MBHI Midwest Banc Hlds (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. 3)

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Under Rule 14a-12

MIDWEST BANC HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

	1)		Title of each class of securities to which transaction applies:
	2)		Aggregate number of securities to which transaction applies:
	3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	4)		Proposed maximum aggregate value of transaction:
	5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	1)		Amount Previously Paid:
	2)		Form, Schedule or Registration Statement No.:
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	4)		Date Filed:

 

Annex B

 

Midwest Banc Holdings, Inc.

501 W North Avenue

Melrose Park, IL 60160

 

December 3, 2009

 

Dear Holder of Depositary Shares:

 

This proxy statement is being delivered to the holders of the depositary shares which represent a 1/100th interest in a share of Series A Noncumulative Redeemable Convertible Perpetual Preferred Stock (the Depositary Shares ) of Midwest Banc Holdings, Inc. (Midwest) , in connection with the Exchange Offer (as defined below). In order to participate in the Exchange Offer, you will be required to grant your Proxy Instructions (as defined below) in respect of the shares of common stock that may be issued to you in the Exchange Offer in favor of the following proposed amendments to our amended and restated certificate of incorporation (the Certificate ) and the certificate of designation for our Series A Preferred Stock (as defined below) and the issuance of shares of our common stock to the United States Department of the Treasury (USG) , all of which have been unanimously approved and declared advisable by the board of directors:

 

 

 

 

 

 

 

 

 

The effectiveness of any Common Stock Amendment or Preferred Stock Amendment is not conditioned on the approval of any other Common Stock Amendment or Preferred Stock Amendment.

 

We are soliciting your Proxy Instructions in respect of the shares of common stock that you will receive if we accept any of your Depositary Shares representing our Series A Preferred Stock that are the subject of the Exchange Offer for exchange in the Exchange Offer.

 

A special meeting of the holders of our common stock will be held on Monday, February 22, 2010, at 9:00 a.m., at Dominican University Priory Campus, 7200 West Division, River Forest, Illinois, at which time the holders of our common stock will be asked to consider the Amendments. The record date for the special meeting will be on or after the settlement date for the Exchange Offer, which is currently expected to be January 15, 2010 (the Record Date ).

 

Even if holders of our common stock approve the Amendments, the board of directors reserves the right to elect to abandon any or all of the Amendments if it determines, in its sole discretion, that such Amendment is no longer in the best interests of Midwest and its stockholders.

 

As described in our preliminary prospectus included in our registration statement on Form S-4 (Registration No. 333-160985), initially filed with the Securities and Exchange Commission (SEC) on August 3, 2009 (the Prospectus ), of which the enclosed proxy statement is a part, we will not accept your Depositary Shares for exchange unless you follow the procedures contained in the letter of transmittal relating to the Exchange Offer (the Letter of Transmittal ) to instruct the Voting Trustee (as defined below) of the Voting Trust (as defined below) to grant an irrevocable proxy to the individuals designated by Midwest in the Voting Trust Agreement (as defined below) to vote to approve each of the Stockholder Proposals in respect of the common stock to be issued to you in the Exchange Offer (the Proxy Instructions ). If we accept your Depositary Shares for exchange in the Exchange Offer, your Proxy Instructions will become irrevocable, and you will not be able to change your vote.

 

By tendering your Depositary Shares in the Exchange Offer in accordance with the Letter of Transmittal, you irrevocably (i) approve all of the Stockholder Proposals, (ii) grant your Proxy Instructions to Illinois Stock Transfer Company, as trustee (the Voting Trustee ) of the voting trust (the Voting Trust ) established pursuant to the voting trust agreement, dated as of December 3, 2009 (the Voting Trust Agreement ), (iii) subject to and effective upon acceptance for exchange of your tendered Depositary Shares, agree to the terms of the Voting Trust Agreement and (iv) acknowledge that by tendering your Depositary Shares, you will become a party to the Voting Trust Agreement. The shares of common stock issued pursuant to the Exchange Offer will be delivered to the Voting Trust on the settlement date of the Exchange Offer to be held in trust.

 

The Voting Trustee, pursuant to the terms of the Voting Trust Agreement, will execute and deliver an irrevocable proxy in respect of such shares of common stock to the individuals named in the Voting Trust Agreement to vote in favor of the Stockholder Proposals. The shares of common stock exchanged for your tendered Depositary Shares will thereafter within one business day be released from the Voting Trust and will be distributed to the Depository Trust Company for distribution to you.

Granting your Voting Instruction to approve the Amendments is important for the success of the capital plan that we announced on July 28, 2009 (the Capital Plan ) which is designed to increase our common equity capital so that we may meet the current and expected requirements of our regulators, withstand continued and potentially more adverse economic conditions and improve our tangible common equity ( TCE ) and our Tier I Common (see “Background of the Transactions” below). We are pleased to report that we have already made progress in implementing these proposed transactions (the Transactions ):

 

 

 

We believe that the Amendments will benefit the holders of our common stock. If the Authorized Share Increase and the Common Stock Issuance are not approved, we will not be able to convert the Senior Preferred Stock into shares of common stock. If the Conversion does not occur, we will not be able to strengthen our TCE and Tier 1 Common as planned. In addition, if the Conversion does not occur, we anticipate that adjustments will be made to decrease the Conversion price and increase the dividend rate of the Senior Preferred Stock.

 

We believe the Reverse Stock Split will allow us to restore our common stock price to a normalized trading level, which will enhance liquidity. The Reverse Stock Split will also allow us to reduce certain of our transaction costs (e.g., proxy solicitation fees). The Preferred Stock Change will provide the board of directors with important flexibility to adopt amendments to our Certificate (including certificates of designation for series of preferred stock) that affect only the terms of preferred stock, which is consistent with the board’s current flexibility to create new series of preferred stock.

The Dividend Blocker Amendment, if it becomes effective, will allow us to pay dividends on our common stock even if full dividends on the Series A Preferred Stock have not been paid or declared and set apart for payment, which we believe will enhance the price and liquidity of our common stock. It will also allow us to issue preferred stock ranking equally with the Series A Preferred Stock that will be authorized to pay cumulative dividends without the approval of the holders of the Depositary Shares. The Director Amendment, if it becomes effective, will eliminate the possibility that non-exchanging holders of Depositary Shares could exercise a level of influence and control over the governance and the management of our company that is disproportionate to their remaining economic interest. The Preferred Stock Issuance, if it becomes effective, will help us increase our TCE and our Tier 1 Common because upon the Conversion, the shares of Senior Preferred Stock will be converted into shares of our common stock.

 

The board of directors has unanimously approved and declared advisable each of the Stockholder Proposals and unanimously recommends that you give your Proxy Instructions pursuant to the Letter of Transmittal to approve each of the Stockholder Proposals.

 

The proxy statement enclosed with this letter provides you with important information about the matters for which we are seeking your Proxy Instructions pursuant to the Letter of Transmittal. We encourage you to read the entire proxy statement carefully. You may also obtain additional information about us from documents we have filed with the SEC and on our website at www.midwestbanc.com . Click on “About Us,” and then “Investor Relations-SEC Filings.” A copy of the proxy statement is available at www.envisionreports.com/MBHI for registered holders and www.edocumentview.com/MBHI for beneficial owners.

 

This letter is being sent to you as a holder of Depositary Shares. As a holder of Depositary Shares, you may only give your Proxy Instructions (and you will be required to give your Proxy Instructions) to approve each of the Stockholder Proposals pursuant to the Letter of Transmittal to the extent that you tender your Depositary Shares for shares of common stock in the Exchange Offer. Accordingly, in order to give your Proxy Instructions in respect of these matters (and in order to be permitted to participate in the Exchange Offer), you need only comply with the requirements for participating in the Exchange Offer set forth in the Prospectus and the Letter of Transmittal.

 

If you hold your Depositary Shares through a bank, broker, custodian or other nominee and wish to participate in the Exchange Offer, please contact your bank, broker, custodian or other nominee to instruct it to tender your Depositary Shares in accordance with the instructions in the Prospectus and the Letter of Transmittal and grant your Proxy Instructions pursuant to the Letter of Transmittal. Due to the time required for your bank, broker, custodian or other nominee to complete the required actions on your part, we urge you to contact your bank, broker, custodian or other nominee at least five business days prior to the expiration date of the Exchange Offer.

 

Thank you for your continued support of Midwest.

 

Sincerely,

 

Roberto R. Herencia

President

 

Percy L. Berger

Chairman

Midwest Banc Holdings, Inc.

501 West North Avenue

Melrose Park, IL 60160

 

December 3, 2009

 

Dear Common Stockholder:

 

We are writing to you to request that you grant your proxy authorizing the individuals named on the enclosed proxy card to vote the shares of common stock that you hold as of the Record Date (as defined below) to approve the following proposed amendments to our amended and restated certificate of incorporation (the Certificate ) and the certificate of designation for our Series A Preferred Stock (as defined below) and the issuance of shares of our common stock to the United States Department of the Treasury (USG) . These proposals have been unanimously approved and declared advisable by the board of directors:

 

 

 

 

 

 

 

 

The effectiveness of any Common Stock Amendment or Preferred Stock Amendment is not conditioned on the approval of any other Common Stock Amendment or Preferred Stock Amendment.

 

A special meeting of the holders of our common stock will be held on Monday, February 22, 2010, at 9:00 a.m., at Dominican University Priory Campus, 7200 West Division, River Forest, Illinois, at which time the holders of the common stock will be asked to consider the Amendments. The record date for the special meeting will be on or after the settlement date for the Exchange Offer, which is currently expected to be January 15, 2010 (the Record Date ).

 

Your proxy will be voted in accordance with the instructions given by means of the enclosed proxy.

 

Even if holders of our common stock approve the Amendments, the board of directors reserves the right to elect to abandon any or all of the Amendments if it determines, in its sole discretion, that such Amendment is no longer in the best interests of Midwest and its stockholders.

 

Granting your proxy to approve the Amendments is important for the success of the capital plan that we announced on July 28, 2009 (the Capital Plan ) which is designed to increase our common equity capital so that we may meet the current and expected requirements of our regulators, withstand continued and potentially more adverse economic conditions and improve our tangible common equity (TCE) and our Tier I Common (see “Background of the Transactions” below). We are pleased to report that we have already made progress in implementing these proposed transactions (the Transactions ):

 

 

 

 

We believe that the Amendments will benefit the holders of our common stock. If the Authorized Share Increase and the Common Stock Issuance are not approved, we will not be able to convert the Senior Preferred Stock into shares of common stock. If the Conversion does not occur, we will not be able to strengthen our TCE and Tier 1 Common as planned. In addition, if the Conversion does not occur, we anticipate that adjustments will be made to decrease the Conversion price and increase the dividend rate of the Senior Preferred Stock.

 

We believe the Reverse Stock Split will allow us to restore our common stock price to a normalized trading level, which will enhance liquidity. The Reverse Stock Split will also allow us to reduce certain of our transaction costs (e.g., proxy solicitation fees). The Preferred Stock Change will provide the board of directors with important flexibility to adopt amendments to our Certificate (including certificates of designation for series of preferred stock) that affect only the terms of preferred stock, which is consistent with the board’s current flexibility to create new series of preferred stock.

 

The Dividend Blocker Amendment, if it becomes effective, will allow us to pay dividends on our common stock even if full dividends on the Series A Preferred Stock have not been paid or declared and set apart for payment, which we believe will enhance the price and liquidity of our common stock. It will also allow us to issue preferred stock ranking equally with the Series A Preferred Stock that will be authorized to pay cumulative dividends without the approval of the holders of the Depositary Shares. The Director Amendment, if it becomes effective, will eliminate the possibility that non-exchanging holders of Depositary Shares could exercise a level of influence and control over the governance and the management of our company that is disproportionate to their remaining economic interest. The Preferred Stock Issuance, if it becomes effective, will help us increase our TCE and our Tier 1 Common because upon the Conversion, the shares of Senior Preferred Stock will be converted into shares of our common stock.

 

The board of directors has unanimously approved and declared advisable each of the Amendments and the Adjournment Proposal and unanimously recommends that you grant a proxy to the individuals named on the enclosed proxy card to approve each of the Amendments and the Adjournment Proposal.

 

If you are a record holder of common stock that was not issued in the Exchange Offer and is outstanding and entitled to vote on the Record Date, you are urged to complete, date and sign the enclosed proxy card and promptly return it in the enclosed postage-prepaid envelope or vote by telephone or Internet by following the instructions on the enclosed proxy card. If you hold your common stock through a bank, broker, custodian or other nominee, please contact your bank, broker, custodian or other nominee to instruct it to grant a proxy on your behalf with respect to each of the Amendments and the Adjournment Proposal.

 

If you held Depositary Shares, we previously sent you a copy of this proxy statement in connection with the Exchange Offer. ANY PREVIOUSLY GRANTED PROXY INSTRUCTIONS GIVEN WITH RESPECT TO YOUR DEPOSITARY SHARES WILL NOT HAVE ANY EFFECT WITH RESPECT TO SHARES OF COMMON STOCK THAT WERE NOT ISSUED IN THE EXCHANGE OFFER. IN ORDER TO TAKE ACTION ON THE AMENDMENTS AND THE ADJOURNMENT PROPOSAL WITH RESPECT TO SHARES OF COMMON STOCK THAT WERE NOT ISSUED IN THE EXCHANGE OFFER, YOU MUST COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE OR VOTE BY TELEPHONE OR INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.

 

The proxy statement enclosed with this letter provides you with important information about the matters for which we are seeking your proxy. We encourage you to read the entire proxy statement carefully. You may also obtain additional information about us from documents we have filed with the SEC and on our website at www.midwestbanc.com . Click on “About Us,” and then “Investor Relations-SEC Filings.” A copy of the proxy

statement is available at www.envisionreports.com/MBHI for registered holders and www.edocumentview.com/MBHI for beneficial owners.

 

Regardless of the number of shares you own, your proxy is important.   Please complete, date and sign the enclosed proxy card and return it promptly in the enclosed envelope so that we receive your response on or before February 22, 2010. You may also grant your proxy over the Internet or by telephone on or before the Proxy Deadline. Please review the instructions on the enclosed proxy card regarding each of these options.

 

Thank you for your continued support of Midwest.

 

Sincerely,

 

Roberto R. Herencia

President

 

Percy L. Berger

Chairman

Midwest Banc Holdings, Inc.

501 West North Avenue

Melrose Park, IL 60160

 

Notice of Solicitation of Voting Instructions and Special Meeting

 

To the holders of Depositary Shares representing shares of Series A Noncumulative Redeemable Convertible Perpetual Preferred Stock of Midwest Banc Holdings, Inc.

 

This proxy statement is being delivered to the holders of the depositary shares which represent a 1/100th interest in a share of Series A Noncumulative Redeemable Convertible Perpetual Preferred Stock (the Depositary Shares ) of Midwest Banc Holdings, Inc. (Midwest) , in connection with the Exchange Offer (as defined in the attached proxy statement). In order to participate in the Exchange Offer, you will be required to grant your Proxy Instructions (as defined below) in respect of the shares of common stock that may be issued to you in the Exchange Offer in favor of the following proposed amendments to our amended and restated certificate of incorporation (the Certificate ) and the certificate of designation for our Series A Preferred Stock (as defined below) and the issuance of shares of our common stock to the United States Department of the Treasury (USG) , all of which have been unanimously approved and declared advisable by the board of directors:

 

 

 

 

 

 

 

 

to eliminate the right of holders of Series A Preferred Stock to elect two directors if dividends have not been paid for six quarterly dividend periods, whether or not consecutive (the Director Amendment and, together with the Dividend Blocker Amendment, the Preferred Stock Amendments and, together with the Common Stock Amendments, the Amendments ); and

 

 

The effectiveness of any Common Stock Amendment or Preferred Stock Amendment is not conditioned on the approval of any other Common Stock Amendment or Preferred Stock Amendment.

 

We are soliciting your Proxy Instructions in respect of the shares of common stock that you will receive if we accept any of your Depositary Shares representing our Series A Preferred Stock for exchange in the Exchange Offer.

 

A special meeting of the holders of our common stock will be held on Monday, February 22, 2010, at 9:00 a.m., at Dominican University Priory Campus, 7200 West Division, River Forest, Illinois, at which time the holders of our common stock will be asked to consider the Amendments. The record date for the special meeting will be on or after the settlement date for the Exchange Offer, which is currently expected to be January 15, 2010 (the Record Date ).

 

Even if holders of our common stock approve the Amendments, the board of directors reserves the right to elect to abandon any or all of the Amendments if it determines, in its sole discretion, that such Amendment is no longer in the best interests of Midwest and its stockholders.

 

As described in our preliminary prospectus included in our registration statement on Form S-4 (Registration No. 333-160985), initially filed with the Securities and Exchange Commission (SEC) on August 3, 2009 (the Prospectus ), of which the enclosed proxy statement is a part, we will not accept your Depositary Shares for exchange unless you follow the procedures contained in the letter of transmittal related to the applicable Exchange Offer (the Letter of Transmittal ) to instruct the Voting Trustee (as defined below) of the Voting Trust (as defined below) to grant an irrevocable proxy to the individuals designated by Midwest in the Voting Trust Agreement (as defined below) to vote to approve each of the Stockholder Proposals in respect of the common stock to be issued to you in the Exchange Offer (the Proxy Instructions ). If we accept your Depositary Shares for exchange in the Exchange Offer, your Proxy Instructions will become irrevocable, and you will not be able to change your vote.

 

By tendering your Depositary Shares in the Exchange Offer in accordance with the Letter of Transmittal, you irrevocably (i) approve all of the Stockholder Proposals, (ii) grant your Proxy Instructions to Illinois Stock Transfer Company, as trustee (the Voting Trustee ) of the voting trust (the Voting Trust ) established pursuant to the voting trust agreement, dated as of December 3, 2009 (the Voting Trust Agreement ), (iii) subject to and effective upon acceptance for exchange of your tendered Depositary Shares, agree to the terms of the Voting Trust Agreement and (iv) acknowledge that by tendering your Depositary Shares, you will become a party to the Voting Trust Agreement. The shares of common stock issued pursuant to the Exchange Offer will be delivered to the Voting Trust on the settlement date of the Exchange Offer to be held in trust.

 

The Voting Trustee, pursuant to the terms of the Voting Trust Agreement, will execute and deliver an irrevocable proxy in respect of such shares of common stock to the individuals named in the Voting Trust Agreement to vote in favor of the Stockholder Proposals. The shares of common stock exchanged for your tendered Depositary Shares will thereafter within one business day be released from the Voting Trust and will be distributed to the Depositary Trust Company for distribution to you.

We are soliciting Proxy Instructions pursuant to the Letter of Transmittal from holders of Depositary Shares. Only holders of record of Depositary Shares, who validly tendered their securities pursuant to the Exchange Offer, are entitled to grant Proxy Instructions pursuant to the Letter of Transmittal with respect to the Amendments and the Adjournment Proposal. Accordingly, if you are a holder of Depositary Shares, in order to give your Proxy Instruction in respect of the shares of common stock to be issued to you pursuant to the Exchange Offer, you must tender your Depositary Shares and give your Proxy Instructions by complying with the requirements and following the procedures set forth in the Letter of Transmittal. In order to participate in the Exchange Offer, you must grant your Proxy Instructions pursuant to the Letter of Transmittal.

 

If you hold your Depositary Shares through a bank, broker, custodian or other nominee and wish to participate in the Exchange Offer, please contact your bank, broker, custodian or other nominee to instruct it to tender your Depositary Shares in accordance with the instructions in the Prospectus and the Letter of Transmittal and grant your Proxy Instructions pursuant to the Letter of Transmittal. Due to the time required for your bank, broker, custodian or other nominee to complete the required actions on your part, we urge you to contact your bank, broker, custodian or other nominee at least five business days prior to the expiration date of the Exchange Offer.

 

The board of directors has unanimously approved and declared advisable each of the Amendments and the Adjournment Proposal and unanimously recommends that you follow the procedures contained in the Letter of Transmittal to give your Proxy Instructions to approve each of the Amendments and the Adjournment Proposal.

 

By order of the Board of Directors

 

JoAnn Sannasardo Lilek

Executive Vice President, Chief

Financial Officer and Corporate Secretary

 

December 3, 2009

Midwest Banc Holdings, Inc.

501 West North Avenue

Melrose Park, IL 60160

 

Notice of Solicitation of Proxies and a Special Meeting

 

Dear Common Stockholder:

 

This proxy statement is being delivered to you in connection with the solicitation on behalf of the board of directors of proxies from the holders of our common stock. The board of directors is requesting that the holders of our common stock on the Record Date described below grant a proxy authorizing the individuals named on the enclosed proxy card to vote to approve the following amendments to our amended and restated certificate of incorporation (the Certificate ) and the certificate of designation for our Series A Preferred Stock (as defined below) and the issuance of shares of our common stock to the United States Department of the Treasury (USG) , all of which have been unanimously approved and declared advisable by the board of directors:

 

 

 

 

 

 

 

 

The effectiveness of any Common Stock Amendment or Preferred Stock Amendment is not conditioned on the approval of any other Common Stock Amendment or Preferred Stock Amendment.

 

A special meeting of the holders of our common stock will be held on Monday, February 22, 2010, at 9:00 a.m., at Dominican University Priory Campus, 7200 West Division, River Forest, Illinois, at which time the holders of our common stock will be asked to consider the Amendments. The record date for the special meeting will be on or after the settlement date for the Exchange Offer, which is currently expected to be January 15, 2010 (the Record Date ).

 

Even if holders of our common stock approve the Amendments, the board of directors reserves the right to elect to abandon any or all of the Amendments if it determines, in its sole discretion, that such Amendment is no longer in the best interests of Midwest and its stockholders.

 

Your proxy will be voted at the special meeting in accordance with the instructions given by means of the enclosed proxy card.

 

We are soliciting proxies from the holders of record of our common stock that was not issued in the Exchange Offer (as defined in the attached proxy statement) to authorize the individuals designated by Midwest in the enclosed proxy card to vote to approve each of the Stockholder Proposals described above. Only holders of record of our common stock outstanding as of the close of business on the record date (the Record Date ), which will be the settlement date of the Exchange Offer (as defined in the attached proxy statement), are entitled to grant a proxy with respect to the Stockholder Proposals.

 

If you are a record holder of common stock that was not issued in the Exchange Offer and that is outstanding and entitled to vote on the Record Date, you are urged to complete, date and sign the enclosed proxy card and promptly return it in the enclosed postage-prepaid envelope or vote by telephone or Internet by following the instructions on the enclosed proxy card. To be counted, your properly completed written proxy card must be received prior to February 22, 2010. If you hold your common stock through a bank, broker, custodian or other nominee, please contact your bank, broker, custodian or other nominee to instruct it to grant a proxy on your behalf with respect to each of the Amendments and the Adjournment Proposal.

 

If you held Depositary Shares, we previously sent you a copy of this proxy statement in connection with the Exchange Offer. ANY PREVIOUSLY GRANTED PROXY INSTRUCTIONS GIVEN WITH RESPECT TO YOUR DEPOSITARY SHARES WILL NOT HAVE ANY EFFECT WITH RESPECT TO SHARES OF COMMON STOCK THAT WERE NOT ISSUED IN THE EXCHANGE OFFER. IN ORDER TO TAKE ACTION ON THE AMENDMENTS AND THE ADJOURNMENT PROPOSAL WITH RESPECT TO SHARES OF COMMON STOCK THAT WERE NOT ISSUED IN THE EXCHANGE OFFER, YOU MUST COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE OR VOTE BY TELEPHONE OR INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.

 

Regardless of the number of shares you own, your proxy is important.   If you hold your shares through a bank, broker, custodian or other nominee, please contact your bank, broker, custodian or other nominee to instruct it to submit a proxy on your behalf. Due to the time required for your nominee to complete the required actions on your part, we urge you to contact your nominee at least five business days prior to February 22, 2010.

The board of directors has unanimously approved and declared advisable the Amendments and the Adjournment Proposal and unanimously recommends that you grant a proxy to the individuals named on the enclosed proxy card vote to approve each of the Amendments and the Adjournment Proposal.

 

 

 

 

By order of the Board of Directors

 

 

A copy of the proxy statement is available at www.envisionreports.com/MBHI for registered holders and www.edocumentview.com/MBHI for beneficial owners.

 

JoAnn Sannasardo Lilek

Executive Vice President, Chief

Financial Officer and Corporate Secretary

 

December 3, 2009

TABLE OF CONTENTS

 

 

This document contains statements that are considered “forward looking statements” within the meaning of United States securities laws. Forward-looking statements, including statements about industry trends, management’s future expectations and other matters that do not relate strictly to historical facts, are based on assumptions by management, and are often identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” and “goal” or similar statements or variations of such terms.

 

Forward-looking statements are subject to various risks and uncertainties, which change over time, and are based on management’s expectations and assumptions at the time the statements are made. Forward-looking statements are not guarantees of future results. Management’s expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to Midwest Banc Holdings, Inc. (Midwest or the Company) and its subsidiaries, including Midwest Bank and Trust Company (referred to herein as Midwest Bank or the Bank ). These risks, uncertainties and other factors include, without limitation:

 

 

 

 

 

Actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed elsewhere in this proxy statement or disclosed in our other SEC filings. Forward-looking statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to the time this proxy statement is filed with the SEC. The factors discussed herein are not intended to be a complete summary of all risks and uncertainties that may affect our businesses. Though we strive to monitor and mitigate risk, we cannot anticipate all potential economic, operational and financial developments that may adversely impact our operations and our financial results.

 

Forward-looking statements should not be viewed as predictions, and should not be the basis upon which you determine whether to participate in the Exchange Offer or how to vote on the Stockholder Proposals. Any investor in Midwest should consider all risks and uncertainties disclosed in our SEC filings described below under the heading “Where You Can Find More Information,” all of which are accessible on the SEC’s website at http://www.sec.gov.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Even if holders of our common stock approve the Amendments, the board of directors reserves the right to elect to abandon any or all of the Amendments if it determines, in its sole discretion, that such Amendment is no longer in the best interests of Midwest and its stockholders.

 

 

 

 

 

 

 

 

 

 

 

 

 

MORROW & CO., LLC

470 West Avenue

Stamford, CT 06902

Banks and Brokerage Firms, Please Call: (203) 658-9400

Holders Call Toll Free: (800) 483-1314

 

Each share of common stock not issued in the Exchange Offer that is issued and outstanding as of the close of business on the Record Date, which will be the settlement date for the Exchange Offer, will be eligible to deliver a proxy with respect to the Amendments and the Adjournment Proposal. Each share of common stock issued in the Exchange Offer will be issued and outstanding on the Record Date and will be entitled to vote on the Amendments and the Adjournment Proposal but will be subject to an irrevocable proxy delivered by the Voting Trustee in favor of the Amendments and the Adjournment Proposal. Approval of each of the Amendments requires the affirmative vote of holders of a majority of the shares of common stock outstanding as of the close of business on the Record Date, except for the Common Stock Issuance which must be approved by the affirmative vote of holders of a majority of the shares of common stock represented and entitled to vote at the special meeting. The Adjournment Proposal requires the affirmative vote of the holders of a majority of the common stock represented and entitled to vote at the special meeting. A vote AGAINST or an ABSTAIN will be counted as a vote against the Authorized Share Increase, the Reverse Stock Split, the Common Stock Issuance, the Preferred Stock Change, the Preferred Stock Amendments or the Adjournment Proposal, as the case may be.

 

The number of shares of common stock that are issued and outstanding on the Record Date and entitled to approve the Amendments and the Adjournment Proposal will depend on the number of Depositary Shares that are accepted for exchange in the Exchange Offer. Holders of Depositary Shares that tender their Depositary Shares in the Exchange Offer and grant a Proxy Instruction in favor of the Amendments and the Adjournment Proposal will not know the results of the Exchange Offer or the total number of shares of common stock that will be issued in exchange for Depositary Shares at the time they make their decision. The table below shows the approximate number of shares of common stock that are expected to be issued and outstanding on the Record Date and entitled to approve the Amendments and the Adjournment Proposal, based on the number of shares of common stock issued and outstanding prior to commencement of the Exchange Offer and depending on the level of participation in the Exchange Offer as described below:

 

 

 

 

 

Capital Plan

 

As described in greater detail below, we are conducting the Exchange Offer as part of our larger capital plan, which we refer to as our “Capital Plan,” which is designed to increase our common equity capital so that we may withstand continued and potentially more adverse economic conditions and credit scenarios that financial institutions, including larger community banking institutions such as Midwest, currently face and may continue to face in the foreseeable future. Our decision to engage in the Exchange Offer, as well as the other components of our Capital Plan, reflects the adverse effect that the severe downturn in the real estate and housing markets has had on our financial condition and capital base, as well as our assessment of current regulatory expectations of adequate levels of common equity capital. The Exchange Offer is a critical initial step toward achieving the goals of our Capital Plan. We believe it will be difficult, or impossible, to raise additional capital through the other components of our Capital Plan unless we first successfully complete the Exchange Offer.

 

Economic Disruption and Effect on Midwest

 

Presently, the disruptions in the mortgage, real estate, credit, and housing markets, both locally and nationally, that began in the latter half of 2007 continue to have a major negative impact on real estate and related industries, including residential and commercial real estate development and lending, which has led to a decrease in residential home sales and residential home values, and a decrease in commercial real estate values and declines in the financial condition of borrowers and their cash flows. These disruptions continue to have a significant negative impact on our loan portfolio, resulting in a significant deterioration in credit quality and an increase in loan losses and our allowance for loan losses. For the nine months ended September 30, 2009, we reported net loan charge-offs of $30.6 million and as of September 30, 2009 reported nonaccrual loans equal to 7.9% of total loans. We believe it is likely that the credit quality of our loan portfolio will further deteriorate through the end of 2009. In addition, we have experienced significant impairment charges and have realized losses on investments in government sponsored enterprises as the housing market declined. These events, coupled with taking on increased debt and preferred stock obligations in order to finance our acquisition of Northwest Suburban in October 2007, have negatively impacted our capital base and have left us vulnerable to continuing asset quality deterioration. See “Management’s Discussion and Analysis of Financial Condition” and Results of Operations for a further discussion of our recent financial results.

 

Regulatory Expectations After the Results of SCAP

 

Our decision to engage in the Exchange Offer and under our Capital Plan was also motivated by the results of the Supervisory Capital Assessment Program, or the “SCAP,” which consisted of a review of the capital of the 19 largest U.S. banking institutions by Federal banking regulators. The SCAP was instituted by the Board of Governors of the Federal Reserve System (the Federal Reserve) , the FDIC and the Office of the Comptroller of the Currency as part of the implementation of the USG’s Capital Assistance Program, or the “CAP”, which has been discontinued. Based on the SCAP review, Federal banking regulators determined that 10 of the 19 banking institutions needed to raise additional capital and to submit a capital plan to their Federal banking regulators by June 8, 2009 for their review.

 

Even though we were not included in the group of 19 banking institutions reviewed under the SCAP, we have closely assessed the announced SCAP results, particularly noting that (1) the SCAP credit loss assumptions applied to regional banking institutions included in the SCAP are based on a more adverse economic and credit scenario and (2) Federal banking regulators are focused on the composition of regulatory capital. Specifically, the regulators have indicated that voting common equity should be the dominant element of Tier 1 capital and have established a 4% Tier 1 common ratio as a threshold for determining capital needs.

 

Although the SCAP results are not applicable to us, we believe they do express general regulatory expectations. As of September 30, 2009, Midwest was under capitalized based on a ratio of total capital to risk-weighted assets of 7.95%, a ratio of Tier 1 capital to risk-weighted assets of 6.05% and a ratio of Tier 1

capital to average tangible assets of 4.26%. Additionally, the Bank remained well-capitalized as of September 30, 2009. Notwithstanding these capital ratios, we believe an improvement in the composition of our regulatory capital is necessary in order to adequately position us in a continued and potentially more adverse economic and credit scenario. Accordingly, through the Exchange Offer and the other capital enhancement proposals of our Capital Plan, we seek to substantially increase our Tier 1 common equity to risk-weighted assets (Tier 1 Common Ratio) and tangible common equity to tangible assets ratio (TCE) . Our Tier 1 common ratio and TCE were (1.24)% and (1.01)%, respectively, as of September 30, 2009. See “Regulatory Capital Ratios — Non-GAAP Reconciliation of Certain Ratios to Stockholder’s Equity” for a reconciliation of TCE and other ratios and a discussion of our use of non-GAAP financial measures in this document. The completion of the Exchange Offer would increase our Tier 1 common equity by up to approximately $34.5 million to 0.14%, and our TCE by up to approximately $34.5 million, or (0.02)%, on a pro forma basis as of September 30, 2009 assuming the High Participation Scenario (as defined under “Unaudited Pro Forma Financial Information”) is achieved. See “Unaudited Pro Forma Financial Information” for a discussion of our pro forma capital ratios and the significant assumptions that should be taken into consideration in assessing these pro forma ratios. The successful completion of the other components of our Capital Plan described below would further increase our Tier 1 common equity and TCE.

 

Other Components of the Capital Plan

 

This Exchange Offer is a critical component of our Capital Plan that we have adopted in order to, among other things, improve our common equity capital and raise additional capital to enable us to better withstand and respond to adverse market conditions. Presently, the principal capital improvement components of the Capital Plan include:

 

 

 

 

In addition, our Capital Plan contemplates a number of additional actions that we have taken or expect to take, such as costs reduction initiatives through reductions in force, salary reductions and other expense control activities.

 

We believe the successful completion of our Capital Plan would substantially improve our capital position. However, we can offer no assurances that we will be able to successfully complete all or any of the proposals contemplated under our Capital Plan, or that our Capital Plan will not need to be materially modified in the future.

 

We have received non-binding indications of interest from potential investors to invest additional equity capital in the Company, in each case up to $190 million or more; however, there can be no assurance that we will receive a commitment from these or other parties prior to the scheduled expiration of the Exchange Offer, and any such commitment may be subject to conditions that we may be unable to satisfy. Additionally, we have been in advanced discussions with USG regarding the terms of a proposed transaction pursuant to which the USG would exchange outstanding shares of our Series T Preferred Stock for a new series of convertible preferred stock and thereafter convert this new class of preferred stock into common stock. Although the USG has delivered to us a letter expressing its willingness to consent to such a transaction, the definitive terms of such a transaction with the USG have not yet been finalized. Such definitive terms are expected to include conditions the satisfaction of which will be solely determinable by the USG. Accordingly, you should not

assume that the Capital Plan or any portion of the Capital Plan will be completed in whole, in part or as presently contemplated when deciding whether to participate in the Exchange Offer.

 

In addition, we may act opportunistically to raise further Tier 1 common equity or increase our Tier 1 common ratio through sales of non-core assets and businesses and, if necessary, the further issuance of common equity for cash.

 

The capital issuances as a result of the Exchange Offer, together with any additional transactions in our Capital Plan involving the issuance of equity securities, will be highly dilutive to our common stockholders and may affect the market price of our Common Stock.

 

The success of our overall Capital Plan is dependent on the success of our Exchange Offer. We view this Exchange Offer as a critical initial step toward achieving the Capital Plan’s principal objective of increasing our common equity capital so that we may withstand continued and potentially more adverse economic conditions, as currently being experienced and as assumed under the SCAP as applied to regional banking institutions. Moreover, the potential investors who have provided non-binding indications of interest to invest additional equity capital in the Company have noted that a successful completion of the Exchange Offer would be one of their conditions to any potential investment, and the USG has indicated that the completion of the Exchange Offer would be one of the conditions to its permitting the conversion into common stock of any of the Senior Preferred Stock proposed to be issued to the USG in exchange for its Series T Preferred Stock.

 

Accordingly the greater the number of Depositary Shares that are tendered and accepted in the Exchange Offer the better our chances will be to successfully realize the other components of our Capital Plan. If there is not a high level of participation in the Exchange Offer, it may be difficult, or impossible, to complete the other components of our Capital Plan. If we are not able to successfully complete a substantial portion of our Capital Plan, our business, and the value of our securities, may be materially and adversely affected, and it will be more difficult for us to meet the capital requirements expected of us by our primary banking regulators.

 

Senior Preferred Stock

 

Another important component of our Capital Plan relates to the issuance of the Senior Preferred Stock (as defined below) to the USG. We sold 84,875 shares of our Series T Preferred Stock to the USG for $84.784 million in December of 2008 and issued a warrant which allows the USG to purchase 4.282 million shares of our common stock for $2.97 per share (the Warrant ) under the USG’s Capital Purchase Program. We are engaged in discussions with the USG to exchange the shares of Series T Preferred Stock for a new series of our preferred stock (the Preferred Stock Issuance ). Although the USG has expressed its willingness to consent to such a transaction, the specific terms of any potential transaction with the USG are subject to further negotiations between the Company and the USG, and the specific terms are expected to include conditions the satisfaction of which will be solely determined by the USG. We anticipate that the new series of preferred stock will rank senior as to dividend rights, including cumulative dividend rights, and rights on liquidation, winding-up and dissolution to the Series A Preferred Stock (the Senior Preferred Stock ). Immediately thereafter, we anticipate that the Senior Preferred Stock will be converted into shares of our common stock (the Conversion ). At the present time, we do not know the number of shares of our common stock that will be issued to the USG upon the Conversion nor can we provide any assurance that the Series T Preferred Stock will be exchanged for the Senior Preferred Stock or that the Conversion will occur.

 

The board of directors of Midwest is authorized under our Certificate to issue up to one million shares of preferred stock having a par value of $0.01 per share. The board of directors has the authority to issue the preferred stock in one or more series and to fix the number of shares constituting such series, the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without any further vote or action by common stockholders. The board intends to authorize the issuance of the Senior Preferred Stock which will have the following attributes. The following is a summary of what we anticipate will be the proposed terms of such securities based upon our discussions with the USG and on the

term sheet for securities to be issued under CAP posted on the USG’s website at www.financialstability.gov/roadtostability/capitalassistance.html and check on CAP Term Sheet.

 

The summary is not a complete recitation of all the terms, and is subject to further changes by the USG. Although the USG has expressed its willingness to consent to such a transaction, the specific terms of any potential transaction with the USG are subject to further negotiations between the Company and the USG, and the specific terms are expected to include conditions the satisfaction of which will be solely determined by the USG.

 

We intend to consummate the Conversion immediately after the completion of the Preferred Stock Issuance.

 

Exchanging our Series T Preferred Stock for convertible preferred shares, and then converting such shares to common stock would result in the U.S. government acquiring a significant interest in us, which may have an adverse effect on operations and the market price of our common stock. Likewise, the potential issuance of a significant amount of common stock or equity convertible into our common stock to a private investor or group of private investors may have the same effect.

 

Exchanging our Series T Preferred Stock for convertible preferred shares and then converting such shares to common stock will result in the USG having the ability to exercise significant influence on matters submitted to stockholders for approval, including the election of directors and certain transactions, if the USG has voting rights with respect to these shares. These The USG may also transfer all, or a portion, of its shares to another person or entity and, in the event of such a transfer, that person or entity could become a significant stockholder of us. In addition, any issuance of a large amount of common equity or equity convertible into common to a private investor or group of investors may pose similar risks.

 

The Senior Preferred Stock when issued will qualify as Tier 1 Capital and will be issued in the form of cumulative convertible preferred stock. The Senior Preferred Stock will pay a cumulative annual dividend at a rate of 9% until converted into common stock. The conversion of the Senior Preferred Stock into common stock will be at a price to be agreed upon by the USG and the Company.

 

The outstanding Senior Preferred Stock may be converted in whole or in part at the option of Midwest into shares of our common stock, subject to the approval of the applicable primary federal regulator. We expect that the shares also will be convertible at the option of the USG upon specified corporate events, such as certain sales, mergers or changes of control. Upon any conversion, we would also pay any accrued and unpaid dividends in either cash or in shares of common stock valued for this purpose at the closing price on the second preceding trading day.

 

The outstanding Senior Preferred Stock will be non-voting, other than as to class voting rights on matters that could adversely affect the shares and if dividends are not paid in full for six dividend quarters, whether or not consecutive, the USG will have the right to elect two additional directors to Midwest’s board. The right to elect directors would end when full dividends have been paid for four consecutive dividend periods.

 

We expect that for so long as the Senior Preferred Stock is outstanding or the USG owns any common stock of Midwest, common stock dividends may not exceed $0.01 per quarter, without the approval of the USG. In addition, we anticipate that for so long as the USG owns any Senior Preferred Stock, the USG will have to approve any share repurchases and no dividends may be declared or paid on any junior preferred shares, preferred shares ranking pari passu, or common shares, and no such shares may be repurchased or redeemed, unless all accrued and unpaid dividends on the Senior Preferred Stock are fully paid. We will be required to file a shelf registration statement for the common stock to be issued upon the Conversion, will grant registration rights to the USG and will apply to Nasdaq to list the shares of common stock on the Nasdaq Global Market.

 

We believe that following the Conversion, the USG will agree to take reasonable steps to sell a minimum of 20% of the common stock during each of the following years that it may hold such shares and that Midwest will have the right to seek to repurchase the common shares following the Conversion at a price equal to the greater of the Conversion price and the current market price (calculated based on the average closing price

during the 20 trading day period beginning on the day after notice of repurchase is given). However, any such repurchase must be made with the proceeds of a common stock offering or additions to retained earnings.

 

Midwest and its covered officers and employees will have to agree to comply with the USG’s rules, regulations and guidance with respect to executive compensation, transparency, accountability and monitoring, as published and in effect at the time of the investment closing. At the present time, Midwest is complying with the USG’s existing rules and regulations with respect to executive compensation. Midwest has announced that it suspended its only executive bonus program — its management incentive compensation plan. Therefore, Midwest does not have a bonus plan subject to the executive compensation plan rules. In addition, Midwest did not pay bonuses to its top five senior executive officers for 2008. As required by these rules, the Company does not pay severance to its SEOs and the next five most highly compensated employees.

 

Midwest does not have sufficient shares of common stock authorized to cover the Conversion. As a consequence, Midwest is seeking approval for the issuance of new common shares pursuant to the Authorized Share Increase and the Common Stock Issuance.

 

If the Authorized Share Increase and the Common Stock Issuance are not approved, we anticipate that the Conversion price for the Senior Preferred Stock will be reduced and that the dividend rate on the Senior Preferred Stock will increase.

 

Preferred Stock Amendments and Preferred Stock Issuance

 

We are also seeking separate approval from our holders of our Depositary Shares to approve the Preferred Stock Amendments and the issuance of the Senior Preferred Stock to the USG.

 

Under Delaware law and our Certificate, the affirmative vote of holders, as of the close of business on the record date for the Preferred Proxy Statement, of two-thirds of the Depositary Shares, voting as a class, are required to approve each of the Dividend Blocker Amendment, the Director Amendment and the Preferred Stock Issuance.

 

We anticipate that the USG will vote its Series T Preferred Stock in the same proportion as the Depositary Shares, whether such shares vote in the same class with or as a separate class from the Series T Preferred Stock, with respect to the Preferred Stock Issuance and the fourth bullet point under the Dividend Blocker Amendment. The USG will not vote with respect to any other Preferred Stock Amendments or the Common Stock Amendments.

 

For additional information regarding the Preferred Stock Amendments, please refer to the Preferred Proxy Statement.

 

On August 25, 2009, the board of directors adopted resolutions (1) declaring that an amendment to Midwest’s Certificate to increase the number of authorized shares of our common stock from 64 million to four billion shares was advisable and (2) directing that a proposal to approve the Authorized Share Increase be submitted to the holders of our common stock for their approval.

 

The form of the proposed amendment to our Certificate to increase the number of authorized shares is attached to this proxy statement as Annex A . The Authorized Share Increase will increase the number of authorized shares of our common stock from 64 million shares to four billion shares. We will use the newly authorized shares to effectuate the Conversion. We will also use shares of our common stock when we consummate the Exchange Offer. We do not know at the present time exactly how many shares of common stock will be issued in the Exchange Offer. The remaining authorized but unissued shares of common stock will be used for general corporate purposes. As with our existing shares of common stock, none of the newly authorized shares of common stock will have preemptive rights.

Even if the stockholders approve the Authorized Share Increase, the board of directors reserves its right to elect to abandon the Authorized Share Increase, if it determines, in its sole discretion, that the Authorized Share Increase is no longer in the best interests of Midwest and its stockholders.

 

If the Authorized Share Increase or the Common Stock Issuance is not approved, we anticipate that the Conversion price for the Senior Preferred Stock will be reduced, and that the dividend rate on the Senior Preferred Stock will increase.

 

The issuance of the Senior Preferred Stock to the USG in exchange for our Series T Preferred Stock is an important component of our Capital Plan. See “Background of the Transactions,” for a discussion of the reasons for the Capital Plan and the terms of the Senior Preferred Stock.

 

Background and Reasons for the Conversion of Senior Preferred Stock into Shares of Common Stock and Increase in Authorized Shares of Common Stock

 

We are discussing with the USG a possible exchange of the shares of Series T Preferred Stock for the Senior Preferred Stock. Immediately thereafter, we anticipate that the Conversion will be consummated thereby converting the Senior Preferred Stock into shares of our common stock.

 

Through the Exchange Offer and the other capital enhancement proposals of our Capital Plan, we seek to substantially increase our Tier 1 common equity to risk-weighted assets (Tier 1 Common Ratio) and tangible common equity to tangible assets ratio (TCE) . Our Tier 1 common ratio and TCE were (1.24)% and (1.01)%, respectively, as of September 30, 2009, See “Regulatory Capital Ratios — Non-GAAP Reconciliation of Certain Ratios to Stockholder’s Equity” for a reconciliation of TCE and other ratios and a discussion of our use of non-GAAP financial measures in this document.

 

We anticipate that the Conversion will require more shares of common stock than are currently authorized and available for issuance under our Certificate. Accordingly, we need to amend our Certificate in order to increase the number of authorized shares of common stock so there will be sufficient authorized common stock to issue in connection with the Conversion.

 

We are proposing to increase the number of shares of common stock authorized for issuance to four billion shares. Some of these newly authorized shares may be used for general corporate purposes. Management believes that, to the extent the increase in authorized shares is not used to effectuate the Conversion, as described above, the Authorized Share Increase will maintain Midwest’s flexibility to respond efficiently to future business and financing needs and other opportunities.

 

Effect of the Authorized Share Increase on Stockholders

 

As of the date of this proxy statement, we are authorized to issue up to 64 million shares of common stock. If the Authorized Share Increase is approved, we will file a certificate of amendment with the Secretary of State of the State of Delaware to amend our Certificate to increase the number of shares of common stock we are authorized to issue to four billion shares. This will not change the number of shares of common stock that you own, but we will have the power to issue a significant number of additional shares of common stock which, if issued, would result in substantial dilution to your current ownership. We contemplate issuing a significant amount of common stock to accomplish the goals of our Capital Plan. The issuance of even a portion of the additional common stock contemplated under our Capital Plan will be dilutive, potentially significantly, to holders of our common stock, including participants in the Exchange Offer. For a discussion of the terms of the Senior Preferred Stock and the restrictions which may be imposed upon holders of our common stock, including the right of the USG to elect directors and the possible restructuring of executive compensation plans in order to comply with the USG rules, see “Background of the Transactions — Senior Preferred Stock.”

 

Conversion of Senior Preferred Stock into Common Stock

 

We will issue some of the newly authorized shares to effectuate the Conversion thereby converting the Senior Preferred Stock into shares of common stock. Our common stock is currently listed on the NASDAQ

Global Market, and we intend to apply for the listing of these additional shares on the NASDAQ Global Market. The remaining newly authorized shares of common stock will remain unissued and may be used for general corporate purposes in the future.

 

If our stockholders do not approve the Authorized Share Increase, the Conversion will not be effectuated. If we are unable to convert the Senior Preferred Securities into common stock, we will be unable to fully realize the anticipated benefits of our Capital Plan.

 

If the Authorized Share Increase or the Common Stock Issuance is not approved, we anticipate that the Conversion price will be reduced, thereby increasing the number of shares of common stock the USG will acquire upon the Conversion and that the dividend rate on the Senior Preferred Stock will increase.

 

Effect on Voting Power of Holders of Common Stock

 

The Senior Preferred Stock when issued will generally vote as a separate class. The Senior Preferred Stock will not, however, be entitled to vote on any of the Amendments or the Adjournment Proposal. Therefore, the conversion of the Senior Preferred Stock into shares of common stock will only affect the voting power of holders of common stock with respect to matters that as a matter of Delaware law require a class vote of holders of common stock in that the currently existing common stock may have the ability, in a class vote, to block the adoption of a proposal. After the Conversion, the current holders of common stock would vote on such matters with the USG as the holder of common stock issued upon the Conversion, if the USG has voting rights with respect to those shares.

 

After approval of the Authorized Share Increase, we will have the following approximate numbers of shares of common stock issued and outstanding based on the levels of participation in our Exchange Offer indicated below:

 

 

 

 

Following approval of the Authorized Share Increase and the Common Stock Issuance and the consummation of the Conversion, and assuming 100% participation in the Exchange Offer, we anticipate that the holders of our common stock outstanding as of the Record Date will lose significant voting power with respect to their ability to veto matters that require a vote of holders of common stock voting as a class.

 

Significant Stockholders

 

After the approval of the Authorized Share Increase and the Common Stock Issuance and consummation of the Conversion, we expect that the USG will be a significant stockholder.

 

Authorized but Unissued Shares

 

In addition, after approval of the Authorized Share Increase, we will have the following approximate number of authorized but unissued shares, depending on the levels of participation in the Exchange Offer indicated below:

 

 

 

 

Any authorized but unissued shares of common stock would be available for issuance at the discretion of the board of directors from time to time for corporate purposes subject to any shares reserved for issuance. We believe that the availability of the additional shares would provide us with additional flexibility to meet business and financing needs as they arise. However, if we issue any of the newly authorized shares, existing holders of our common stock may be diluted.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock will not be entitled to dissenter’s rights or appraisal rights with respect to the Authorized Share Increase.

 

Required Vote and Recommendation

 

Under Delaware law and our Certificate, the affirmative vote of holders of a majority of the shares of common stock outstanding as of the Record Date is required to approve the Authorized Share Increase. In connection with the Exchange Offer, the holders of Depositary Shares participating in the Exchange Offer will have granted their Proxy Instructions with respect to the Authorized Share Increase in accordance with the procedures set forth in the Letter of Transmittal and following the Record Date, the shares of common stock issued in respect of such Depositary Shares will be subject to an irrevocable proxy granted by the Voting Trustee in favor of the Authorized Share Increase.

 

The board unanimously recommends approval of the Authorized Share Increase.

 

On August 25, 2009, the board of directors adopted resolutions (1) declaring that an amendment to our Certificate to effect a reverse stock split, as described below, was advisable and (2) directing that a proposal to approve the Reverse Stock Split be submitted to the holders of our common stock for their approval.

 

The form of the proposed amendment to Midwest’s Certificate to effect the Reverse Stock Split is attached to this proxy statement as Annex B . If approved by our stockholders, the Reverse Stock Split would permit (but not require) the board of directors to effect a reverse stock split of our common stock at any time prior to December 31, 2010 at one of four reverse split ratios, 1-for-100, 1-for-150, 1-for-200, or 1-for-250, as determined by the board of directors in its sole discretion. We believe that leaving the ratio to the discretion of the board of directors (provided that it is one of the four proposed ratios) will provide Midwest with the flexibility to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits for our stockholders. In determining a ratio, if any, following the receipt of stockholder approval, the board of directors may consider, among other things, factors such as:

 

 

Even if the stockholders approve the Reverse Stock Split, the board of directors reserves its right to elect to abandon the Reverse Stock Split, including any or all proposed reverse stock split ratios, if it determines, in its sole discretion, that the Reverse Stock Split is no longer in the best interests of Midwest and its stockholders.

 

Depending on the ratio for the Reverse Stock Split determined by the board of directors, 100, 150, 200 or 250 shares of existing common stock, as determined by the board of directors, will be combined into one share of common stock. The number of shares of common stock issued and outstanding will therefore be reduced, depending upon the reverse stock split ratio determined by the board of directors. The amendment to the Certificate that is filed to effect the Reverse Stock Split, if any, will include only the reverse split ratio determined by the board of directors to be in the best interests of stockholders and all of the other proposed amendments at different ratios will be abandoned.

 

If the Reverse Stock Split is effected, we will also proportionately reduce the number of authorized shares of our common stock, as described below in “— Authorized Shares.” Accordingly, we are also proposing to adopt amendments to our Certificate to reduce the total number of authorized shares of common stock, depending on the reverse split ratio determined by the board of directors. The amendment to the Certificate that is filed, if any, will include only the total number of authorized shares of common stock determined by the board of directors to be in the best interests of stockholders and all of the other proposed amendments for different numbers of authorized shares will be abandoned. If the board of directors abandons the Reverse Stock Split, it will also abandon the related reduction in the number of authorized shares.

 

The Reverse Stock Split, if approved by our stockholders, would become effective upon the filing (the Effective Time ) of a certificate of amendment to our Certificate with the Secretary of State of the State of Delaware. The exact timing of the filing of the Reverse Stock Split will be determined by the board of directors based on its evaluation as to when such action will be the most advantageous to Midwest and its stockholders. In addition, the board of directors reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time

prior to filing the certificate of amendment, the board of directors, in its sole discretion, determines that it is no longer in Midwest’s best interests and the best interests of its stockholders to proceed with the Reverse Stock Split. If a certificate of amendment effecting the Reverse Stock Split has not been filed with the Secretary of State of the State of Delaware by the close of business on December 31, 2010, the board of directors will abandon the Reverse Stock Split.

 

To avoid the existence of fractional shares of our common stock, stockholders of record who would otherwise hold fractional shares as a result of the Reverse Stock Split will be entitled to receive cash (without interest) in lieu of such fractional shares from our agent. The total amount of cash that will be paid to holders of fractional shares following the Reverse Stock Split will be an amount equal to the net proceeds (after customary brokerage commissions, other expenses and applicable withholding taxes) attributable to the sale of such fractional shares following the aggregation and sale by our agent of all fractional shares otherwise issuable. Holders of fractional shares as a result of the Reverse Stock Split will be paid such proceeds on a pro rata basis, depending on the fractional amount of shares that they owned.

 

Background and Reasons for the Reverse Stock Split

 

The board is submitting the Reverse Stock Split to stockholders for approval with the primary intent of increasing the price of our common stock to make our common stock more attractive to a broader range of institutional and other investors. We believe the Reverse Stock Split will also allow us to restore our common stock price to a normalized trading level, which will enhance liquidity. In addition to increasing the price of our common stock, the Reverse Stock Split would also reduce certain of our costs, such as proxy solicitation fees. Accordingly, for these and other reasons discussed below, we believe that effecting the Reverse Stock Split is in Midwest’s and our stockholders’ best interests.

 

We believe that the Reverse Stock Split will make our common stock more attractive to a broader range of institutional and other investors, as we have been advised that the current market price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the investing public. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. In addition, some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Moreover, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. We believe that the Reverse Stock Split will make our common stock a more attractive and cost effective investment for many investors, which will enhance the liquidity of the holders of our common stock.

 

Nasdaq Rule 5450 provides that in order for Midwest to maintain its listing of common stock on the Nasdaq Global Market, the common stock must, among other things, maintain a minimum bid price per share of $1.00. If a company fails to meet the continued listing requirement for minimum bid price for a period of 30 consecutive trading days, Nasdaq will notify the issuer of the deficiency and the company will have a period of 180 calendar days from such notification to achieve compliance. Companies listed on the Nasdaq Global Market, like Midwest, are provided one automatic 180-day period to regain compliance, which they can do by achieving a $1.00 closing bid price for a minimum of ten consecutive business days. If Midwest cannot regain compliance in that time, Midwest can seek to transfer to the Nasdaq Capital Market in order to take advantage of the Capital Market’s second 180-day compliance period, provided it is in compliance with all other Capital Market inclusion requirements (except for the bid price requirement).

 

The Company received a letter from Nasdaq on September 15, 2009, notifying it of its failure to maintain a minimum closing bid price of $1.00 per share on its common stock over the preceding 30 consecutive business days as required by Nasdaq Marketplace Rule 5450(a)(1), (the Bid Price Rule ). The letter stated that the Company had until March 15, 2010 to demonstrate compliance by maintaining a minimum closing bid price of at least $1.00 for a minimum of ten consecutive business days. The Nasdaq letter was issued in accordance with standard Nasdaq procedures.

 

If the Company does not regain compliance with the Bid Price Rule by March 15, 2010, Nasdaq will notify the Company that its common stock is subject to delisting from Nasdaq. In that event, the Company may be eligible for an additional grace period if it can transfer its common stock from the Nasdaq Global Market to the Nasdaq Capital Market. To do this, the Company must meet the Market’s initial listing criteria except for the bid price requirement. To take advantage of this alternative, the Company must file an application to transfer its common stock to the Nasdaq Capital Market. If the application is approved, Nasdaq will notify the Company that it has been granted an additional 180 calendar day compliance period. If the Company is not eligible for an additional compliance period, Nasdaq will provide the Company with written notification that its common stock will be delisted. At that time, the Company may appeal Nasdaq’s determination to delist its common stock to a Hearings Panel.

 

The deficiency letter has no effect on the listing of the Company’s common stock at this time and its common stock will continue to trade on the Nasdaq Global Market under the symbol “MBHI.”

 

Also, in the future we could fall out of compliance with other minimum criteria for continued listing, including minimum market capitalization, minimum stockholders’ equity and minimum public float. A failure to meet any of these other continued listing requirements could result in delisting. Delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might become more volatile. Delisting could also make it more difficult for us to raise additional capital. Although we expect that quotes for our common stock would continue to be available on the OTC Bulletin Board or on the “Pink Sheets,” such alternatives are generally considered to be less efficient markets, and our stock price, as well as the liquidity of our common stock, may be adversely impacted as a result.

 

Reducing the number of outstanding shares of our common stock through the Reverse Stock Split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the Reverse Stock Split or that the market price of our common stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our common stock after a Reverse Stock Split will increase in proportion to the reduction in the number of shares of our common stock outstanding before the Reverse Stock Split. Accordingly, the total market capitalization of our common stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split.

 

In addition to increasing the price of our common stock, we believe that a Reverse Stock Split will provide Midwest and its stockholders with other benefits. Currently, the fees that we pay to list our shares on the NASDAQ Global Market are based on the number of shares we have outstanding. Also, the fees that we pay for custody and clearing services, the fees that we pay to the SEC to register securities for issuance and the costs of our proxy solicitations are all based on or related to the number of shares being held, cleared or registered as applicable. Reducing the number of shares that are outstanding and that will be issued in the future may reduce the amount of fees and tax that we pay to these organizations and agencies, as well as other organizations and agencies that levy charges based on the number of shares rather than the value of the shares.

 

Effect of the Reverse Stock Split on Holders of Outstanding Common Stock

 

Shares of common stock issued and outstanding prior to the Exchange Offer, as well as shares of common stock issued in exchange for Depositary Shares in connection with the Exchange Offer and issued upon the Conversion, will be affected by the Reverse Stock Split as common stock. The number of shares of common

stock that will be affected by the Reverse Stock Split depends on the number of Depositary Shares that are tendered and accepted for exchange into common stock in connection with the Exchange Offer. The table below shows the approximate number of shares of common stock that are expected to be affected by the Reverse Stock Split, assuming the Authorized Share Increase is approved, and depending on the levels of participation in the Exchange Offer indicated below:

 

 

 

 

Depending on the ratio for the Reverse Stock Split determined by the board of directors, 100, 150, 200 or 250 shares of existing common stock, as determined by the board of directors, will be combined into one new share of common stock. The number of shares of common stock issued and outstanding will therefore be reduced, depending upon the reverse stock split ratio determined by the board of directors. The table below shows the number of authorized and issued (or reserved for issuance) shares of common stock that will result from the listed hypothetical reverse stock split ratios (without giving effect to the treatment of fractional shares), depending on the levels of participation in the Exchange Offer indicated below:

 

 

 

 

The actual number of shares outstanding after giving effect to the Reverse Stock Split, if implemented, will depend on the reverse stock split ratio that is ultimately determined by the board of directors, whether the Authorized Share Increase and the Common Stock Issuance are approved and the Conversion is consummated and, the number of Depositary Shares that are tendered and accepted for exchange in connection with the Exchange Offer.

 

If approved and effected, the Reverse Stock Split will be realized simultaneously and in the same ratio for all of our common stock. The Reverse Stock Split will affect all holders of our common stock uniformly

and will not affect any stockholder’s percentage ownership interest in Midwest, except that as described below in “— Fractional Shares,” record holders of common stock otherwise entitled to a fractional share as a result of the Reverse Stock Split will receive a cash payment in lieu of such fractional share. These cash payments will reduce the number of post-Reverse Stock Split holders of our common stock to the extent there are currently stockholders who would otherwise receive less than one share of common stock after the Reverse Stock Split. In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares).

 

The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

 

After the Effective Time, our common stock will have new Committee on Uniform Securities Identification Procedures (CUSIP) numbers, which is a number used to identify our equity securities, and stock certificates with the older CUSIP numbers will need to be exchanged for stock certificates with the new CUSIP numbers by following the procedures described below.

 

Beneficial Holders of Common Stock (i.e. stockholders who hold in street name)

 

Upon the Reverse Stock Split, we intend to treat shares held by stockholders through a bank, broker, custodian or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split and making payment for fractional shares. If a stockholder holds shares of our common stock with a bank, broker, custodian or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker, custodian or other nominee.

 

Registered “Book-Entry” Holders of Common Stock (i.e. stockholders that are registered on the transfer agent’s books and records but do not hold stock certificates)

 

Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

 

If a stockholder holds registered shares in book-entry form with the transfer agent, the stockholder will be sent a transmittal letter by our transfer agent after the Effective Time and will need to return a properly completed and duly executed transmittal letter in order to receive any cash payment in lieu of fractional shares or any other distributions, if any, that may be payable to holders of record following the Reverse Stock Split.

 

Holders of Certificated Shares of Common Stock

 

Stockholders holding shares of our common stock in certificated form will be sent a transmittal letter by the transfer agent after the Effective Time. The letter of transmittal will contain instructions on how a stockholder should surrender his, her or its certificate(s) representing shares of our common stock (the Old Certificates ) to the transfer agent in exchange for certificates representing the appropriate number of whole shares of post-Reverse Stock Split common stock (the New Certificates ). No New Certificates will be issued to a stockholder until such stockholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. No stockholder will be required to pay a transfer or other fee to exchange his, her or its Old Certificates. Stockholders will then receive a New Certificate(s) representing the number of whole shares of common stock that they are entitled as a result of the Reverse Stock Split. Until surrendered, we will deem outstanding Old Certificates held by stockholders to be cancelled and only to represent the number of whole shares of post-Reverse Stock Split common stock to which these stockholders are entitled and the right to receive cash with respect to any fractional shares of post reverse

stock split common stock. Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates. If an Old Certificate has a restrictive legend on the back of the Old Certificate(s), the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate(s). If a stockholder is entitled to a payment in lieu of any fractional share interest, such payment will be made as described below under “— Fractional Shares.”

 

Stockholders should not destroy any stock certificate(s) and should not submit any stock certificate(s) until requested to do so.

 

Fractional Shares

 

We do not currently intend to issue fractional shares in connection with the Reverse Stock Split. Therefore, we do not expect to issue certificates representing fractional shares. Stockholders of record who would otherwise hold fractional shares because the number of shares of common stock they hold before the Reverse Stock Split is not evenly divisible by the split ratio ultimately determined by the board of directors will be entitled to receive cash (without interest and subject to applicable withholding taxes) in lieu of such fractional shares from our agent. Our agent will aggregate all fractional shares following the Reverse Stock Split and sell them into the market. The total amount of cash that will be paid to holders of fractional shares following the Reverse Stock Split will be an amount equal to the net proceeds (after customary brokerage commissions and other expenses) attributable to such sale. Holders of fractional shares as a result of the Reverse Stock Split will be paid such proceeds on a pro rata basis, depending on the fractional amount of shares that they owned.

 

If a stockholder who holds shares in certificated form is entitled to a payment in lieu of any fractional share interest, the stockholder will receive a check as soon as practicable after the Effective Time and after the stockholder has submitted an executed transmittal letter and surrendered all Old Certificates, as described above in “— Holders of Certificated Shares of Common Stock.” If a stockholder holds shares of our common stock with a bank, broker, custodian or other nominee, those stockholders should contact their bank, broker, custodian or other nominee for information on the treatment and processing of fractional shares by their bank, broker, custodian or other nominee. By signing and cashing the check, stockholders will warrant that they owned the shares of common stock for which they received a cash payment. The cash payment is subject to applicable federal, state and foreign income tax and state abandoned property laws. Stockholders will not be entitled to receive interest for the period of time between the Effective Time and the date payment is received.

 

Authorized Shares

 

If and when the board of directors elects to effect the Reverse Stock Split, we will also reduce the number of authorized shares of common stock in proportion to the reverse stock split ratio. The reduction in the number of authorized shares would be effected by the filing of the certificate of amendment to our Certificate, as discussed above. The table below shows the number to which authorized shares of common stock will be reduced resulting from the listed hypothetical reverse stock split ratios indicated below:

 

 

If the Authorized Share Increase or the Common Stock Issuance are not approved, the Conversion will not be consummated. The actual number of authorized shares after giving effect to the Reverse Stock Split, if implemented, will depend on the reverse stock split ratio that is ultimately determined by the board of directors and whether the Authorized Share Increase is approved.

 

As a result of the reduction in authorized shares of common stock, the same proportion of authorized but unissued shares to shares authorized and issued (or reserved for issuance) would be maintained if the board of directors elects to effect the Reverse Stock Split. The table below shows the total number of authorized but unissued shares of common stock that is expected to result from the capital reduction resulting from the listed hypothetical reverse stock split ratios (without giving effect to the treatment of fractional shares), assuming approval of the Authorized Share Increase and depending on the levels of participation in the Exchange Offer:

 

 

 

 

The actual number of authorized but unissued shares of common stock after giving effect to the Reverse Stock Split, if implemented, will depend on the reverse stock split ratio that is ultimately determined by the board of directors and whether the Authorized Share Increase is approved. If the Reverse Stock Split is abandoned by the board of directors, we will also abandon the reduction in the number of authorized shares.

 

Effect of the Reverse Stock Split on Options, Restricted Stock Awards, Warrants, and Convertible or Exchangeable Securities

 

Based upon the reverse stock split ratio determined by the board of directors, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock, including the Series A Preferred Stock, the Warrant and the Senior Preferred Stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants, convertible or exchangeable securities upon exercise, and approximately the same value of shares of common stock being delivered upon such exercise, exchange or conversion, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted. The number of shares reserved for issuance pursuant to these securities will be reduced proportionately based upon the reverse stock split ratio determined by the board of directors.

 

Accounting Matters

 

The proposed amendments to our Certificate will not affect the par value of our common stock per share, which will remain at $0.01. As a result, as of the Effective Time, the stated capital attributable to common stock on our balance sheet will be reduced proportionately based on the reverse stock split ratio (including a retroactive adjustment of prior periods), and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.

Certain Federal Income Tax Consequences of the Reverse Stock Split

 

The following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our common stock.

 

Unless otherwise specifically indicated herein, this summary addresses the federal income tax consequences only to a beneficial owner of our common stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis in respect of our common stock (a U.S. holder ). This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that hold our common stock as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, or (iii) persons that do not hold our common stock as “capital assets” (generally, property held for investment).

 

This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (IRC) , U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of December 3, 2009. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Stock Split.

 

Each prospective investor should consult its own tax advisor regarding the U.S. federal, state, local, and foreign income and other tax consequences of the Reverse Stock Split.

 

If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our common stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split.

 

U.S. Holders

 

The Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Therefore, except as described below with respect to cash in lieu of fractional shares, no gain or loss will be recognized upon the Reverse Stock Split. Accordingly, the aggregate tax basis in the common stock received pursuant to the Reverse Stock Split should equal the aggregate tax basis in the common stock surrendered (excluding the portion of the tax basis that is allocable to any fractional share), and the holding period for the common stock received should include the holding period for the common stock surrendered.

 

A U.S. holder who receives cash in lieu of a fractional share of our common stock pursuant to the Reverse Stock Split should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the U.S. holder’s tax basis in the shares of our common stock surrendered that is allocated to such fractional share of our common stock. Such capital gain or loss should be long term capital gain or loss if the U.S. holder’s holding period for our common stock surrendered exceeded one year at the Effective Time. The deductibility of net capital losses by individuals and corporations is subject to limitations.

 

U.S. Information Reporting and Backup Withholding.   Information returns generally will be required to be filed with the Internal Revenue Service ( IRS ) with respect to the receipt of cash in lieu of a fractional share of our common stock pursuant to the Reverse Stock Split in the case of certain U.S. holders. In addition, U.S. holders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer identification numbers in the manner required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an

additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.

 

Non-U.S. Holders

 

The discussion in this section is addressed to “non-U.S. holders.” A non-U.S. holder is a beneficial owner of our common stock who is a foreign corporation or a non-resident alien individual.

 

Generally, non-U.S. holders will not recognize gain or loss for U.S. income tax purposes upon the Reverse Stock Split. In particular, gain or loss will not be recognized for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share provided that (a) such gain or loss is not effectively connected with the conduct of a trade or business in the United States (or, if certain income tax treaties apply, is not attributable to a non-U.S. holder’s permanent establishment in the United States), (b) with respect to non-U.S. holders who are individuals, such non-U.S. holders are present in the United States for less than 183 days in the taxable year of the Reverse Stock Split and other conditions are met, and (c) such non-U.S. holders comply with certain certification requirements.

 

U.S. Information Reporting and Backup Withholding Tax.   In general, backup withholding and information reporting will not apply to a payment of cash in lieu of a fractional share of our common stock to a non-U.S. holder pursuant to the Reverse Stock Split if the non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder and the applicable withholding agent does not have actual knowledge to the contrary. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that certain required information is timely furnished to the IRS. In certain circumstances the amount of cash paid to a non-U.S. holder in lieu of a fractional share of our common stock, the name and address of the beneficial owner and the amount, if any, of tax withheld may be reported to the IRS.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock will not be entitled to dissenter’s rights or appraisal rights with respect to the Reverse Stock Split.

 

Required Vote and Recommendation

 

Under Delaware law and our Certificate, the affirmative vote of holders of a majority of the shares of common stock outstanding as of the Record Date is required to approve the Reverse Stock Split. In connection with the Exchange Offer, the holders of Depositary Shares participating in the Exchange Offer will have granted their Proxy Instructions with respect to the Reverse Stock Split in accordance with the procedures set forth in the Letter of Transmittal and following the Record Date, the shares of common stock issued in respect of such Depositary Shares will be subject to an irrevocable proxy granted by the Voting Trustee in favor of the Reverse Stock Split.

 

The board unanimously recommends approval of the Reverse Stock Split.

 

On August 25, 2009, the board of directors adopted resolutions (1) declaring that an amendment to our Certificate to eliminate certain voting rights of shares of common stock, as described below, and (2) directing that a proposal to approve the Preferred Stock Change be submitted to holders of our common stock for their approval.

 

The form of the proposed amendment to our Certificate to effect the Preferred Stock Change is attached as Annex C . The Preferred Stock Change would eliminate the voting rights of shares of common stock with respect to any amendment to the Certificate (including any certificate of designation related to any series of preferred stock) that relates solely to the terms of one or more outstanding series of preferred stock, if such

series of preferred stock is entitled to vote, either separately or together as a class with the holders of one or more other such series, on such amendment. The Preferred Stock Change only affects the rights of our common stockholders. Shares of common stock issued and outstanding prior to the Exchange Offer, as well as shares of common stock issued in exchange for Depositary Shares in connection with the Exchange Offer, will be affected by the Preferred Stock Change. Therefore, the number of shares of common stock that will be affected by the Preferred Stock Change depends on the number of Depositary Shares that are tendered and accepted for exchange into common stock in connection with the Exchange Offer.

 

The table below shows the approximate number of shares of common stock that are expected to be affected by the Preferred Stock Change, depending on the levels of participation in the Exchange Offer indicated below:

 

 

 

 

Even if the stockholders approve the Preferred Stock Change, the board of directors reserves the right to elect to abandon the Preferred Stock Change, if it determines, in its sole discretion, that the Preferred Stock Change is no longer in the best interests of Midwest and its stockholders.

 

Background and Reasons for the Preferred Stock Change

 

Under Delaware law, the holders of shares of our common stock are currently entitled to vote on any amendments to our Certificate, including any amendment to a certificate of designation related to a series of preferred stock. In addition, pursuant to Section 242(b) of the General Corporation Law of the State of Delaware, under certain amendments, we are required to seek the approval of a majority of the holders of each class of stock eligible to vote to make any such changes to our Certificate. Therefore, we are required to engage in a lengthy proxy solicitation and incur the costs of holding a meeting of holders of common stock or soliciting their written consents to make changes to our Certificate, even if these changes are only being made to certificates of designation for preferred stock adopted by the board of directors pursuant to discretion granted to it in our Certificate.

 

In addition, we believe that allowing the board of directors the discretion and flexibility to adopt amendments to our Certificate (including certificates of designation for a series of preferred stock) that relate solely to the terms of preferred stock with only the consent of the board and the holders of such series of preferred stock is important and consistent with the board of directors’ discretion and flexibility to adopt a certificate of designation and create a new series of preferred stock without the approval of the holders of common stock. Accordingly, the board of directors recommends approval of the Preferred Stock Change.

 

Effect of the Preferred Stock Change on Stockholders

 

Currently, Midwest’s Certificate provides that the holders of outstanding shares of common stock have one vote in respect of each share of common stock held by him or her of record in the books on Midwest on all matters voted upon by stockholders. Pursuant to Section 242(b)(1) of the General Corporation Law of the State of Delaware, any changes to Midwest’s Certificate must be approved by “a majority of the outstanding

stock entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class.”

 

If the Preferred Stock Change is approved, we would file a certificate of amendment to our Certificate with the Secretary of State of the State of Delaware providing that the holders of common stock will not be entitled to vote with respect to any amendment to the Certificate (including any certificate of designation related to any series of preferred stock) that relates solely to the terms of one or more outstanding series of preferred stock, if such series of preferred stock is entitled to vote, either separately or together as a class with the holders of one or more other such series of affected preferred stock.

 

Therefore, holders of common stock would no longer be entitled to vote on or consent to, and we would not be required to seek their vote on or consent to, any changes to our Certificate or certificates of designation that relate solely to the terms of the preferred stock, so long as the holders of affected preferred stock are entitled to vote or consent to such changes. Holders of common stock would retain the power to vote on or consent to all other matters that they are currently entitled to vote or consent on, including the election of directors.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock will not be entitled to dissenter’s rights or appraisal rights with respect to the Preferred Stock Change.

 

Required Vote and Recommendation

 

Under Delaware law and our Certificate, the affirmative vote of holders of a majority of the shares of common stock outstanding as of the Record Date is required to approve the Preferred Stock Change. In connection with the Exchange Offer, the holders of Depositary Shares participating in the Exchange Offer will have granted their Proxy Instructions with respect to the Preferred Stock Change in accordance with the procedures set forth in the Letter of Transmittal and following the Record Date, the shares of common stock issued in respect of such Depositary Shares will be subject to an irrevocable proxy granted by the Voting Trustee in favor of the Preferred Stock Change.

 

The board unanimously recommends approval of the Preferred Stock Change.

 

Our stock is listed for trading on the Nasdaq Global Market. Rule 5635(d) of the NASDAQ Global Market requires us to obtain stockholder approval to issue common stock (other than in a public offering) if (1) the shares of common stock will have upon issuance voting power equal to 20% or more of the voting power outstanding before the issuance of the securities exercisable for common stock, or (2) the number of shares of common stock to be issued will be upon issuance equal to 20% or more of the number of shares of common stock outstanding before the issuance of the securities exercisable for common stock, in each case if such shares are issued at the less than the greater of market value or book value. In addition, Nasdaq Rule 5635(b) also requires stockholder approval of a transaction that would result in a change of control of Midwest. Nasdaq generally considers the acquisition by a stockholder of 20% or more of the common stock of a company as a change of control.

 

Assuming the Conversion of the Senior Preferred Stock is effectuated we expect that the issuance of shares of common stock to the USG would satisfy both of these tests and, therefore, the Common Stock Issuance must be approved by the holders of our common stock.

 

Given the uncertainty in the number of shares of common stock we will issue upon the consummation of the Conversion, the Conversion may result in the issuance of 20% or more of the outstanding common stock of the Company or 20% or more of the voting power of the Company’s outstanding stock in exchange for the Senior Preferred Stock having a value that is less than the greater of the book value or market value of the shares, and could result in the USG acquiring or having the right to acquire 20% or more of the outstanding

common stock in the Conversion. Therefore, to comply with Nasdaq Marketplace Rule 5635, the Company is seeking stockholder approval for the potential issuance of shares of common stock in the Conversion so that the Company will have flexibility to enter into and close such a transaction on a timely basis.

 

Generally, under published Nasdaq interpretative guidance, general authorizations by the stockholders for purposes of Nasdaq Marketplace Rule 5635 will be effective only if limited to transactions which are completed within three months of the approval. The three month requirement only applies to the initial issuance of the shares of common stock or other securities exercisable for or convertible into common stock. Nasdaq interpretative guidance also requires us to include a maximum potential discount in stockholder proposals such as this one. The terms of the Conversion will be determined by the board of directors and will depend upon discussions with the USG and prevailing market conditions.

 

If the issuance of common stock in the Conversion results or would result in the USG beneficially owning 20% or more of the common stock following the issuance of common stock, then stockholder approval of this proposal also will constitute approval of any change in control or potential change in control for purposes of Nasdaq Marketplace Rule 5635 and no additional approval will be solicited.

 

As of the date of this proxy statement, except as otherwise disclosed in this proxy statement, the Company does not have any specific plans, arrangements or contracts with any third party, which alone or when aggregated with subsequent transactions, would contemplate or require the Company to issue shares of its common stock or other securities exercisable for or convertible into common stock in excess of 20% of its outstanding common stock or voting power and at a price that would be less than the book or market value of the Company’s common stock as of such date or that would result in a change in control of the Company. If any material plans, arrangements or contracts regarding securities issuances subject to this proposal arise after the date of this proxy statement and prior to the actual vote on this proposal, the Company will notify its stockholders and make revised proxy solicitation materials publicly available in accordance with SEC rules. These materials will include a new proxy card, if necessary.

 

The board of directors recommends that stockholders vote FOR the Common Stock Issuance, for purposes of complying with Nasdaq Marketplace Rule 5635, to authorize the Company to issue shares of the Company’s common stock in exchange for the Senior Preferred Stock upon such terms as the board of directors shall deem to be in the best interests of the Company, provided that (i) not more than 110 million shares of common stock may be issued in the exchange, (ii) the Company will issue for the Senior Preferred Stock a number of shares of common stock having a dollar value that is not more than $75 million and not less than $5 million, (iii) the dollar value per share of common stock used in determining this exchange ratio will be not less than $0.10 per share, and (iv) the issuance of shares of common stock pursuant to the Conversion shall occur not later than the date three months after the date of the approval of the Conversion by the stockholders of the Company. In the event that the Conversion terms fall outside the above parameters, we may be required to seek a separate stockholder approval under Nasdaq Marketplace Rule 5635 prior to issuing the shares of common stock upon conversion of the Senior Preferred Stock.

 

The issuance and sale of shares of our common stock to the USG would have a dilutive effect on an existing stockholder’s percentage voting power in us. The dilution caused by such issuances could also lead to a decrease in the market price of our common stock. In addition, the issuance our common stock to the USG would give the USG a significant proportionate ownership of our outstanding common stock. Should the proposed issuance occur, the USG, as our largest shareholder may have significant influence over corporate actions requiring stockholder approval, such as the election of directors, amendment of our charter documents and the approval of merger or significant asset sale transaction if the USG has voting rights with respect to such shares.

 

If we do not obtain stockholder approval as described in this proxy statement, we will not complete the Conversion since doing so would not be in compliance with Nasdaq’s Marketplace Rules, and such non-compliance could result in the delisting of our common stock from the Nasdaq Global Market. Accordingly, if we do not obtain stockholder approval, we may not complete the Preferred Stock Issuance.

 

Even if our stockholders approve the proposed issuance, we can provide no assurance that such issuance will actually take place. In addition, we expect that the USG will impose certain conditions which we must meet before the USG would consider consummating the proposed transaction. There can be no assurance that the USG will not exercise its discretion and consummate the transaction, or that we will meet all of the USG’s conditions therefor.

 

If the Authorized Share Increase or the Common Stock Issuance is not approved, we anticipate that the Conversion price for the Senior Preferred Stock will be reduced and that the dividend rate on the Senior Preferred Stock will increase.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock will not be entitled to dissenter’s rights or appraisal rights with respect to the Common Stock Issuance.

 

Required Vote and Recommendation

 

Under Rule 5635, the affirmative vote of holders of a majority of the shares of common stock present and entitled to vote at the special meeting is required to approve the Common Stock Issuance. In connection with the Exchange Offer, the holders of Depositary Shares participating in the Exchange Offer will have granted their Proxy Instructions with respect to the Common Stock Issuance in accordance with the procedures set forth in the Letter of Transmittal and following the Record Date, the shares of common stock issued in respect of such Depositary Shares will be subject to an irrevocable proxy granted by the Voting Trustee in favor of the Common Stock Issuance.

 

The board unanimously recommends approval of the Common Stock Issuance.

 

On August 25, 2009, the board of directors unanimously adopted resolutions (1) declaring that an amendment to the Certificate and the certificate of designation of the Series A Preferred Stock modifying certain rights of the Series A Preferred Stock was advisable and (2) directing that a proposal to approve the Dividend Blocker Amendment be submitted to our stockholders for their approval.

 

The form of the proposed amendment to our Certificate and the certificate of designation of the Series A Preferred Stock to reflect the changes imposed by the Dividend Blocker Amendment is attached to this proxy statement as Annex D .

 

Currently, our Certificate and the certificate of designation of the Series A Preferred Stock provide that, as to a dividend payment date, unless Midwest pays or declares and sets apart for payment full dividends on shares of Series A Preferred Stock, Midwest may not declare, set apart or pay dividends on, make any distributions relating to, or redeem, purchase, acquire or make any liquidation payment relating to, shares of stock of any class or series that is junior to that Series A Preferred Stock anytime during the next succeeding dividend period. In addition, Midwest may not declare, pay or set apart dividends for the holders of common stock before full dividends have been declared, paid or set apart on the Series A Preferred Stock. The certificate of designation of the Series A Preferred Stock also currently requires Midwest to declare dividends proportionally on all securities ranking equally with the Series A Preferred Stock if dividends are not paid in full on the Series A Preferred Stock. The certificate of designation provides that Midwest may not issue a series of preferred stock that is on parity with the Series A Preferred Stock without the approval of the holders of the Series A Preferred Stock, if the dividends on the parity preferred stock will be cumulative. Our Certificate provides that no dividends shall be paid or declared on any particular series of preferred stock unless dividends are paid or declared pro rata on all shares of outstanding preferred stock which rank equally as to dividends with such particular series.

If approved, the Dividend Blocker Amendment will eliminate the requirement that:

 

 

The proposed Dividend Blocker Amendment will not change the other terms of any series of Series A Preferred Stock relating to dividends, including the rate at which dividends accrue or the payment dates for dividends.

 

Even if the stockholders approve the Dividend Blocker Amendment, the board of directors reserves its right to elect to abandon the Dividend Blocker Amendment, if it determines, in its sole discretion, that the Dividend Blocker Amendment is no longer in the best interests of Midwest and its stockholders.

 

Background and Reasons for the Dividend Blocker Amendment

 

The Dividend Blocker Amendment is integral to our goal of making Midwest a better capitalized bank on a TCE and Tier 1 Common basis. The Dividend Blocker Amendment will permit the board greater flexibility in reinstating the common dividend without incurring additional dividend expense related to any Depositary Shares that remain outstanding after the settlement of the Exchange Offer. We believe this would permit us to strengthen our common stock and significantly enhance our ability to maximize the efficiency of Midwest’s capital structure going forward. The board believes that reinstating the common dividend is an important corporate objective, as it will make our common stock more attractive to a number of institutional investors, some of which are prohibited from investing in stock that does not pay a dividend. Making our common stock more attractive to these investors, as well as other investors who wish to realize returns on their investment through dividends, we believe will increase the price and liquidity of our common stock and strengthen our common stock as a long-term investment instrument. The Dividend Blocker Amendment permits this and at the same time saves the expense of paying dividends on any remaining Depositary Shares.

 

Under an agreement previously entered into with the USG when it acquired the Series T Preferred Stock, Midwest is not permitted to pay dividends on our common stock without the prior consent of the USG. Upon the Conversion, we believe that we will be able to pay a $0.01 per share quarterly dividend on our common stock without the prior approval of the USG. While we have no current plans to reinstate the common dividend, we believe that payment of a dividend could potentially enhance the value of our common stock in the market. The annual cost of a dividend of $0.01 per share for example, assuming consummation of all of the Exchange Offer would be $105,000 per quarter (if no reverse stock split is effected), assuming 100% participation in the Exchange Offer. However, if the Dividend Blocker Amendment is not approved, this cost would increase by the amount of dividends payable in respect of the Series A Preferred Stock that remains outstanding after the Exchange Offer.

On May 6, 2009, we suspended the payment of dividends on our Series A Preferred Stock and deferred the payment of dividends on our Series T Preferred Stock and announced we would be suspending dividends on our trust preferred securities.

 

The table below demonstrates the amount of dividends on Series A Preferred Stock that would be payable annually assuming the stated levels of participation in the Exchange Offer if the Dividend Blocker Amendment is not approved. Potentially paying out such a large amount of preferred dividends would add significantly to the cost of a $0.01 common dividend and is inconsistent with our goal of strengthening TCE and Tier 1 Common.

 

 

 

 

In addition, eliminating the clauses in the certificate of designation for the Series A Preferred Stock and our Certificate requiring that dividends be declared on a proportional basis with respect to all equally ranking series of preferred stock and the requirement that the holders of the Depositary Shares must approve issues of parity preferred stock with cumulative dividend rights will also give us more flexibility in future financings involving preferred stock, as new series of preferred stock could be issued that give the holders thereof preferential rights to dividends and without the approval of the holders of the Depositary Shares. We think this additional flexibility to effect financings involving preferred stock is important to our ability to optimize our capital structure going forward.

 

We believe that a large majority of the holders of Depositary Shares will find the economic terms of the Exchange Offer attractive and will tender their securities. If, as we anticipate, more than two-thirds of the Depositary Shares are tendered in the Exchange Offer, and the Dividend Blocker Amendment is approved in

accordance with the terms of the certificate of designation and the Certificate and Delaware law, only a fraction of our current holders of Depositary Shares who continue to hold Depositary Shares after the Exchange Offer will be affected by this change in the terms of their securities.

 

To the extent that the Dividend Blocker Amendment provides further encouragement to holders to tender their Depositary Shares in the Exchange Offer, this is also positive for Midwest, as greater participation in the Exchange Offer will lead to an improved capital structure by increasing our TCE and Tier 1 Common. We believe this will improve public and market perception of our financial strength.

 

Effect of the Dividend Blocker Amendment on Stockholders

 

Upon effectiveness of the Dividend Blocker Amendment, the Depositary Shares will no longer be entitled to receive dividends prior to payment of dividends to holders of common stock or parity preferred stock. Additionally, new series of parity preferred stock could be created which would have cumulative dividend rights.

 

Depositary Shares that are tendered and accepted for exchange in the Exchange Offer will be exchanged for shares of common stock on the settlement date of the Exchange Offer. Therefore, although holders of these securities will be entitled to vote on the Preferred Stock Amendments as holders of Depositary Shares because the Record Date will occur prior to the settlement date, they will only be affected by the Dividend Blocker Amendment, if approved, as holders of common stock. Holders of any Depositary Shares that are not tendered, or that are not accepted for exchange, in the Exchange Offer will be affected by these amendments as holders of Depositary Shares.

 

Approximately 28,116,312 shares of common stock were issued and outstanding as of the close of business on December 3, 2009. Each of these shares of common stock will be affected by the Dividend Blocker Amendment. The proposed Dividend Blocker Amendment would eliminate each of the other restrictions described above and allow Midwest to declare and pay dividends on shares of common stock or any other series of junior stock or make other payments to holders of junior or parity stock without paying or setting apart for payment any dividends on shares of Series A Preferred Stock.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock are not entitled to dissenter’s rights or appraisal rights with respect to the Dividend Blocker Amendment.

 

Required Vote and Recommendation

 

Under Delaware law and our Certificate, the affirmative vote of holders as of the close of business on the Record Date of a majority of the common stock, voting as a class, are required to approve the Dividend Blocker Amendment. The Dividend Blocker Amendment will also have to be approved by holders of two-thirds of the Depositary Shares. The USG, as holder of the Series T Preferred Stock, must approve the fourth bullet point under the Dividend Blocker Amendment.

 

The board unanimously recommends approval of the Dividend Blocker Amendment.

 

On August 25, 2009, the board of directors unanimously adopted resolutions (1) declaring that an amendment to the Certificate and the certificate of designation of the Series A Preferred Stock, modifying the right of holders of Series A Preferred Stock to appoint directors if dividends had not been declared in six quarterly dividend periods was advisable and (2) directing that a proposal to approve the Director Amendment be submitted to our stockholders for their approval.

 

The form of the proposed amendment to the Certificate and the certificate of designation of the Series A Preferred Stock to modify the terms of the Series A Preferred Stock to reflect the changes imposed by the Director Amendment is attached to this proxy statement as Annex E .

Currently, the certificate of designation of the Series A Preferred Stock provides that, if dividends on the Series A Preferred Stock remain unpaid for six quarterly dividend periods, whether or not consecutive, the number of directors on the board of directors will automatically increase by two and the holders of Series A Preferred Stock, voting as a single class together with any other series of preferred stock similarly affected, will be entitled to elect two directors. The term of these two directors will end, and the number of directors on the board of directors will automatically decrease by two, at such time as all dividends on shares of the Series A Preferred Stock have been paid in full or declared and set apart for payment for at least four consecutive quarterly periods following non-payment of a dividend (and cumulative dividends have been paid in full with respect to an equally ranked series of cumulative preferred stock).

 

If the Director Amendment is approved, the right in the certificate of designation of holders of Series A Preferred Stock to elect two directors if dividends have not been paid for six consecutive quarters, whether or not consecutive, will terminate.

 

Even if the stockholders approve the Director Amendment, the board of directors reserves its right to elect to abandon the Director Amendment, if it determines, in its sole discretion, that the Director Amendment is no longer in the best interests of Midwest and its stockholders.

 

Background and Reasons for the Director Amendment

 

On May 6, 2009, we suspended the payment of dividends on our Series A Preferred Stock and deferred the payment of dividends on our Series T Preferred Stock and announced we would be suspending dividends on our trust preferred securities.

 

If the Director Amendment is not approved, and dividends are not paid on Depositary Shares for six quarterly dividend periods whether or not consecutive, the holders of our Depositary Shares remaining after the consummation of the Exchange Offer, voting as a single class, will be able to appoint two additional directors to the board of directors. The board of directors is currently composed of eight directors and, given the possibility that only a fraction of our current holders of Depositary Shares could remain outstanding upon completion of the Exchange Offer, the right to appoint two additional directors would afford the remaining Depositary Shares a disproportionate influence over our governance and decision-making when compared to their economic investment.

 

This is especially true given that we expect the Exchange Offer to significantly reduce the number of outstanding Depositary Shares. If the Director Amendment is approved by holders of two-thirds of the Depositary Shares, we believe it very likely that the approving holders of the Depositary Shares will have tendered their Depositary Shares in the Exchange Offer, thereby reducing the number of outstanding Depositary Shares by at least two-thirds and perhaps more. The more successful the Exchange Offer is, the more disproportionate the influence of the non-tendering holders of Depositary Shares would be, potentially creating an incentive for holders not to tender their shares in the Exchange Offer. This incentive is removed if the Director Amendment is approved.

 

Effect of the Director Amendment on Stockholders

 

Upon the filing of the proposed Director Amendment with the Secretary of State of the State of Delaware, the Series A Preferred Stock will no longer have the right to appoint directors to Midwest’s board upon Midwest’s failure to pay dividends for six quarterly dividend periods.

 

As noted above, Depositary Shares that are tendered and accepted for exchange in the Exchange Offer will be exchanged for shares of common stock on the settlement date of the Exchange Offer. Therefore, although holders of these securities will be entitled to vote on the Preferred Stock Amendments as holders of Depositary Shares because the Record Date will occur prior to the settlement date, they will only be affected by the Director Amendment, if approved, as holders of common stock. Holders of any Depositary Shares that are not tendered, or that are not accepted for exchange, in the Exchange Offer will be affected by these amendments as holders of Depositary Shares.

 

Approximately 28,116,312 shares of common stock were issued and outstanding as of the close of business on December 3, 2009. Each of these shares of common stock will be affected by the Preferred Stock Amendments because the Director Amendment, if approved, ensures that management of Midwest remains with a board of directors elected by the holders of the common stock in the event that Midwest determines that it is not in the best interest of stockholders to pay dividends on the Depositary Shares.

 

No Appraisal Rights

 

Under Delaware law and our Certificate, holders of our common stock are not entitled to dissenter’s rights or appraisal rights with respect to the Director Amendment.

 

Required Vote and Recommendation

 

Under Delaware law and our Certificate, the affirmative written vote of holders as of the close of business on the Record Date of a majority of the common stock, voting as a class, are required to approve the Director Amendment. The Director Amendment will also have to be approved by holders of two-thirds of the Depositary Shares.

 

The board unanimously recommends approval of the Director Amendment.

 

If at the special meeting the number of shares of the common stock present or represented and voting in favor of the Amendments is insufficient to approve any of the Amendments, we may move to adjourn, postpone or continue the special meeting in order to enable our board to continue to solicit additional proxies in favor of the Amendments. In that event the proxies will then be asked to vote only upon the adjournment, postponement or continuation proposal and not the Amendments.

 

We are asking the holders of our common stock to authorize a vote in favor of adjourning, postponing or continuing the special meeting and any later adjournments. If the adjournment, postponement or continuation proposal is approved, we could adjourn, postpone or continue the special meeting, and any adjourned session of the special meeting, to use the additional time to solicit additional proxies in favor of the Amendments, including the solicitation from stockholders who have previously voted against such proposals. Among other things, approval of the adjournment, postponement or continuation proposal could mean that, even if holders of common stock vote against the Amendments, we could adjourn, postpone or continue the special meeting without a vote on the Amendments and seek to convince stockholders to change their proxies so that the proxies could vote the Amendments in favor of the Amendments.

 

The adjournment, postponement or continuation proposal requires that holders of more of the common stock vote in favor of the adjournment, postponement or continuation proposal than vote against the proposal. Accordingly, broker non-votes will have no effect on the outcome of this proposal. No proxy that is specifically marked AGAINST the Amendments will be voted in favor of the adjournment, postponement or continuation proposal, unless it is specifically marked FOR the Adjournment Proposal.

 

Our board of directors believes that if the number of shares of common stock present or represented at the special meeting and voting in favor of the Amendments is insufficient to approve the proposals, it is in the best interests of stockholders to enable the board, for a limited period of time, to continue to seek to obtain a sufficient number of additional votes to approve the Amendments.

 

Required Vote and Recommendation

 

Approval of the proposal to vote to adjourn, postpone or continue the special meeting will require the affirmative vote of the majority of the votes cast at the special meeting, even if less than a quorum is represented.

 

The board unanimously recommends approval of the Adjournment Proposal.

SELECTED FINANCIAL DATA

 

The following table sets forth certain selected consolidated financial data at or for the periods indicated. In accordance with the authoritative guidance for the disposal of long-lived assets (ASC 360-10-05), the results of operations and gain on sale of Midwest Bank of Western Illinois are shown in the Company’s statements of income for 2004 and 2005 as “discontinued operations.” The selected financial data as of September 30, 2009 and 2008, and for the nine months ended September 30, 2009 and September 30, 2008, is derived from our unaudited financial statements which, in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial position and results of operations for the periods and dates presented. The data should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus. Results presented for interim periods are not necessarily indicative of results to be expected for the full year or any other future period.