to the extent of any capital securities we repurchase.
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 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 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 Capital
Securities--Liquidation Distribution Upon Termination," under certain
circumstances and with the Federal Reserve's approval, the debentures may be
distributed to the
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holders of the capital 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
capital 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
capital 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, an event of
default has occurred and is continuing under the indenture or we are in
default with respect to our obligations under the guarantee.
If either of these events shall have occurred, 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 capital 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, reorganization, assignment for the benefit of creditors,
marshaling of assets or any bankruptcy, insolvency, debt restructuring or
similar proceedings in connection with any insolvency or bankruptcy
proceedings of Heartland Financial, 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 such holders, including any amounts due upon acceleration,
before the holders of the debentures will be entitled to receive or retain
any payment in respect of the principal of or interest 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 entity, whether recourse
is to all or a portion of the assets of the entity and whether or not
contingent:
- every obligation of the entity for money borrowed;
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- every obligation of the entity 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 entity with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of the entity;
- every obligation of the entity 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;
- every capital lease obligation of the entity; and
- every obligation of the type referred to in the first five points of
another entity and all dividends of another entity the payment of
which, in either case, the first entity 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. Senior
debt also includes all indebtedness, whether incurred on or prior to the date
of the indenture or thereafter incurred, for claims in respect of derivative
products such as interest and foreign exchange rate contracts, commodity
contracts and similar arrangements. 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, 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;
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- 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 approximately $195.4 million at
June 30, 1999. We also incurred additional indebtedness of $20.0 million
after this date under the loan agreement with The Northern Trust Company.
Although a portion of these amounts are expected to be repaid with a portion
of the proceeds from the sale of the debentures, additional senior or
subordinated debt can be expected to be incurred 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) 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 May 31 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
debentures during a period beginning at the opening of business 15 days
before the day of selection for redemption of debentures and ending at the
close of business on the day of 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.
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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 capital 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 capital securities.
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 other
covenants 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 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 capital 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.
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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 CAPITAL 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 capital 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 capital 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 capital 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 Capital
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 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, or substitutes securities having
substantially similar terms;
- 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.
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GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of Delaware.
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 capital
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;
- 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 capital 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 capital securities. Except
as described, the capital securities will be issued only as registered
securities in the name of Cede & Co. (DTC's nominee). One or more global
capital securities will be issued for the capital 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
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certain other organizations. DTC is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the 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 capital securities within the DTC system must be made by or
through direct participants, which will receive a credit for the capital
securities on DTC's records. The ownership interest of each actual purchaser
of each capital security ("beneficial owner") is in turn to be recorded on
the direct and indirect participant's 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
capital securities. Transfers of ownership interests in the capital
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 capital
securities, except if use of the book-entry system for the capital securities
is discontinued.
DTC will have no knowledge of the actual beneficial owners of the capital
securities; DTC's records reflect only the identity of the direct
participants to whose accounts the capital 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 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 capital securities. If less than all of the capital securities are being
redeemed, the amount to be redeemed will be determined in accordance with the
trust agreement.
Although voting with respect to the capital securities is limited to the
holders of record of the capital securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to capital 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 capital securities are
credited on the record date.
DISTRIBUTION OF FUNDS
The property trustee will make distribution payments on the capital
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
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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
capital securities at any time by giving reasonable notice to the property
trustee and us. If no successor securities depositary is obtained, definitive
capital securities representing the capital 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 capital securities may determine to discontinue the
system of book-entry transfers through DTC. In these events, definitive
certificates for the capital securities will be printed and delivered.
DESCRIPTION OF THE GUARANTEE
The capital securities guarantee agreement will be executed and delivered
by us concurrently with the issuance of the capital securities for the
benefit of the holders of the capital securities. The guarantee agreement
will be qualified as an indenture under the Trust Indenture Act. First Union,
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 capital 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.
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 capital securities, as and when due, regardless of any defense
or counterclaim that the trust may have or assert other than the defense of
payment.
The following payments with respect to the capital 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 capital securities;
- with respect to any capital securities called for
redemption, the redemption price; and
- upon a voluntary or involuntary dissolution, winding up
or liquidation of the trust (other than in connection
with the distribution of debentures to the holders of
capital securities or a redemption of all of the capital
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 capital 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 capital 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 capital securities.
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STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks 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 capital
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 capital securities. Because we are a
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 capital securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval
of the holders of a majority of the aggregate liquidation amount of the
outstanding capital securities. See "Description of the Capital
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 capital 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 capital 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 capital securities;
- full payment of the amounts payable upon liquidation of the trust;
or
- distribution of the debentures to the holders of the capital
securities.
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If at any time any holder of the capital securities must restore payment of
any sums paid under the capital 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 capital 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
capital securities or other similar interests in the trust of the amounts due
to the holders pursuant to the terms of the capital 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 Delaware.
RELATIONSHIP AMONG THE CAPITAL 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 capital
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 capital 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 capital 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 capital
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 capital 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.
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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 capital 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 capital
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 capital securities the
amounts due to the holders pursuant to the terms of the
capital 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 CAPITAL SECURITIES
A holder of any capital 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 capital 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 capital 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 accrued on debentures held, while a holder of capital 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, windingup or liquidation
of the trust involving the liquidation of the debentures, the holders of the
capital securities will be entitled to receive, out of assets held by the
trust, the liquidation distribution in cash. See "Description of the Capital
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 capital securities the amounts due to the holders pursuant to
the terms of the capital securities, the positions of a holder of the capital
securities and a holder of the debentures relative to our
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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 capital securities represents the
opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg counsel to
Heartland Financial 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 capital 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 capital securities.
Moreover, the discussion generally focuses on holders of capital securities
who are individual citizens or residents of the United States and who acquire
capital securities on their original issue at their offering price and hold
capital 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 capital 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 capital 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 capital 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 capital securities.
CLASSIFICATION OF THE DEBENTURES
In accordance with the opinion of Barack Ferrazzano Kirschbaum Perlman &
Nagelberg, we intend to take the position that the debentures will be
classified for federal income tax purposes as indebtedness of Heartland
Financial under current law, and, by acceptance of a capital security, each
holder covenants to treat the debentures as indebtedness and the capital
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 Heartland Financial.
CLASSIFICATION OF THE TRUST
With respect to the capital securities, Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, tax counsel for Heartland Financial 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 capital 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
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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 making these dividends 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 Heartland Financial 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
capital securities would be required to include such OID in gross income even
though Heartland Financial 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.
Because income on the capital securities will constitute interest,
corporate holders of capital securities will not be entitled to a
dividends-received deduction with respect to any income recognized with
respect to the capital securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of capital securities other than a holder who purchased the
capital 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
capital securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Capital
Securities--Redemption or Exchange" and "--Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of capital
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 capital 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 capital securities.
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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 capital 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 capital securities. Under current law, such a redemption should, to
the extent that it constitutes a complete redemption, constitute a taxable
disposition of the redeemed capital securities, and a holder for federal
income tax purposes, should recognize gain or loss as if the holder sold the
capital securities for cash.
DISPOSITION OF CAPITAL SECURITIES
A holder that sells capital securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the capital
securities and the holder's adjusted tax basis in the capital securities. A
holder's adjusted tax basis in the capital 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 capital 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 capital securities have been held for more than one year
at the time of sale.
The capital 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 capital 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 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 capital securities before, as well as after, September 30, 2004. See
"Description of the Debentures--Redemption or Exchange" and "Description of
the Capital 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 capital 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 capital 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.
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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 CAPITAL SECURITIES. HOLDERS OF CAPITAL
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL 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 capital securities, subject to the investing
fiduciary's determination that the investment in capital 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 capital 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 capital 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 capital securities unless the capital 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 capital
securities should consult with their own counsel.
UNDERWRITING
Heartland Financial, the trust, and the underwriters named below have
entered into an underwriting agreement with respect to the capital
securities. The underwriters, and the amount of capital securities that each
of them has agreed to purchase, are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
----------- ------------------
<S> <C>
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated........
Howe Barnes Investments, Inc...........................................
---------
Total.......................................................... 1,000,000
---------
---------
</TABLE>
The underwriters have agreed to purchase the capital securities on a
firm-commitment basis. That means that they will purchase all of the capital
securities if they purchase any of them. If one underwriter defaults under
the underwriting agreement, the purchase commitment of the other underwriter
may be increased or the underwriting agreement may be terminated.
The underwriters have agreed to purchase the capital securities at the
price stated on the cover page of this prospectus. Because the trust will use
the proceeds from the sale of the capital securities to purchase the
debentures from us, we have agreed to pay the underwriters the following fees:
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<TABLE>
<CAPTION>
Underwriting Fees
<S> <C>
Per Capital Security............. $
Total............................ $
</TABLE>
In addition to the underwriting fees, we estimate that we will spend
approximately $170,000 for printing, depository and trustees' fees,
legal and accounting fees, and other expenses of the offering.
The underwriters will initially offer the capital securities to the
public at the price stated on the cover page. The underwriters may offer
capital securities to selected dealers at the public-offering price less a
concession of up to $_______ per capital security. Those dealers may reallow
a discount not in excess of $______ per capital security to other brokers and
dealers. After the initial offering of the capital securities, the
underwriters may change the offering price, concession, discount and other
selling terms.
In connection with the offering, the underwriters and their affiliates
may engage in transactions, effected in accordance with Rule 104 of the SEC's
Regulation M, that are intended to stabilize, maintain or otherwise affect
the market price of the capital securities. These transactions may include
transactions in which the underwriters create a short position for their own
account by selling more capital securities than they are committed to
purchase from the trust. In such a case, to cover all or part of the short
position, the underwriters may purchase capital securities in the open market
following completion of the initial offering. The underwriters also may
engage in stabilizing transactions in which they bid for, and purchase, the
capital securities at a level above that which might otherwise prevail in the
open market for the purpose of preventing or retarding a decline in the
market price of the capital securities. Any of these transactions may result
in the maintenance of a price for the capital securities at a level above
that which might otherwise prevail in the open market. Neither Heartland
Financial nor the underwriters make any representation or prediction as to
the direction or magnitude of any effect that the transactions described
above may have on the market price of the capital securities. The
underwriters are not required to engage in any of these transactions. These
transactions may be effected on the American Stock Exchange, and, if
commenced, may be discontinued at any time without notice.
Heartland Financial and the trust have agreed to indemnify the
underwriters against liabilities arising from the offering of the capital
securities, including civil liabilities under the Securities Act of 1933, or
to contribute to payments that the underwriters may be required to make in
connection with those liabilities.
The underwriters have advised us that they do not intend to confirm any
sales of trust preferred securities to any discretionary accounts. The
underwriters will comply with Rule 2810 under the NASD Conduct Rules when
they offer and sell the trust preferred securities because the National
Association of Securities Dealers, Inc. may view the trust preferred
securities as interests in a direct participation. The underwriters and their
affiliates may provide investment banking services for us or our affiliates
in the future for which they would expect to receive customary fees and
commissions.
LEGAL MATTERS
Legal matters, including matters relating to federal income tax
considerations, for Heartland Financial and the trust will be passed upon by
Barack Ferrazzano Kirschbaum Perlman & Nagelberg, Chicago, Illinois, counsel
to Heartland Financial and the trust. Certain legal matters will be passed
upon for the underwriters by Silver, Freedman & Taff, L.L.P., Washington,
D.C. Barack Ferrazzano Kirschbaum Perlman & Nagelberg and Silver, Freedman &
Taff, L.L.P. may rely on the opinion of Richards, Layton & Finger, P.A. as to
matters of Delaware law.
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WHERE YOU CAN FIND INFORMATION
This prospectus is a part of a Registration Statement on Form S-3 filed
by Heartland Financial and the trust with the Securities and Exchange
Commission under the Securities Act, with respect to the capital 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 Heartland Financial 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 Securities and Exchange Commission.
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. The address of that site is 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
Registration Statement, it is not expected that the trust will be required to
file separate reports under the Securities Exchange Act of 1934.
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 capital 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 capital securities to the extent described in
this prospectus.
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 Heartland Financial and its
subsidiaries as of December 31, 1998 and 1997, and for each of the years in
the three-year period ended December 31, 1998, are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. These consolidated financial statements have been
incorporated herein by reference in reliance upon the report of KPMG LLP,
independent certified public accountants, which is incorporated herein by
reference, and upon the authority of that firm as experts in accounting and
auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
We "incorporate by reference" into this prospectus the information in
documents we file with the Securities and Exchange Commission, 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, 1998, filed with the SEC on March
31, 1999;
53
<PAGE>
(b) our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, filed with the SEC on May 16,
1999;
(c) our Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, filed with the SEC on August 16,
1999; and
(d) our Current Report on Form 8-K filed on August 26,
1999, relating to the acquisition of National
Bancshares, Inc.
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:
Heartland Financial USA, Inc.
1398 Central Avenue
Dubuque, Iowa 52001
Attn: Jacquie M. Manternach
(319) 589-2000
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 Capital Securities
HEARTLAND FINANCIAL CAPITAL TRUST I
_____% Cumulative Capital Securities
(Liquidation Amount $25 per Capital Security)
guaranteed as described in this prospectus by
HEARTLAND FINANCIAL USA, INC.
---------------
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
HOWE BARNES INVESTMENTS, INC.
---------------
, 1999
------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in
connection with the sale and distribution of the securities being registered,
other than underwriting discounts and commissions. All amounts shown are
estimates, except the SEC registration fee and the NASD and the American
Stock Exchange filing fees:
<TABLE>
<S> <C>
SEC registration fee...............................................$ 6,950
American Stock Exchange filing fee................................. 16,500
NASD filing fee.................................................... 3,000
Trustees' fees..................................................... 4,000
Printing and mailing expenses...................................... 15,000
Fees and expenses of counsel....................................... 100,000
Accounting and related expenses.................................... 20,000
Blue Sky fees and expenses......................................... 2,000
Miscellaneous...................................................... 2,550
----------
Total..............................................................$ 170,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Delaware General Corporation Law,
ArticlesI X and X of Heartland Financial's Certificate of Incorporation
provides as follows:
ARTICLE IX: Each person who is or was a director
or officer of the corporation and each person who serves
or served at the request of the corporation as a director,
officer or partner of another enterprise, shall be
indemnified by the corporation in accordance with, and to
the fullest extent authorized by, the General Corporation
Law of the State of Delaware, as the same now exists or
may be hereafter amended. No amendment to or repeal of
this Article IX shall apply to or have any effect on the
rights of any individual referred to in this Article IX
for or with respect to acts or omissions of such
individual occurring prior to such amendment or repeal.
ARTICLE X: To the fullest extent permitted by the
General Corporation Law of Delaware, as the same now
exists or may be hereafter amended, a director of the
corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment to or repeal of this
Article X shall apply to or have any effect on the
liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions
of such director occurring prior to the effective date of
such amendment or repeal.
Article VIII of Heartland Financial's Bylaws further
provides as follows:
SECTION 8.1 DIRECTORS AND OFFICERS. (a) The corporation shall
indemnify any person who was or is a party or is threatened to be made party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he or she is or
was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such
action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests
of the corporation, and, with
II-1
<PAGE>
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
with the defense or settlement of such action or suit if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the
State of Delaware or such other court shall deem proper.
(c) To the extent that any person referred to in paragraphs (a) and
(b) of this Section 8.1 has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to therein or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this Section
8.1 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in paragraphs (a) and (b) of
this Section 8.1. Such determination shall be made (i) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (ii) if such quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred in defending any
civil, criminal, administrative or investigative action, suit or proceeding
may be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the
corporation as provided in this Section 8.1. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to this Section 8.1 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office.
(g) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under the
provisions of this Section 8.1.
II-2
<PAGE>
(h) For purposes of this Section 8.1, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this Section 8.1.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 8.1 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(j) Unless otherwise determined by the board of directors,
references in this section to "the corporation" shall not include in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting
or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
SECTION 8.2 EMPLOYEES AND AGENTS. The board of directors may, by
resolution, extend the indemnification provisions of the foregoing Section
8.1 to any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason
of the fact that he or she is or was an employee or agent of the corporation,
or is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.
Heartland Financial also carries Directors' and Officers' liability
insurance in the amount of $1.0 million.
II-3
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
*1.1 Form of Underwriting Agreement for Capital Securities
*2.1 Agreement and Plan of Merger Among Heartland Financial USA, Inc., NBI Acquisition Corporation and
National Bancshares, Inc. (incorporated by reference to exhibit 2.1 to the Form 8-K, filed
August 26, 1999)
*4.1 Form of Indenture
*4.2 Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1)
*4.3 Certificate of Trust
*4.4 Trust Agreement
*4.5 Form of Amended and Restated Trust Agreement
*4.6 Form of Capital Securities Certificate (included as an exhibit to Exhibit 4.5)
*4.7 Form of Capital Securities Guarantee Agreement
*4.8 Form of Agreement of Expenses and Liabilities (included as an exhibit to Exhibit 4.5)
*5.1 Opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
*5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Tax Opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
*10.1 Amended and Restated Credit Agreement, Dated as of July 23,
1999 between Heartland Financial USA, Inc. and The Northern
Trust Company (incorporated by reference to exhibit 10.16 of
Form 10-Q filed on August 16, 1999)
*12.1 Calculations of ratios of earnings to fixed charges and ratios
of earnings to combined fixed charges and preferred stock
dividends
*23.1 Consent of KPMG LLP
*23.2 Consent of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
(included in opinion filed as Exhibit 5.1)
*23.3 Consent of Richards, Layton & Finger, P.A. (included in opinion filed as Exhibit 5.2)
*23.4 Consent of Barack Ferrazzano Kirschbaum Perlman & Nagelberg (included in opinion filed as
Exhibit 8.1)
*24.1 Powers of Attorney (included as part of Signature Pages)
*25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Indenture
*25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Trust Agreement
*25.3 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Guarantee Agreement
</TABLE>
-----------------
* previously provided
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Company's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrants pursuant to the foregoing provisions, or
otherwise, the Registrants have been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer, or
controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered,
each Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(i) The Undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities
act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933
shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(j) The undersigned Registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the SEC under
Section 305(b)(2) of that Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dubuque, State of Iowa, on October 1, 1999.
HEARTLAND FINANCIAL USA, INC.
By:/s/ Lynn B. Fuller
---------------------------------------------------------
Lynn B. Fuller, President and Chief Executive Officer
By:/s/ John K. Schmidt
---------------------------------------------------------
John K. Schmidt, Executive Vice President
and Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, the
Trust certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dubuque, State of Iowa, on
October 1, 1999.
HEARTLAND FINANCIAL CAPITAL TRUST I
By:/s/ Lynn B. Fuller
------------------------------
Lynn B. Fuller, Trustee
By:/s/ John K. Schmidt
------------------------------
John K. Schmidt, Trustee
By:/s/ Jacquie M. Manternach
------------------------------
Jacquie M. Manternach, Trustee
S-1
<PAGE>
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Lynn B. Fuller and John K.
Schmidt, and each of them, his or her true and lawful attorney-in-fact
and agent, each with full power of substitution and re-substitution, for
him or her and in his or her name, place and stead, in any and all
capacities (including in his or her capacity as a director or officer of
Heartland Financial USA, Inc.) to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming al
that said attorney-in-fact and agent, or any of them, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on October 1, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman of the Board
------------------------------------
Lynn S. Fuller
* Vice Chairman of the Board
------------------------------------
James A. Schmid
/s/ Lynn B. Fuller President, Chief Executive Officer and
------------------------------------
Lynn B. Fuller Director
* Director
------------------------------------
Gregory R. Miller
* Director
------------------------------------
Evangeline K. Jansen
* Director
------------------------------------
Mark C. Falb
* Director
------------------------------------
Robert Woodward
</TABLE>
__________________
* Lynn B. Fuller, by signing his name hereto, does hereby sign this document
on behalf of himself and on behalf of each of the other directors named
above pursuant to powers of attorney duly executed by such other persons.
/s/ Lynn B. Fuller
------------------
Lynn B. Fuller, Attorney-in-fact
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Filed
Number Description of Exhibit Previously Provided Herewith
- -------------- ---------------------------------------- ---------------------------------------- ------------
<S> <C> <C> <C>
1.1 Form of Underwriting Agreement for X
Capital Securities
2.1 Agreement and Plan of Merger Among X
Heartland Financial USA, Inc., NBI
Acquisition Corporation and National
Bancshares, Inc.
4.1 Form of Indenture X
4.2 Form of Subordinated Debenture X
(included as an exhibit to Exhibit 4.1)
4.3 Certificate of Trust X
4.4 Trust Agreement X
4.5 Form of Amended and Restated Trust X
Agreement
4.6 Form of Capital Securities Certificate X
(included as an exhibit to Exhibit 4.5)
4.7 Form of Capital Securities Guarantee X
Agreement
4.8 Form of Agreement of Expenses and X
Liabilities (included as an exhibit to
Exhibit 4.5)
5.1 Opinion of Barack Ferrazzano X
Kirschbaum Perlman & Nagelberg
5.2 Opinion of Richards, Layton & Finger, X
P.A.
8.1 Tax Opinion of Barack Ferrazzano X
Kirschbaum Perlman & Nagelberg
10.1 Amended and Restated Credit Agreement, X
Dated as of July 23, 1999 between
Heartland Financial USA, Inc. and The
Northern Trust Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filed
Number Description of Exhibit Previously Provided Herewith
- -------------- ---------------------------------------- ---------------------------------------- ------------
<S> <C> <C> <C>
12.1 Calculations of ratios of earnings to X
fixed charges and ratios of earnings
to combined fixed charges and
preferred stock dividends
23.1 Consent of KPMG LLP X
23.2 Consent of Barack Ferrazzano X
Kirschbaum Perlman & Nagelberg
(included in opinion filed as Exhibit
5.1)
23.3 Consent of Richards, Layton & Finger, X
P.A. (included in opinion filed as
Exhibit 5.2)
23.4 Consent of Barack Ferrazzano Kirschbaum X
Perlman & Nagelberg
(included in opinion filed as Exhibit
8.1)
24.1 Powers of Attorney X
(included as part of Signature Pages)
25.1 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Indenture
25.2 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Trust Agreement
25.3 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Guarantee Agreement
</TABLE>
<PAGE>
EXHIBIT 8.1
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
333 WEST WACKER DRIVE, SUITE 2700
CHICAGO, ILLINOIS 60606
MICHAEL J. LEGAMARO
(312) 629-5181 Telephone (312) 984-3100
Voice Mail Ext. 4581 Facsimile (312) 984-3193
[email protected]
September 15,1999
Heartland Financial Capital Trust I
Heartland Financial USA, Inc.
1398 Central Avenue
Dubuque, Iowa 52001
RE: HEARTLAND FINANCIAL CAPITAL TRUST I
Ladies and Gentlemen:
We have acted as counsel to Heartland Financial USA, Inc., a Delaware
corporation (the "Company"), and to Heartland Financial Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the registration
statement of the Company and the Trust on Form S-3 (as amended or supplemented,
the "Registration Statement"), of which a preliminary prospectus (the
"Prospectus") is a part, filed by the Company and the Trust with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended. In that connection, we have participated in preparation of the section
set forth in the Prospectus entitled "Federal Income Tax Consequences."
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement; the form of Amended and Restated Trust
Agreement for the Trust to be entered into among the Company, First Union Trust
Company, National Association, a national banking association ("First Union")
and certain administrative Trustees named therein, the form of Indenture to be
entered into between the Company and First Union (the "Indenture"); the
Certificate of Trust of the Trust, as filed with the office of the Secretary of
State of the State of Delaware on September 13, 1999; the Trust Agreement as
filed with the office of the Secretary of State of the State of Delaware on
September 13, 1999; and such other documents and instruments as we have deemed
necessary for the rendering of this opinion. In our examination of the relevant
documents, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, the authenticity of such
copies and the accuracy and completeness of all corporate records made available
to us by the Company and by the Trust.
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
Heartland Financial Capital Trust I
Heartland Financial USA, Inc.
September 15, 1999
Page 2
Based solely upon our review of such documents, and upon such
information as the Company has provided to us (which we have not attempted to
verify in any respect), we are of the opinion that, under current federal income
tax law:
1. The Trust will be classified as a grantor trust and not as an
association taxable as a corporation.
2. The Debentures (as defined in the Indenture) will be
classified as indebtedness of the Company, and the interest on the
Debentures will be deductible by the Company.
3. The statements set forth in the Prospectus under the caption
"Federal Income Tax Consequences" constitute a fair and accurate
summary of the matters addressed therein, based upon current law and
the assumptions stated therein.
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other tax considerations. If any of the information
upon which we have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected thereby.
Moreover, our opinion is based on the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations promulgated thereunder, and
Internal Revenue Service rulings, procedures, and other pronouncements
published by the United States Internal Revenue Service. These authorities
are all subject to change, and such change may be made with retroactive
effect. We can give no assurance that, after such change, our opinion would
not be different. We undertake no responsibility to update or supplement our
opinion. This opinion is not binding upon the Internal Revenue Service, and
there can be no assurance, and none is hereby given, that the Internal
Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Internal Revenue Service.
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
Heartland Financial Capital Trust I
Heartland Financial USA, Inc.
September 15, 1999
Page 3
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We also consent
to the use of our name in the Prospectus under the heading "Federal Income Tax
Consequences." In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. This opinion is being furnished
to you solely for your benefit in connection with the transactions set forth
above. It may not be relied upon by, nor a copy of it delivered to any other
party, without our prior written consent. This opinion is based upon our
knowledge of the law and facts as of the date hereof, and we assume no duty to
communicate with you with respect to any matter that comes to our attention
hereafter.
Very truly yours,
/s/ Barack Ferrazzano Kirschbaum
Perlman & Nagelberg
BARACK FERRAZZANO KIRSCHBAUM
PERLMAN & NAGELBERG
