April 8,
2009Dear
Fellow Stockholder:
You are
cordially invited to attend the annual stockholders’ meeting of Heartland
Financial USA, Inc. to be held at the Grand River Center, 500 Bell Street,
Dubuque, Iowa, on Wednesday, May 20, 2009, at 6:00 p.m. The accompanying notice
of the annual meeting of stockholders and proxy statement discuss the business
to be conducted at the meeting. A copy of our 2008 Annual Report to Stockholders
is also enclosed. At the meeting, we will report on operations and the outlook
for the year ahead.
At the
meeting, you will be asked to approve a number of matters we are proposing. Our
compensation/nominating committee has nominated two persons to serve as Class I
directors and the Board of Directors recommends that you vote your shares for
each of the director nominees. Our audit/corporate governance
committee has selected, and we recommend that you ratify the selection of KPMG
LLP to continue as our independent registered public accounting firm for the
year ending December 31, 2009. Our Board has approved, and is asking
that you approve, an amendment to our Certificate of Incorporation that will
increase our number of authorized shares of common stock by five million
shares. Finally, we are asking for your approval, in a nonbinding
vote, of the compensation to our executive officers as outlined in the attached
proxy statement.
In
addition to the matters we are proposing, the attached proxy statement contains
a shareholder proposal that your Board of Directors believes is not in the best
interests of our stockholders. Your Board urges you to vote against
this proposal.
We
encourage you to attend our annual meeting in person and enjoy fellowship with
other stockholders at the reception following our meeting. Whether or not you plan to attend,
however, please complete, sign and date the enclosed proxy and return it in the
accompanying postage-paid return envelope as promptly as possible. This
will ensure that your shares are represented at the meeting.
I
look forward with pleasure to seeing you and visiting with you at the
meeting.
Very best personal
wishes,
/s/ Lynn B. Fuller
Lynn B. Fuller
Chairman of the Board
1398
Central Avenue · Dubuque, Iowa 52001 · (563) 589-2100
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We especially ask you to join the
directors and other fellow stockholders for cocktails and hors d’oeuvres
at a reception following the meeting. In order to comfortably
accommodate all stockholders, we ask that you please return the enclosed
reservation card. Doing so will allow us to have a nametag prepared for
each attendee. This reception will be held at our corporate headquarters
located in the main bank building of Dubuque Bank and Trust, 1398 Central
Avenue, Dubuque, Iowa, beginning at approximately 7:00 p.m. You need not
attend the annual meeting in order to attend the
reception.
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD MAY 20, 2009
TO
THE STOCKHOLDERS:
The annual meeting of stockholders of
HEARTLAND FINANCIAL USA,
INC. will be held at the Grand River Center, 500 Bell Street, Dubuque,
Iowa, on Wednesday, May 20, 2009, at 6:00 p.m., for the purpose of considering
and voting upon the following matters:
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1.
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to
elect two Class I directors;
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2.
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to
ratify the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2009;
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3.
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to
consider a proposal to amend our Certificate of Incorporation to increase
the authorized shares of common stock from 20,000,000 shares to 25,000,000
shares;
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4.
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to
consider and approve the following advisory (non-binding)
proposal:
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RESOLVED,
that the stockholders approve the compensation of Heartland’s executives as
described in the Compensation Discussion and Analysis, the Summary Compensation
Table and the other executive compensation tables and related
discussion;
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5.
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to
consider a stockholder proposal urging our Board of Directors to take the
necessary steps to declassify the Board of Directors;
and
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6.
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to
transact such other business as may properly be brought before the meeting
or any adjournments or postponements of the
meeting.
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The Board of Directors is not aware of
any other business to come before the meeting. Stockholders of record at the
close of business on March 23, 2009, are the stockholders entitled to vote at
the meeting and any adjournments or postponements of the meeting. Whether or not
you plan to attend the meeting, please vote your shares promptly to ensure they
are represented at the meeting. In the event there are an
insufficient number of votes for a quorum or to approve or ratify any of the
foregoing proposals at the time of the annual meeting, the meeting may be
adjourned or postponed in order to permit further solicitation of
proxies.
By order
of the Board of Directors
/s/Lois K.
Pearce
Lois K.
Pearce
Secretary
Dubuque,
Iowa
April 8,
2009
Important:
The prompt return of proxies will save us the expense of further requests for
proxies to ensure a quorum at the meeting. A self-addressed envelope is enclosed
for your convenience. No postage is required if mailed within the United
States.
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting
to be Held on May 20, 2009: The Proxy Statement and Annual Report to
Stockholders are available at www.htlf.com.
PROXY
STATEMENT
This proxy statement is furnished in
connection with the solicitation by the Board of Directors of Heartland
Financial USA, Inc. of proxies to be voted at the annual meeting of stockholders
to be held at the Grand River Center located at 500 Bell Street, Dubuque, Iowa,
on Wednesday, May 20, 2009, at 6:00 p.m. local time, or at any adjournments or
postponements of the meeting. We first mailed this proxy statement and proxy
card on or about April 8, 2009.
Heartland Financial USA, Inc., a
Delaware corporation, is a diversified financial services holding company
headquartered in Dubuque, Iowa. We offer full-service community banking through
ten bank subsidiaries with a total of 61 banking locations in Iowa, Illinois,
Wisconsin, New Mexico, Arizona, Montana, Colorado and Minnesota. In addition, we
have a subsidiary in the consumer finance business. Our primary strategy is to
increase profitability and diversify our market area and asset base by expanding
existing subsidiaries, by establishing de novo banks and through
acquisitions.
Please read this proxy statement
carefully. You should consider the information contained in this
proxy statement when deciding how to vote your shares at the annual
meeting. The following information regarding the meeting and the
voting process is presented in a question and answer format.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Why
am I receiving this proxy statement and proxy card?
You are receiving a proxy statement
and proxy card from us because on March 23, 2009, you owned shares of our common
stock. This proxy statement describes the matters that will be presented for
consideration by the stockholders at the annual meeting. It also gives you
information concerning the matters to be voted upon to assist you in making an
informed decision.
When you sign the enclosed proxy
card, you appoint the proxy holder designated on the proxy card as your
representative at the meeting. The proxy holder will vote your shares as you
have instructed in the proxy card, thereby ensuring that your shares will be
voted whether or not you attend the meeting. Even if you plan to attend the
meeting, you should complete, sign and return your proxy card in advance of the
meeting just in case your plans change.
If you have signed and returned the
proxy card and an issue comes up for a vote at the meeting that is not
identified on the form, the proxy holder will vote your shares, pursuant to your
proxy, in accordance with his or her judgment.
What
matters will be voted on at the meeting?
You are being asked to vote on four
matters proposed by our Board of Directors: to elect two Class I
directors of Heartland for a term expiring in 2012, to ratify the selection of
KPMG LLP to continue as our independent registered public accounting firm for
the fiscal year ending December 31, 2009, to amend our Certificate of
Incorporation to increase our authorized shares of common stock by five million
shares and to approve, by a non-binding advisory vote, the compensation to our
executive officers as described in this proxy statement. Our Board of Directors recommends that
you vote FOR each of these proposals. You are also being asked
to vote on a stockholder proposal to encourage our Board of Directors to take
the steps necessary to declassify our Board of Directors. Our Board of Directors recommends
that you vote AGAINST this proposal. These matters are more
fully described in this proxy statement. We are not aware of any
other matters that will be voted on at the annual meeting. However,
if any other business properly comes before the meeting, the persons named as
proxies for shareholders will vote on these matters in a manner they consider
appropriate.
How
do I vote?
You may vote either by mail or in
person at the meeting. To vote by mail, complete and sign the enclosed proxy
card and mail it in the enclosed pre-addressed envelope. No postage is required
if mailed in the United States. If you mark your proxy card to indicate how you
want your shares voted, your shares will be voted as you instruct.
If you sign and return your proxy
card but do not mark the form to provide voting instructions, the shares
represented by your proxy card will be voted “for” all nominees named in this
proxy statement, “for” the ratification of our independent registered public
accounting firm, “for” the increase in authorized shares of common stock, “for”
the approval of Heartland executives’ compensation as described in the
Compensation Discussion and Analysis and “against” a shareholder proposal to
declassify the Board of Directors.
If you want to vote in person, please
come to the meeting. We will distribute written ballots to anyone who wants to
vote at the meeting. Please note, however, that if your shares are held in the
name of your broker (or in what is usually referred to as “street name”), you
will need to arrange to obtain a separate proxy from your broker in order to
vote in person at the meeting.
What
does it mean if I receive more than one proxy card?
It means that you have multiple
holdings reflected in our stock transfer records and/or in accounts with
brokers. Please sign and return ALL proxy cards to ensure that all your shares
are voted.
If
I hold shares in the name of a broker, who votes my shares?
If you received this proxy statement
from your broker, your broker should have given you instructions for directing
how your broker should vote your shares. It will then be your broker’s
responsibility to vote your shares for you in the manner you
direct.
Under the rules of various national
and regional securities exchanges, brokers may generally vote in their
discretion on behalf of their customers on routine matters, such as the election
of directors, the ratification of KPMG LLP as our independent registered public
accounting firm, and the advisory vote to approve the compensation of our
executives, but cannot vote on non-routine matters, such as the proposed
amendment to the Certificate of Incorporation or the stockholder proposal being
presented at the meeting, unless they have received voting instructions from the
person for whom they are holding shares. If your broker does not receive
instructions from you on how to vote particular shares on matters on which your
broker does not have discretionary authority to vote, your broker will return
the proxy form to us, indicating that he or she does not have the authority to
vote on these matters. This is generally referred to as a “broker non-vote” and
will affect the outcome of the voting as described below, under “How many votes
are needed for approval of each proposal?” Therefore, we encourage you to
provide directions to your broker as to how you want your shares voted on all
matters to be brought before the meeting. You should do this by carefully
following the instructions your broker gives you concerning its procedures. This
ensures that your shares will be voted at the meeting.
What
if I change my mind after I return my proxy?
If you hold your shares in your own
name, you may revoke your proxy and change your vote at any time before the
polls close at the meeting. You may do this by:
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•
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signing
another proxy with a later date and returning that proxy to Ms. Lois K.
Pearce, Secretary, Heartland Financial USA, Inc., 1398 Central Avenue,
Dubuque, Iowa 52001;
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•
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sending
notice to us that you are revoking your proxy; or
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•
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voting
in person at the meeting.
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If you hold your shares in the name
of your broker and desire to revoke your proxy, you will need to contact your
broker to revoke your proxy.
How
many votes do we need to hold the annual meeting?
A majority of the shares that are
outstanding and entitled to vote as of the record date must be present in person
or by proxy at the meeting in order to hold the meeting and conduct
business.
Shares are counted as present at the
meeting if the stockholder either:
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•
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is
present and votes in person at the meeting;
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•
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has
properly submitted a signed proxy card or other proxy.
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On January 31, 2009, there were
16,274,652 shares of common stock issued and outstanding. Therefore, at least
8,137,327 shares need to be present at the annual meeting in order to hold the
meeting and conduct business.
What
happens if a nominee is unable to stand for election?
The Board may, by resolution, provide
for a lesser number of directors or designate a substitute nominee. In the
latter case, shares represented by proxies may be voted for a substitute
nominee. You cannot vote for more than two nominees. The Board has no reason to
believe any nominee will be unable to stand for election.
What
options do I have in voting on each of the proposals?
You may vote “for” or “withhold
authority to vote for” each nominee for director. You may vote “for,” “against”
or “abstain” on any other proposal that may properly be brought before the
meeting.
How
many votes may I cast?
Generally, you are entitled to cast one
vote for each share of stock you owned on the record date.
How
many votes are needed for each proposal?
The directors are elected by a
plurality and the two individuals receiving the highest number of votes cast
“for” their election will be elected as directors of Heartland. The amendment to
our Certificate of Incorporation must receive the affirmative vote of a majority
of the shares of common stock that are outstanding and entitled to vote at the
meeting. The ratification of the appointment of our independent
registered public accounting firm, and the stockholder proposal to encourage our
Board of Directors to take the steps necessary to declassify our Board requires
the affirmative vote of a majority of the shares present in person or by proxy
at the meeting and entitled to vote.
The vote on our executive compensation
is advisory and will not be binding upon Heartland or the Board of
Directors. However, the compensation/nominating committee of the
Board will consider the extent of approval in establishing our compensation plan
for subsequent years.
Broker
non-votes will not be counted as entitled to vote, but will count for purposes
of determining whether or not a quorum is present on the matter. So long as a
quorum is present, broker non-votes will have no effect on the outcome of the
matters to be taken up at the meeting.
Where
do I find the voting results of the meeting?
We will announce preliminary voting
results at the meeting. The voting results will also be disclosed in our Form
10-Q for the quarter ended June 30, 2009.
Who
bears the cost of soliciting proxies?
We will bear the cost of soliciting
proxies. In addition to solicitations by mail, officers, directors and employees
of Heartland or its subsidiaries may solicit proxies in person or by telephone.
These persons will not receive any special or additional compensation for
soliciting proxies. We may reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation materials to stockholders.
PROPOSAL
1—ELECTION OF DIRECTORS
At the annual meeting to be held on May
20, 2009, you will be entitled to elect two Class I directors for terms expiring
in 2012. The Board of Directors is divided into three classes of directors
having staggered terms of three years. Both of the nominees for election as
Class I directors are incumbent directors. We have no knowledge that either of
the nominees will refuse or be unable to serve, but if any of the nominees
become unavailable for election, the holders of proxies reserve the right to
substitute another person of their choice as a nominee when voting at the
meeting.
Set forth below is information
concerning the nominees for election and for the other directors whose terms of
office will continue after the meeting, including the age, year first elected a
director and business experience of each during the previous five years. The
nominees for Class I directors, if elected at the annual meeting, will serve for
a three-year term expiring in 2012. The Board of Directors recommends
that you vote your shares FOR each of the nominees.
NOMINEES
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc. and its Subsidiaries and
Principal
Occupation
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CLASS
I
(Term
Expires 2012)
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Lynn
B. Fuller
(Age
59)
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1987
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Chairman
of the Board, President and Chief Executive Officer of Heartland; Director
and Vice Chairman of the Board of Dubuque Bank and Trust; Director
(1992-2004) and Vice Chairman of the Board (2001-2004) of Galena State
Bank; Director (1994-2004) and Vice Chairman of the Board (2001-2004) of
First Community Bank; Director (1995-2004) and Vice Chairman of the Board
(2001-2004) of Riverside Community Bank; Director and Vice Chairman of the
Board of Wisconsin Community Bank, New Mexico Bank & Trust, Arizona
Bank & Trust, and Rocky Mountain Bank; Director (2006-present) and
Vice Chairman of the Board (2006-present) of Summit Bank & Trust;
Director and President of Citizens Finance; Director (2008-present) and
Vice Chairman of the Board (2008-present) of Minnesota Bank &
Trust
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John
W. Cox, Jr.
(Age
61)
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2003
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Director
of Galena State Bank; Attorney at Law; Partner of Cox & Ward P.C.
(1998-2007); Sole Practitioner of Cox Law Offices (2007-present); Vice
President of External Affairs and General Counsel (2007-present) for
Jo-Carroll Energy; In-House Counsel (2008-present) for the City of
Galena, Illinois
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CONTINUING
DIRECTORS
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc. and its Subsidiaries and
Principal
Occupation
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CLASS
II
(Term
Expires 2010)
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Mark
C. Falb
(Age
61)
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1995
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Vice
Chairman of the Board of Heartland; Chairman and Director of Dubuque Bank
and Trust; Director of Citizens Finance; Chairman of the Board and Chief
Executive Officer of Westmark Enterprises, Inc. and Kendall/Hunt
Publishing Company
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John
K. Schmidt
(Age
49)
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2001
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Executive
Vice President, Chief Operating Officer and Chief Financial Officer of
Heartland; Director, Vice Chairman of the Board, President (2000-2004) and
Chief Executive Officer (2000-2004) of Dubuque Bank and Trust; Director
and Vice Chairman of the Board of Galena State Bank and Riverside
Community Bank; Director (2004-2007) and Vice Chairman of the Board
(2004-2007) of First Community Bank; Director and Treasurer of
Citizens Finance
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James
R. Hill
(Age
57)
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2007
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President
of Hill Companies, LLC; Director (2006-present) and Chairman of the Board
(2006-present) of Summit Bank & Trust
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CLASS
III
(Term
Expires 2011)
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James
F. Conlan
(Age
45)
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2000
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Director
of Dubuque Bank and Trust; Director of Citizens Finance; Partner
(1996-Present) and Member of Executive Committee (2005-present) of Sidley
Austin LLP; Vice Chairman (2000-2006) and Co-Chairman (2006-present) of
the Firm-wide Corporate Reorganization Practice of Sidley Austin
LLP
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Thomas
L. Flynn
(Age
53)
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2002
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Vice
Chairman of the Board of Heartland; Director (2000-present) and Vice
Chairman of the Board (2006-present) of Dubuque Bank and Trust; Director
of Citizens Finance; President, Chief Executive Officer and Chief
Financial Officer of Flynn Ready-Mix Concrete
Co.
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James
F. Conlan. Mr. Conlan is a graduate of the University of Iowa College of
Law, receiving his JD with Honors in 1988. Upon graduation, Mr. Conlan joined
the law firm of Sidley Austin LLP, where he became a partner in 1996, Vice
Chairman of the firm-wide Corporate Reorganization Practice in 2000, member of
the Executive Committee in 2005 and Co-Chairman of the firm-wide Corporate
Reorganization Practice in 2006. Sidley Austin LLP is one of the largest law
firms in the world.
John W. Cox,
Jr. Mr. Cox is a
graduate of John Marshall Law School of Chicago, receiving his JD (cum laude) in
1975. Mr. Cox is sole practitioner in Cox Law Offices in Galena, Illinois, and a former Member of the U.S. House
of Representatives from Illinois’ 16th District. During his term in the U.S.
Congress, Mr. Cox served on the House Banking and Finance Committees. Mr. Cox
also served as State’s Attorney for Jo Daviess County, Illinois and continues to
serve as In-House Counsel for the City of Galena.
Mark
C. Falb. Mr.
Falb is a graduate of the University of Iowa and a certified public accountant
(inactive). Mr. Falb was employed in an executive role with the Wm. C. Brown
Company Publishers for nearly 20 years until a majority of the company was sold
in 1992. He
currently serves as chairman and chief executive officer of Westmark Enterprises
and Kendall/Hunt Publishing, which are primarily involved in real estate
ventures and textbook publishing.
Thomas
L. Flynn. Mr. Flynn obtained a BA degree in accounting and
finance from Loras College and an MBA Degree from the University of
Dubuque. Mr. Flynn was elected to the Iowa State Senate in 1994, where he served
two full terms. During his terms he served on various committees, including the
Senate Appropriations Committee; Administration and Regulation Budget
Subcommittee; Commerce, Ways and Means Committee; and the Small Business,
Economic Development & Tourism Committee. Mr. Flynn is an owner of a
concrete and construction materials firm with locations in Iowa, Illinois and
Wisconsin. He also previously served for ten years as an adjunct faculty member
in the business department at Clarke College in Dubuque, Iowa.
Lynn
B. Fuller.
Mr. Fuller graduated from the University of Dubuque and obtained an MBA from the
University of Iowa. He joined Dubuque Bank and Trust in 1971 and remained with
the bank until 1976 when he entered an officer-training program at First
National Bank of St. Paul. He has held various executive positions within
Heartland and its subsidiaries since his return in 1978.
James
R. Hill. Mr.
Hill graduated from the University of Western Ontario and obtained an MBA from
the York University. He is president of Hill Companies, LLC, a real estate
investment company located in Englewood, Colorado. Mr. Hill is a founding
investor and director of Summit Bank & Trust in Broomfield,
Colorado.
John
K. Schmidt.
Mr. Schmidt is a graduate of the University of Northern Iowa and an inactive
holder of the certified public accountant certification. Before joining Dubuque
Bank and Trust in 1984, Mr. Schmidt was employed by the Office of the
Comptroller of the Currency and Peat Marwick Mitchell, currently known as KPMG
LLP, in Des Moines, Iowa. He has held various executive positions within
Heartland and its subsidiaries.
All of our directors will hold office
for the terms indicated, or until their respective successors are duly elected
and qualified. There are no arrangements or understandings between Heartland and
any other person pursuant to which any of our directors have been selected for
their respective positions. With the exception of Mr. Conlan, who is the
brother-in-law of Mr. Fuller, no member of the Board of Directors is related to
any other member of the Board.
CORPORATE
GOVERNANCE AND THE BOARD OF DIRECTORS
General
There are currently seven members of
the Board of Directors of Heartland. Generally, the Board oversees our business
and monitors the performance of our management. In accordance with our corporate
governance procedures, the Board does not involve itself in the day-to-day
operations of Heartland, which is monitored by our executive officers and
management. Our directors fulfill their duties and responsibilities by attending
regular meetings of the full Board, which are held on a quarterly basis, special
meetings held from time to time and through committee membership, which is
discussed below. Our directors also discuss business and other matters with Mr.
Fuller, our chief executive officer, other key executives and our principal
external advisers (legal counsel, auditors and other consultants).
With the exception of Messrs. Conlan,
Fuller and Schmidt, our Board has determined that our current directors are
“independent” as defined by the rules of the Nasdaq Stock Market and the rules
and regulations of the Securities and Exchange Commission. The Board
of Directors has established an audit/corporate governance committee and a
compensation/nominating committee. Messrs. Cox, Falb, Flynn and Hill each serve
on the audit/corporate governance and the compensation/nominating committees.
Mr. Falb, who is chairman of these two committees, has not been formally
designated as a “lead” independent director, but he acts in such a capacity due
to his positions as chairman.
During 2008, the Board of Directors
held four regular meetings and five special meetings. All directors during their
terms of office in 2008 attended 100% of all regular and special board meetings
and committee meetings for which the director is a member with the exception of
Cox who missed one special board meeting and Hill who missed one special board
meeting and one compensation/nominating committee meeting.
Executive
Sessions
Consistent with the Nasdaq listing
requirements, the independent directors regularly have the opportunity to meet
without Messrs. Fuller, Schmidt and Conlan in attendance. During 2008, the
independent directors met in such capacity two times. At the request
of the independent directors, Mr. Conlan attended both meetings.
Policy
on Director Attendance at Annual Meetings
It is
Heartland’s policy that all directors be in attendance at annual meetings unless
excused by the chairman of the Board. Last year six of our directors attended
the annual meeting in person and one director attended by
telephone.
Audit/Corporate
Governance Committee
Currently, the members of the
audit/corporate governance committee are directors Falb, Cox, Flynn and Hill.
The Board of Directors has determined that each member of the audit/corporate
governance committee qualifies as, and should be named as, an “audit committee
financial expert” as set forth in the rules and regulations of the Securities
and Exchange Commission. The Board based this decision on the experience of each
of the audit/corporate governance committee members as executive officers of
other companies and other relevant experience using and analyzing financial
statements, as well as their education or experience with accounting issues.
During 2008, all members of the audit/corporate governance committee were
“independent” according to listing standards set forth by Nasdaq and the rules
and regulations of the Securities and Exchange Commission.
The audit/corporate governance
committee charter can be found under the investor relations section of our
website, www.htlf.com.
The primary duties and functions of the audit/corporate governance committee are
to:
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monitor
the integrity of the financial reporting process and systems of internal
controls regarding finance, accounting and legal
compliance;
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retain,
oversee, review and terminate our independent registered public accounting
firm and pre-approve all services performed by the independent registered
public accounting firm;
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provide
an avenue of communication among the independent registered public
accounting firm, management, the internal audit function and the Board of
Directors;
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encourage
adherence to, and continuous improvement of, our policies, procedures and
practices at all levels;
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review
areas of potential significant financial risk; and
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monitor
compliance with legal and regulatory requirements and establish
appropriate corporate governance policies for
Heartland.
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The audit/corporate governance committee’s duties and functions are set forth in
more detail in its charter.
Mr. Falb has served as chairman of
the audit/corporate governance committee since 2001. During 2008, the
audit/corporate governance committee met four times. To promote independence of
the audit function, the audit/corporate governance committee consults both
separately and jointly with our independent registered public accounting firm,
internal auditors and management.
Compensation/Nominating
Committee
Committee Members
and Independence. The compensation/nominating committee
currently consists of directors Falb, Cox, Flynn and Hill. Each of these members
is considered “independent” as such term is defined by Nasdaq listing
requirements, an “outside” director pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended, and a “non employee” director under Section 16
of the Securities Exchange Act of 1934. Mr. Falb has served as chairman of
the compensation/nominating committee since 2001.
The charter of the
compensation/nominating committee can be found under the investor relations
section of our website, www.htlf.com. The primary
duties and functions of the compensation/nominating committee are
to:
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discharge
the responsibilities of the Board of Directors relating to the
compensation of our executive officers;
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•
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evaluate
and make recommendations to the Board of Directors relating to the
compensation of individuals serving as directors;
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direct
the creation of and approve the annual compensation discussion and
analysis on executive compensation for inclusion in our proxy statement in
accordance with all applicable rules and regulations;
and
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•
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identify
individuals qualified to become members of the Board of Directors and
select such individuals as director nominees for the next annual meeting
of stockholders.
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The compensation/nominating
committee’s duties and functions are set forth in more detail in its
charter.
Committee
Meetings/Process. The
compensation/nominating committee meets as often as necessary to evaluate the
performance of the named executive officers, to determine salaries and bonuses
for the coming year and to consider and approve any grants under incentive
compensation programs. Six meetings were held in 2008.
While many compensation decisions for
the coming year are made in the last quarter of the fiscal year, the
compensation planning process continues throughout the year. Because the
compensation program is designed to promote our business objectives and
strategic business plans, management performance and current business
environment are evaluated throughout the year.
The compensation/nominating committee
receives materials in advance of each meeting. These materials include
information that management believes will be helpful to the
compensation/nominating committee as well as additional materials requested by
the compensation/nominating committee. Materials used by the
compensation/nominating committee include, but are not limited to:
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financial
reports covering, among other things, historical and year-to-date
financial performance vs. budget and financial performance vs.
representative peer groups;
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reports
on levels of achievement of individual and corporate performance
objectives;
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reports
on Heartland’s strategic objectives and future budgets;
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reports
on Heartland’s performance against its 5-year plan;
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information
on executive officers’ stock ownership and option
holdings;
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agreements
and other plan documents regarding compensation; and
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reports
from consultants retained by the compensation/nominating
committee.
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Role of
Management. Management
plays a role in the compensation process. The major aspects of management’s role
are employee performance evaluation, establishment of business performance
targets and objectives and recommendation of salaries, bonuses and equity
awards. The chief executive officer assists the compensation/nominating
committee chair with setting the agenda for compensation/nominating committee
meetings and also coordinates the preparation of materials for
compensation/nominating committee meetings. At the request of the
compensation/nominating committee, the chief executive officer also provides
information regarding Heartland’s strategic objectives, evaluation of executive
officer performance and compensation recommendations for executive officers
other than himself.
Role of
Advisors. The
compensation/nominating committee charter authorizes the
compensation/nominating committee to retain and terminate any third party
compensation consultant for the purpose of evaluating the executive officers and
the chief executive officer, as well as recommending appropriate compensation
for such individuals. Such consultants report directly to the
compensation/nominating committee.
Since 2004, Frederic W. Cook &
Co., Inc., (“FWCC”) has been retained by the compensation/nominating committee
to provide compensation consulting services. The compensation/nominating
committee has determined that FWCC is independent as it has no other ties to
Heartland and does not perform any other services for Heartland or any
affiliates. FWCC’s role includes providing market information on compensation
levels and practices, assisting in the design of compensation components, and
providing input on related technical and regulatory matters.
Director
Nominations and Qualifications
In
carrying out its nominating function, the compensation/nominating committee
evaluates all potential nominees for election, including incumbent directors,
Board nominees and stockholder nominees, in the same manner, although it is not
currently seeking out candidates to serve on the Board and we did not receive
any stockholder nominations for the 2009 annual meeting. Generally, in addition
to prior service on a subsidiary bank Board, the compensation/nominating
committee believes that, at a minimum, directors should possess certain
qualities, including the highest personal and professional ethics, integrity and
values, a sufficient educational and professional background, exemplary
management and communications skills, demonstrated leadership skills, sound
judgment in his or her professional and personal life, a strong sense of service
to the communities which we serve and an ability to meet the standards and
duties set forth in our code of conduct. Additionally, no nominee can be
eligible for election or re-election as a director if, at the time of such
election, such person is 70 or more years of age. Each nominee must
also be willing to devote sufficient time to carrying out his or her Board
duties and responsibilities effectively.
The
compensation/nominating committee also evaluates potential nominees to determine
if they have any conflicts of interest that may interfere with their ability to
serve as effective Board members and whether they are “independent” in
accordance with Nasdaq requirements (to ensure that at least a majority of the
directors will, at all times, be independent). In the past, the
compensation/nominating committee has not retained any third party to assist it
in identifying candidates, but it has the authority to retain a third party firm
or professional for the purpose of identifying candidates.
Stockholder
Communications with the Board, Nomination and Proposal Procedures
General
Communications with the Board. As set forth on our website,
www.htlf.com, our Board
of Directors can be contacted through Heartland’s corporate headquarters at 1398
Central Avenue, P.O. Box 778, Dubuque, Iowa 52004-0778, Attn: Lois K. Pearce, or
by telephone at Heartland’s administrative offices, at 563-589-2100. Each
communication will be forwarded to the Board or the specific directors
identified in the communication as soon as reasonably possible.
Nominations of
Directors. In order for a stockholder nominee to be considered
by the compensation/nominating committee to be its nominee and included in our
proxy statement, the nominating stockholder must file a written notice of the
proposed director nomination with our corporate secretary, at the above address,
at least 120 days prior to the anniversary of the date the previous year’s proxy
statement was mailed to stockholders. Nominations must include the full name and
address of the proposed nominee and a brief description of the proposed
nominee’s business experience for at least the previous five years. All
submissions must be accompanied by the written consent of the proposed nominee
to be named as a nominee and to serve as a director if elected. The
compensation/nominating committee may request additional information in order to
make a determination as to whether to nominate the person for
director.
In
accordance with our bylaws, a stockholder may otherwise nominate a director for
election at an annual meeting of stockholders by delivering written notice of
the nomination to our corporate secretary, at the above address, not less than
30 days nor more than 75 days prior to the date of the annual meeting. The
stockholder’s notice of intention to nominate a director must include (i) the
name and address of record of the stockholder who intends to make the
nomination; (ii) a representation that the stockholder is a holder of record of
shares of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) the name, age, business and residence addresses, and
principal occupation or employment of each nominee; (iv) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or person) pursuant to which the
nomination or nominations are to be made by the stockholder; (v) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, as then in effect; and (vi) the
consent of each nominee to serve as a director of the corporation if so elected.
We may request additional information after receiving the notification for the
purpose of determining the proposed nominee’s eligibility to serve as a
director. Persons nominated for election to the Board pursuant to this paragraph
will not be included in our proxy statement.
Other Stockholder
Proposals. To
be considered for inclusion in our proxy statement and form of proxy for our
2010 annual meeting of stockholders, stockholder proposals must be received by
our corporate secretary, at the above address, no later than December 10, 2009,
and must otherwise comply with the notice and other provisions of our bylaws, as
well as Securities and Exchange Commission rules and regulations.
For
proposals to be otherwise brought by a stockholder and voted upon at an annual
meeting, the stockholder must file written notice of the proposal to our
corporate secretary not less than 30 or more than 75 days prior to the scheduled
date of the annual meeting.
Code
of Business Conduct and Ethics
We have
adopted a code of business conduct and ethics that applies to all of our
directors and employees. The code sets forth the standard of ethics that we
expect all of our directors and employees to follow, including our chief
executive officer and chief financial officer. The code is posted on our
website, www.htlf.com.
We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding any amendment to or waiver of the code with respect to our chief
executive officer and chief financial officer, and persons performing similar
functions, by posting such information on our website.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The following table sets forth
certain information with respect to the beneficial ownership of our common stock
at January 31, 2009, by each person known by us to be the beneficial owner of
more than 5% of the outstanding common stock, by each director or nominee, by
each executive officer named in the summary compensation table and by all
directors and executive officers of Heartland as a group. The address of each 5%
stockholder is 1398 Central Avenue, Dubuque, Iowa 52001.
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Name of Individual and
Number of Persons in Group
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Amount and Nature of
Beneficial Ownership (1)
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Percent
of Class
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5%
Stockholders, Directors and Nominees
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Lynn
S. Fuller
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1,387,044(2)
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8.5%
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Heartland
Partnership, L.P.
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834,000(3)
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5.1%
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James
F. Conlan
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131,127(4)
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*
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John
W. Cox, Jr.
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23,035(5)
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*
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Mark
C. Falb
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96,941(6)
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*
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Thomas
L. Flynn
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33,502(7)
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*
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Lynn
B. Fuller
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774,969(8)
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4.8%
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James
R. Hill
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1,386 (9)
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*
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John
K. Schmidt
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220,789(10)
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1.4%
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Other
Executive Officers
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Kenneth
J. Erickson
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199,793(11)
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1.2%
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Edward
H. Everts
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74,216
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1.1%
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Douglas
J. Horstmann
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179,067(12)
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1.1%
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All
directors and executive officers
as
a group (13 persons)
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2,026,339
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12.5%
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* Less
than one percent
(1) The
information contained in this column is based upon information furnished to
Heartland by the persons named above and the members of the designated group.
Amounts reported include shares held directly as well as shares which are held
in retirement accounts and shares held by certain members of the named
individuals’ families or held by trusts of which the named individual is a
trustee or substantial beneficiary, with respect to which shares the respective
director may be deemed to have sole or shared voting and/or investment power.
Also included are restricted shares awarded under our 2005 Long-Term Incentive
Plan. Additionally, shares obtainable through the exercise of options within 60
days of the date of the information presented in this table are included in the
following amounts: Mr. Lynn B. Fuller – 28,333 shares; Mr. Schmidt – 41,249
shares; Mr. Erickson – 23,082 shares; Mr. Horstmann – 17,500 shares; Mr. Everts
– 19,750 shares and all directors and executive officers as a group – 163,830
shares. The nature of beneficial ownership for shares shown in this column is
sole voting and investment power, except as set forth in the footnotes below.
Inclusion of shares shall not constitute an admission of beneficial ownership or
voting and investment power over included shares.
(2) Includes
shares held by the Heartland Partnership, L.P., over which Mr. Fuller has sole
voting and investment power, as well as 67,780 shares held by a trust for which
Mr. Fuller’s spouse is a trustee and 123,078 shares held in a trust for which
Mr. Fuller serves as co-trustee, over which Mr. Fuller has shared voting and
investment power.
(3) Mr.
Lynn S. Fuller, a former director of Heartland and a stockholder of more than 5%
of the outstanding shares, is the general partner of Heartland Partnership,
L.P., and in such capacity exercises sole voting and investment power over such
shares.
(4) Includes
53,578 shares held by a trust for which Mr. Conlan’s spouse is trustee and
21,000 shares held by the Heartland Partnership, L.P., over which Mr. Conlan has
no voting or investment power but in which Mr. Conlan’s spouse does have a
beneficial interest, and 14,000 shares held in trust for children.
(5) Includes
15,492 shares held by John W. Cox Jr. Inc., of which Mr. Cox is a controlling
stockholder and 4,352 shares held by McJoyce, Inc. of which Mr. Cox is a
controlling stockholder.
(6) Includes
68,856 shares held by Mr. Falb’s spouse, as trustee, over which Mr. Falb has no
voting or investment power.
(7) Includes
2,486 shares held by Mr. Flynn’s spouse in an individual retirement account,
over which Mr. Flynn has no voting or investment power.
(8) Includes
an aggregate of 8,592 shares held by Mr. Fuller’s spouse and minor children and
123,078 shares held in a trust for which Mr. Fuller serves as co-trustee, over
which Mr. Fuller has shared voting and investment power. Includes 21,000 shares
held by the Heartland Partnership, L.P., over which Mr. Fuller has no voting or
investment power but in which Mr. Fuller does have a beneficial
interest.
(9) Mr.
Hill is an investor in Heartland’s de novo bank, Summit Bank &
Trust, in Broomfield, Colorado.
(10) Includes
an aggregate of 24,652 shares held by Mr. Schmidt’s spouse and minor children
and 1,849 shares held by Mr. Schmidt jointly with his spouse, over which
Mr. Schmidt has shared voting and investment power.
(11) Includes
69,875 shares held by Mr. Erickson’s spouse, over which Mr. Erickson has shared
voting and investment power.
(12) Includes
27,000 shares held by Mr. Horstmann’s spouse, over which Mr. Horstmann has
shared voting and investment power.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934 requires that our directors, executive officers and 10%
stockholders file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Such persons are also required to furnish us
with copies of all Section 16(a) forms they file. Based solely upon our review
of such forms, we believe that all Section 16(a) filing requirements applicable
to our directors, executive officers or 10% shareholders were satisfied during
2008 except that an initial Form 3 report was not filed on a timely basis on
behalf of John J. Berg. Mr. Berg is Heartland’s Executive Vice
President of Marketing and Sales and is a Section 16(a) reporting
person.
EXECUTIVE
OFFICERS AND DIRECTORS COMPENSATION
Compensation
Discussion and Analysis
The Compensation
Discussion and Analysis addresses our compensation philosophy and objectives
with respect to our named executive officers, compensation factors, elements of
compensation and the basis for compensation for 2008. Our named
executive officers are Lynn B. Fuller, John K. Schmidt, Kenneth J. Erickson,
Edward H. Everts and Douglas J. Horstmann.
As we all know, 2008 was an
unprecedented year for the economy and financial services firms in
particular. Although we do not believe that Heartland became involved
in the types of activity that caused extensive damage to other financial
institutions and the economy in the United States and worldwide, we have been
impacted by the economic downturn in many of our business sectors and some of
the local markets we serve. We believe that executive compensation
must be reflective of market conditions and accordingly salaries for the top two
named executive officers, Messrs. Fuller and Schmidt, were maintained during
2008 at their 2007 levels and incentive compensation for all the named executive
officers in 2008 was significantly reduced.
Although we intend to similarly limit
the aggregate compensation that we pay to our most senior executives during
2009, changes in laws and regulations that apply to us may require that we
modify the compensation program for our most highly compensated
executives. As discussed below, these laws are intended to ensure
that all financial institutions, like Heartland, that have accepted investment
from the United States Department of the Treasury, not misuse that investment by
over-compensating executives or by compensating executives through incentives
that encourage excessive risk taking. Although we believe the
compensation to our executives has always been conservative and that we are not
one of the institutions that has given rise to public, and congressional,
concern regarding executive compensation, we intend to fully comply with these
new laws.
Historic
Compensation
Philosophy and Objectives. Our
compensation philosophy has historically been to design and provide an overall
compensation program for our executive officers that continues to align the
interests of those officers with the long-term interests of our
stockholders.
Our compensation plans have been
designed to drive growth in both earnings per share and earning assets,
consistent with both our 1-year and 5-year budgets and plans, thereby motivating
and rewarding executives for the achievement of those budgets, and ensuring
long-term focus. Accordingly, total compensation is higher for individuals with
greater responsibility and greater ability to influence the achievement of
targeted results and strategic objectives. As position and responsibility
increase, we have historically paid a larger portion of the executive officer’s
total compensation in performance-based pay contingent upon the achievement of
targeted results and strategic objectives. Additionally, we have
historically aligned the interests of our executive officers with our
stockholders through opportunities for increased equity ownership in Heartland.
Equity-based compensation has been higher for executive officers with greater
levels of responsibility, resulting in a significant percentage of the officers’
total compensation being dependent upon long-term appreciation of the price of
our stock. Finally, we have designed our compensation program to
encourage the retention of executives and other key employees by remaining
competitive in the marketplace.
The Impact of
Recent Legislation on our Compensation Programs and
Policies. As a well-capitalized bank holding company, we were
encouraged to apply for, and did apply for and accepted, investment from the
United States Department of the Treasury under the Capital Purchase Program
established by Treasury under the Troubled Asset Relief Program (“TARP”) of the
Emergency Economic Stabilization Act of 2008 (the “Stabilization
Act”). The Department of the Treasury purchased approximately $82
million of our preferred stock and a warrant on our common stock in
December 2008, and as part of the sale to the Department of the Treasury, we
became subject to compensation limitations under regulations adopted under the
TARP. In particular, as long as the Treasury holds the Preferred Stock or
Warrant, we are:
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prohibited
from making any “Golden Parachute Payments” (defined as any form of
severance payment that exceeded three times the average compensation of
the executive over the five years preceding the payment) to our named
executive officers;
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required
to review our compensation policies with a senior risk officer to make
certain they do not encourage our named executive officers to take undue
risks that threaten the value of Heartland;
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required
to subject any incentive compensation that we pay to a named executive
officer to a “clawback”—to be refunded to us—if it is based on materially
inaccurate financial materials or other materially inaccurate performance
metric criteria; and
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lose
the deductibility of compensation we pay to our named executive officers
to the extent it exceeds $500,000 per
annum.
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We believe that we were, and continue
to be, in an excellent position to achieve the Treasury’s objective of
increasing financial institution lending with TARP funds and did not resist the
limitations on executive compensation because they, in large part, do not
further limit what we pay. Unlike many other financial institution
holding companies, we (i) have not paid compensation to our named executive
officers as golden parachute payments, and had no contracts that would have
required us to pay parachute payments, in excess of these limits, (ii) believe
we have formulated our compensation policies to avoid undue risk taking, (iii)
are firm in our belief that our reporting is designed to avoid inaccuracies that
would require clawback of compensation, and (iv) generally do not pay
compensation in excess of $500,000 to any executive
officer. Accordingly, we did not foresee much impact of these
regulations on our compensation policies.
In February 2009, however, the United
States Congress passed, and President Obama signed on February 17, 2009, the
American Recovery and Reinvestment Act of 2009—the “Stimulus Bill” —which
imposes further limitations on the form of compensation we may pay as a
recipient of TARP funds. In particular, in addition to the
requirements under the Stabilization Act, the Stimulus Bill will, once fully
implemented:
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prohibit
any payment to any of our named executive officers or to the five most
highly paid employees, for their departure from Heartland for any reason,
except for payments for services performed or benefits accrued (this
requirement will be more fully discussed in the section entitled Potential Payments upon
Termination or Change in Control);
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prohibit
us from paying or accruing any bonus, retention award, or incentive
compensation to our five most highly compensated employees, except that we
may issue restricted stock that has a value not exceeding 1/3 of the
salary of the employee and that does not vest until the TARP funds are
repaid;
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require
us to adopt a policy regarding "excessive or luxury expenditures,"
including expenditures on entertainment or events, office and facility
renovations, aviation or other transportation services, or any other
activities or events that are not reasonable expenditures for staff
development, reasonable performance incentives, or other similar measures
conducted in the normal course of the business; and
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require
us to submit our executive compensation to a non-binding shareholder vote
at the annual meeting.
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As of the
date of this proxy statement, no regulations clarifying the extent of these
limitations, and the time periods to which they apply, had been
adopted. Because the regulations and interpretations do not yet
exist, we cannot formulate a comprehensive 2009 compensation plan and may need
to alter the plan as new regulations are issued. As more information/regulations
are provided, the compensation/nominating committee, in conjunction with FWCC,
will develop and establish an appropriate executive compensation plan that
complies with the compensation guidelines in both TARP and the Stimulus Bill,
and that is both balanced and competitive in view of the prohibition on
incentive compensation under the Stimulus Bill and the historically lower base
salaries of Heartland executives as compared to peers.
Accordingly, the following
description of our compensation plan components, particularly as they apply to
2009 and future years during which the preferred stock we sold to the Treasury
remains outstanding, has not yet been adjusted to deal with the far reaching
implications of the Stimulus Bill on our compensation policies.
Stock Ownership and
Retention Guidelines. To reinforce our philosophy of equity
ownership for executives and to further align the interests of our executives
with our stockholders, we adopted share retention and ownership guidelines for
our executives, including the presidents of our bank subsidiaries. The stock
ownership requirements vary based upon position, and for our named executive
officers, range from 30,000 to 100,000 shares. Executives subject to our
ownership policy are required to retain a portion of shares received from equity
awards until the guideline level is attained. Currently all named executive
officers exceed these ownership guidelines.
Compensation
Factors. Individual
and corporate performance objectives for executive officers are set
annually. The compensation/nominating committee works with the chief
executive officer to review strategic objectives and performance targets for
each individual as well as the appropriateness of the financial measures used in
incentive plans and the potential to achieve such performance
targets.
Corporate
Performance. The
compensation/nominating committee looks at a number of corporate measures in
making compensation determinations, including achievement of our confidential
1-year and 5-year plans, asset growth, return on equity and earnings per share,
and comparison to our established peer group described below. The
compensation/nominating committee utilizes asset growth and return on equity as
well as earnings per share in making determinations regarding equity-based
compensation. The committee believes these factors provide the best measure of
Heartland’s performance. Additionally, consideration is also given to
a broad overview of financial performance ratios of Heartland as compared to a
peer group. Such ratios include, but are not limited to, net interest margin,
non-performing assets/loans, net charge-offs, net overhead and stock
performance.
Individual
Performance. When
determining compensation, the compensation/ nominating committee also looks at
individual performance factors such as performing exceptional work, potential
for future growth with Heartland, planning/budgeting capabilities, mentoring and
motivation and capacity for vision and leadership.
Peer
Comparison. The compensation/nominating committee believes it
is appropriate to establish compensation levels based upon comparisons to a peer
group. The compensation/nominating committee believes there are a variety of
forces that constitutes significant factors to be considered in crafting
appropriate compensation levels, such as competitive pressure, development and
retention of valuable officers and employees, and creation of an excellent
working environment and, accordingly, looks to peer data as developed by FWCC to
provide meaningful information to be considered in the design of compensation
programs.
As established, the peer group
consists of similar-sized, publicly traded bank holding companies in the Midwest
and Western United States. The compensation/nominating committee, with the
assistance of FWCC, annually reviews and approves the peer group and establishes
appropriate and competitive ranges of short and long-term compensation based
upon the median of the peer group. Various components of executive compensation
(i.e., base salary, bonus, options, retirement plans and other benefits) are
compared to the peer group median for similar positions. In addition,
information on the usage of shares and related dilution levels for equity
incentives is also obtained and reviewed with the compensation/nominating
committee.
The companies included in the peer
group are reviewed and updated annually and may change based upon size, merger
and acquisition activity as well as the recommendation of consultants such as
FWCC. The companies included in the 2008 analysis included Capitol
Bancorp, CoBiz, First State Bancorporation, Glacier Bancorp, Main Street Trust,
Mercantile Bank, Midwest Bank Holdings, National Penn Bancshares, Old Second
Bancorp, Prosperity Bancshares, S&T Bancorp, S.Y. Bancorp, Sterling
Bancshares, Umpqua Holdings and West Coast Bancorp. We believe that
we compete primarily with financial institutions of similar size and that
compensation varies with geography. This group is intended to include
financial institutions and financial institution holding companies that remain
similar in size and geographic coverage to Heartland.
Overall, our goal has historically
been to pay total cash compensation (base salary plus bonus) near the median of
the peer group for comparable positions and performance. To reinforce our
pay-for-performance philosophy, base salaries have generally been below the
comparable peer median for salaries. Incentive compensation has generally
been above the peer median, given comparable positions and
performance. With the constraints placed on the form of compensation
we may provide, we may be required to make adjustments for 2009 in the base
salaries of our five most highly paid employees, including our executive
officers if included in that group.
A historical review of our
compensation for the executive officers indicated that as of December 31, 2003,
total cash compensation for our executive officers was substantially below that
of the peer group. Given the competitive gap between Heartland and market median
pay levels for the top five officers identified in 2003, the
compensation/nominating committee developed a multi-year plan for bringing
officer pay levels to market levels consistent with our philosophy of
emphasizing variable compensation tied to performance. As of 2008,
base compensation has increased, but remains somewhat below the median
level of the peer group. Total compensation (salary, bonus and long-term equity
incentives) has increased as well for executive officers, but remains below
median peer levels, and has remained so for the past two years. With
lower performance in 2008 due to economic conditions and the overall economic
decline, we continue to believe that executive compensation must not only be
reflective of those conditions, but also set the standard and tone for all
employees.
Targeted
Compensation Levels. Based
upon Heartland’s performance, individual performance, benchmarking, historical
compensation levels, competitive peer practices, and industry conditions, the
compensation/nominating committee establishes total compensation levels for each
of the executive officers. These determinations are guided by the compensation
philosophy described above.
Performance
Pay. In
setting targeted total compensation levels, the compensation/ nominating
committee determines the proportion of total compensation that will be
performance-based pay. Performance-based pay, in general, includes cash bonuses
for the achievement of specific performance objectives and equity-based
compensation, the value of which is based upon specific financial
performance measures and long-term appreciation in price. For 2009, we may be
required to eliminate performance pay for our highest paid employees and to
adjust base salaries.
Elements of
Compensation. Historically, there have been
four components to our executive officers’ compensation: base salary, cash
bonus, equity compensation and additional benefits.
Base
Salary. Base
salary is an important component of executive compensation because it provides
executives with a regular income. Base salaries are intended to assist us in
attracting executives and recognizing different levels of responsibility and
contribution among executives. The determination of base salaries is based upon
the executive’s qualifications and experience, scope of responsibility and
potential to achieve the goals and objectives established for the executive.
Additionally, past performance, internal pay equity and comparison to
competitive salary practices in the peer group are also considered. The
compensation/nominating committee looks at the median base salary of executives
in similar positions in peer group bank holding companies and compares our
corporate performance with that of the peer group. The compensation/nominating
committee, with the help of FWCC, establishes an appropriate base salary for
each of the executive officers, which is set at a level lower than the peer
group median to allow for a significant percentage of the total compensation to
be performance-based pay.
The salaries of Messrs. Fuller and
Schmidt were not increased in 2008, but instead remained at the same level as
their salaries for 2007. In part, at the suggestion of Messrs. Fuller and
Schmidt, the compensation/nominating committee determined to defer increases in
the salaries for our two most highly compensated executives until economic
conditions improve and we are able to return to the level of sustained,
substantial growth we had maintained before 2007.
Nevertheless, Heartland’s performance
in 2008, while impacted by the economic downturn across the country, still
compared favorably to much of the industry and the compensation/nominating
committee made determinations with respect to other executives designed to
reflect their contributions. The salaries of Messrs. Everts,
Horstmann and Erickson were increased between 6.7% and 8.9% in 2008 to reflect
their increased responsibilities with Heartland.
In October of 2008, Messrs. Fuller
and Schmidt suggested, and the compensation/nominating committee agreed, that
2009 salaries for all officers currently being paid over $60,000 per year,
including the named executive officers, be frozen at their 2008
levels. Given current economic conditions, we believe that
compensation of all officers must be reflective of the economy.
Performance-Based
Bonus Plan. Under
SEC disclosure rules, what Heartland has historically reported as bonus
compensation is reported as non-equity incentive plan compensation, and
accordingly, bonus compensation shall be reported as such in the compensation
tables. We will, however, for purposes of continuity and simplicity, continue to
refer to such compensation in this discussion as bonus. The bonus plan is
designed to incentivize executives to achieve the 1-year and 5-year plans. The
plan annually offers participants, including executive officers, the opportunity
to earn a cash bonus for the achievement by Heartland of targeted goals for
asset growth and return on equity (“ROE”). If the required level of achievement
is reached, the participants will earn cash bonuses as calculated by a formula
explained in the following paragraph.
The bonus calculation is comprised of
two components:
|
•
|
70%
is based upon earnings and growth of assets for the calendar year relative
to the 5-year plan. This 70% of the bonus is further broken down into two
components: 70% based upon achievement of ROE goals, and 30% on
achievement of growth in asset goals. In order to achieve a 100% score for
this component, the ROE for 2008 needed to be 16.38% and assets needed to
reach $4.1 billion. A score of 100% in this component (ROE plus
asset growth equal to the 5-year plan) would earn 70% of the targeted
bonus; and
|
||
|
•
|
The remaining 30% is
comprised of an individual score based on the individual’s performance
against previously established criteria. For the individual score, the
payout can be anywhere from 85% to 115%. Historically, this score
has been somewhat discretionary as the factors are not entirely objective
(potential for growth, planning/budgeting, mentoring and motivation,
vision and leadership). Additionally, the score is based on a
wide range of financial performance measures and ratios.
|
The compensation/nominating committee
believes that such weighting solidifies the alignment of the officers’ interests
with our objectives of growth in assets that generate long-term return. By
focusing on the 5 - year plan, the weighting discourages the accumulation of
risky interest earning assets that generate a short-term return. As
described earlier, the compensation/nominating committee believes that the
combination of somewhat below peer salaries with somewhat above peer bonuses
encourages the long-term best efforts from the officers. As
noted in the beginning of this discussion, however, the compensation/nominating
committee may need to alter this program to comply with the Stimulus Bill for
future years, including 2009.
Our named executive officers are
assigned a bonus objective under the plan which varied, for 2008, from $65,000
for Mr. Everts to $283,000 for Mr. Fuller. An executive is entitled
to bonuses at year end based on the level of achievement of financial and
performance goals multiplied by this target.
During
2008, a number of significant events over which our officers had no control
impacted the financial services industry generally that were not contemplated or
otherwise considered by the compensation/nominating committee when the 2008
performance measures and target were set. In determining whether
executives achieved the goals established for the 2008 bonus plan, the
compensation/nominating committee also considered the unprecedented economic
difficulty in several of the markets in which Heartland banks operate, the
unprecedented decline in real estate values in many of those markets, and other
highly unusual events.
With the
encouragement of management, when it considered whether executives were entitled
to bonuses at year end, the compensation/nominating committee determined that no
payments would be made for the 30% of targeted bonuses based on individual
performance goals. Nevertheless, in view of the market environment
difficulties faced and the above average financial performance achieved by
Heartland, the compensation/nominating committee exercised its discretion to
grant bonuses based on the financial metrics it had set, even though an 8%
return on equity threshold had not been achieved.
Heartland’s
financial performance met the financial performance metrics based on growth in
assets and return on equity at 46% of plan. Because this portion represented 70%
of the targeted bonus payments, the compensation/nominating committee authorized
bonus payouts of 32% of the target for each executive except Mr. Horstmann,
whose plan is described below. Consistent with this payout, we paid
bonuses to Messrs. Fuller of $91,679, Mr. Schmidt of $44,058, Mr. Erickson of
$40,494 and Mr. Everts of $20,733 respectively. Because Heartland’s
ROE did not exceed 10%, but net income, return on tangible equity, commercial
and agricultural loan growth and average demand and savings growth of Dubuque
Bank and Trust Company met or exceeded 100% of required levels, Mr. Horstmann
earned 67% of the maximum payout possible.
As
President of Dubuque Bank and Trust Company, as well as an executive officer of
Heartland, Mr. Horstmann’s bonus calculation varies from the other four
executive officers in the following manner:
|
•
|
20%
is based upon Heartland’s ROE for the calendar year. A score of 100% in
this component would require Heartland to achieve a 12% ROE;
|
||
|
•
|
40%
is based upon Dubuque Bank and Trust Company’s net income and return on
average tangible common equity for the calendar year. A score
of 100% would require Dubuque Bank and Trust Company to achieve its
earnings goal for the year and return on average tangible common equity
must exceed 14.00%;
|
||
|
•
|
20%
is based upon achievement of Dubuque Bank and Trust Company’s commercial
and agricultural loan growth goals. A score of 100% would require Dubuque
Bank and Trust Company to achieve $60.0 million in additional commercial
and agricultural loans outstanding from the December 31, 2007 balances;
and
|
||
|
•
|
20%
is based upon achievement of Dubuque Bank and Trust Company’s demand and
savings deposit growth goals. A score of 100% would require Dubuque Bank
and Trust Company to achieve $11.0 million in additional year-to-date
average demand and savings deposits over the year-to-date average December
31, 2007 balances.
|
In 2008,
if Heartland’s ROE did not exceed 10% and if Dubuque Bank and Trust Company
achieved annual tangible return on equity equal to or in excess of 12%, Mr.
Horstmann’s incentive bonus payout could have been reduced by as much as 50%. If
Heartland’s ROE did not exceed 10% and if Dubuque Bank and Trust Company
achieved an annual tangible return on equity of less than 12%, Mr. Horstmann’s
incentive bonus payout could have been reduced by as much as 100%.
The 2008 bonus for all the named
executive officers is paid in two parts: 1) the first installment of 70% is paid
in January 2009, which coincides with the availability of year-end financial
results, and 2) the second installment of 30% is paid on or before March
15,2009.
Equity
Compensation. The
compensation/nominating committee believes that equity compensation is an
effective way of creating a long-term link between the compensation provided to
officers and other key management personnel with gains to be realized by
stockholders. The equity compensation program is also intended to support a
pay-for-performance culture, foster employee stock ownership, and focus the
management team on increasing value for the stockholders. In addition, the
compensation/nominating committee believes that equity compensation provides
balance to the overall compensation program, with the bonus program focusing on
the achievement of year-to-year goals, while equity compensation creates
incentives for increases in stockholder value over a longer term. The equity
compensation program for executives includes performance-based restricted stock
and non-qualified stock options.
Performance-Based Restricted
Stock. Performance-based
restricted stock directly supports our goal of increasing earnings per share and
assets. Under Heartland’s 2005 Long-Term Incentive Plan approved by stockholders
in 2005, a percentage of the restricted shares granted under the plan may be
earned each year through 2009 based upon the cumulative attainment of the
overall 5-year performance goal ending on December 31, 2009. The number of
performance-based restricted shares granted to each executive officer is based
upon the executive’s position, scope of responsibility and ability to affect
profits and shareholder value as well as the executive’s past performance and
market practices.
Under the awards, the restricted
shares are earned if cumulative diluted earnings per share equal or exceed $7.63
per share and total assets equal or exceed $4.0 billion. These goals are
also weighted 70% based on diluted earnings per share and 30% on asset growth.
Beginning on December 31, 2005, and each December 31 thereafter through 2009,
the actual growth in earnings and assets will be compared to our 5-year plan and
if the cumulative plan objectives through the year have been achieved then that
one-fifth portion of the awarded shares will be considered earned. Earned shares
will become vested upon the two-year anniversary of the date earned only if the
executive is employed through such two-year period, the targeted performance
measures are met or exceeded on the vesting date, and certain regulatory events
have not occurred. If the targeted performance measures are not met or exceeded
on the vesting date, the shares will not be vested. The earned shares are
registered in the name of the executive but are retained by Heartland during the
restricted period. The executive is entitled to vote the earned shares but will
not receive dividends on the earned shares until vested. Shares
earned based on 2008 performance will be subject to the additional two-year
service period and related conditions, as described above. Shares for the 2006
performance period vested in January 2009 upon authorization by the
compensation/nominating committee.
As reported in the following
compensation tables, year-end 2008 financial results indicate that 68% of the
total performance-based restricted awards have been earned in 2005, 2006, 2007
and 2008 for each of the executive officers, other than Mr. Horstmann who earned
82% in the same time period. As President of Dubuque Bank and Trust Company, as
well as an executive officer of the Heartland, Mr. Horstmann’s earned shares
vary from the other four executive officers because 50% of his award is based on
his bank’s performance. The performance thresholds for Mr. Horstmann’s bank are
based on growth in assets and earnings as a function of the 5-year plan taking
into consideration the bank’s current market and its own specific growth
potential.
Non-qualified
Stock Options. Non-qualified
stock options are also utilized as an equity compensation vehicle. The value
received by the executives from a non-qualified stock option is based upon the
growth of the stock price above the option price. Historically, stock options
share the following features:
|
•
|
the
term of the option does not exceed 10 years;
|
||
|
•
|
the
grant price is not less than the market price on the date of the
grant;
|
||
|
•
|
grants
do not contain “reload” provisions;
|
||
|
•
|
option
re-pricing is prohibited;
|
||
|
•
|
grants
are determined as soon as possible after the end of the fiscal year;
and
|
||
|
•
|
non-qualified
stock options are historically provided in a much smaller amount to the
executive officers who have received performance-based restricted
stock.
|
The factors affecting the amount of
the options are: 1) individual performance; 2) internal pay equity; and 3) the
need to be competitive with similar positions in other publicly traded companies
in the Midwest and West. The non-qualified options granted to employees must be
exercised within ten years of the date of grant and become exercisable in three
equal portions on the third, fourth and fifth anniversaries of the date of
grant. Options not exercised by the tenth anniversary of the date of grant are
forfeited.
The compensation/nominating committee
historically had taken the position that the exercise price of non-qualified
stock options granted for the current year should be no less than the price
established for Heartland common stock to be purchased through the Heartland
Financial USA, Inc. 2006 Employee Stock Purchase Plan during the same calendar
year. The options granted in 2008 were granted at the market price as
of the date of the grant, as the market price exceeded the price utilized for
the employee stock plan for 2008. Additionally, the
compensation/nominating committee has historically monitored the overhang for
all equity awards, both currently granted and outstanding, as well as ungranted
shares which can be issued under the plan, to be no greater than that of
comparable bank holding companies. In 2008, the committee established that the
exercise price of non-qualified stock options was the closing price as of the
date of the grant. As in prior years, in no instance can the exercise
price of non-qualified stock options granted for the current year be less than
the price established for Heartland stock purchased through the Heartland
Financial USA Inc. 2006 Employee Stock Purchase Plan during the same calendar
year.
The philosophy for the allocation of
non-qualified stock options is to provide a proportionately larger allocation to
executives not participating in the performance-based restricted stock program.
In 2008, we awarded stock options to purchase an aggregate of 164,400 shares of
Heartland common stock to 118 employees.
Other
Compensation and Benefits. We
have historically provided perquisites and other types of non-cash benefits on a
very limited basis in an effort to avoid an entitlement mentality, reinforce a
pay-for-performance orientation and minimize expense. Such benefits, when
provided, can include the use of a company-owned automobile, payment of 50% of
country club or social club dues and additional life insurance. In keeping with
our philosophy of limited usage, the value of these benefits is, in aggregate,
below the SEC rule ($10,000 per individual) requiring disclosure, except for
Messrs. Schmidt and Horstmann who received compensation under the Executive Life
Insurance Bonus Plan in the amounts of $10,540 and $27,295
respectively.
Heartland is a majority owner of a
Cessna business jet. The aircraft is used to transport personnel to meetings at
various Heartland locations, particularly in the West and Southwest, and to
provide transportation for Heartland executives to business meetings. The
aircraft is also used to transport Heartland executives, directors, major
stockholders and customers for business development purposes. It is our policy
that the aircraft is not to be utilized for personal benefit. On occasion, an
executive officer or director’s family member may board a flight if an empty
seat is available on a regularly scheduled business flight. We believe such
usage does not create any incremental cost to Heartland.
Executive officers also participate
in our other broad-based employee benefit programs on the same terms as
similarly situated employees. Health insurance is provided to all full-time
employees. We pay approximately two-thirds of the annual health insurance
premium and employees pay the balance through payroll deductions. We offer
several types of coverage so that each employee has the choice of subscribing to
the program that best accommodates the employee’s needs.
The Heartland Financial USA, Inc.
2006 Employee Stock Purchase Plan was adopted and approved by stockholders in
2005 and is intended to qualify as an employee stock purchase plan under Section
423 of the Internal Revenue Code. The plan generally allows employees of
Heartland and its subsidiaries, including Heartland’s executive officers, to
purchase shares of our common stock. Maximum participation in the Heartland
Financial USA, Inc. 2006 Employee Stock Purchase Plan is 15% of annual cash
income, with a maximum of $25,000 of stock per annum. This benefit is available
to all employees who are employed on the anniversary of the Heartland Financial
USA, Inc. 2006 Employee Stock Purchase Plan’s effective date, which is January 1
of each calendar year. Participation is through payroll deduction. The price of
stock purchased through the Heartland Financial USA, Inc. 2006 Employee Stock
Purchase Plan has been established by the compensation/nominating committee to
be 100% of fair market value on the first day of the offering period. In 2007,
the fair market value was the weighted average market price of Heartland stock
that was traded over the open market in the five days prior to the last business
day of the year. Beginning in 2008, the fair market value on the
first day of the offering period is the closing price on the last business day
of the year prior to the first day of the offering period.
Our retirement income program for
employees consists of a qualified defined contribution program. The program
provides for a 2% matching contribution when the employee contributes at least
3% of the employee’s salary. The program will provide a 2/3 match for any
employee contribution of less than 3% of salary. Heartland also provides for a
discretionary profit sharing program that is generally available to
employees.
Summary
Compensation Table
The following table sets forth
information concerning the compensation paid or granted to our chief executive
officer, our chief financial officer and to each of the other three most highly
compensated executive officers of Heartland or our subsidiaries for the fiscal
years ended December 31, 2008, 2007 and 2006:
|
SUMMARY
COMPENSATION TABLE
|
|||||||
|
Name
and
Principal
Position
|
Year
|
Salary(1)
|
Stock
Awards(2)
|
Option
Awards(3)
|
Non-Equity
Incentive Plan Compensation(4)
|
All
Other Compensation(5)
|
Total
Compensation
|
|
Lynn
B. Fuller
President
and Chief Executive Officer of Heartland
|
2008
2007
2006
|
$330,000
$330,000
$318,000
|
$
35,387
$106,890
$106,890
|
$
46,478
$180,895
$
65,611
|
$
91,679
$140,000
$215,459
|
$ 14,398
$ 18,586
$ 26,422
|
$517,942
$776,371
$732,382
|
|
John
K. Schmidt
Executive
Vice President, Chief Operating Officer &
Chief
Financial Officer of Heartland
|
2008
2007
2006
|
$244,500
$244,500
$235,000
|
$
14,155
$
42,756
$
42,756
|
$
40,486
$
43,954
$
39,618
|
$ 44,058
$ 78,200
$101,548
|
$ 24,938
$ 18,586
$ 26,422
|
$368,137
$427,996
$445,344
|
|
Kenneth
J. Erickson
Executive
Vice President of Heartland
|
2008
2007
2006
|
$220,000
$202,000
$194,000
|
$ 7,077
$
21,378
$
21,378
|
$
12,340
$
42,336
$
17,818
|
$
40,494
$
62,496
$
76,824
|
$ 14,398
$ 18,586
$ 26,422
|
$294,309
$346,796
$336,442
|
|
Douglas
J. Horstmann
Senior
Vice President of Heartland
|
2008
2007
2006
|
$195,000
$180,000
$170,000
|
$
6,635
$
20,042
$
20,042
|
$
15,417
$
22,220
$
13,835
|
$
49,000
$
44,100
$
52,828
|
$ 41,693
$ 18,586
$ 26,422
|
$307,745
$284,948
$283,127
|
|
Edward
H. Everts
Executive
Vice President of Heartland
|
2008
2007
2006
|
$175,000
$164,000
$157,000
|
$
6,635
$
20,042
$
20,042
|
$
8,804
$
32,075
$
14,464
|
$
20,733
$
33,699
$
45,918
|
$ 13,065
$ 17,339
$ 24,701
|
$224,237
$267,155
$262,125
|
(1) Includes
amounts deferred at the discretion of the executive officer under our retirement
plan.
(2) The
amounts shown are calculated based upon FAS 123R and equal the compensation cost
recorded on our consolidated statement of income for the respective year. Under
FAS 123R, a pro-rata portion of the total expense at the time the restricted
stock awards are granted is recognized over the applicable service period. For
further discussion on the calculation of the compensation costs recorded under
FAS 123R, see footnote seventeen to our audited consolidated financial
statements for the years ended December 31, 2008, 2007 and 2006. The amounts
reported in this column relate to restricted stock grants originally made on May
18, 2005. The original total cost of these awards was based on the number of
shares awarded and the fair market value of Heartland’s common stock on the date
of grant.
(3) The
amounts shown are calculated based upon FAS 123R and equal the compensation cost
recorded on our consolidated statement of income for the respective year. Under
FAS 123R, a pro-rata portion of the total expense at the time the grant is made
is recognized over the applicable service period, generally corresponding with
the vesting schedule of the grants. For further discussion on the calculation of
the compensation costs recorded under FAS 123R, see footnote seventeen to our
audited consolidated financial statements for the years ended December 31, 2008,
2007 and 2006. For 2008, the amounts in this column relate to option grants made
annually from 2003 through 2008. For 2007, the amounts in this column
relate to option grants made annually from 2002 through 2007. For
2006, the amounts in this column relate to option grants made annually from 2001
through 2006. The original cost of these grants was based on the fair value of
the option grants as estimated using the Black-Scholes pricing
model.
(4) The
amounts shown represent amounts received under our performance-based bonus plan.
For prior years, these amounts were reported as bonuses. Under current reporting
rules, discretionary or guaranteed bonuses are disclosed as bonuses. These
payments are based on our achievement of certain performance targets and,
accordingly, are now reported in this column as non-equity incentive plan
compensation.
(5) The
amounts shown represent amounts contributed on behalf of the respective officer
to our retirement plan. For Messrs. Fuller, Schmidt, Erickson and Horstmann, the
amounts shown include a matching contribution to the 401(k) component of our
retirement plan in the amount of $4,623 during 2008, $4,523 during 2007 and
$4,422 during 2006. For Mr. Everts, the amount shown includes a matching
contribution to the 401(k) component of our retirement plan in the amount of
$4,195 during 2008, $4,219 during 2007 and $4,134 during 2006. For
Messrs. Schmidt and Horstmann, the amounts shown for 2008 include the bonus
amount paid under the Executive Life Insurance Bonus Plan in the amounts of
$10,540 and $27,295, respectively.
Grants
of Plan-Based Awards
The following table sets forth
certain information concerning grants of plan-based awards made during 2008 to
the individuals named in the summary compensation table:
|
GRANTS
OF PLAN-BASED AWARDS
|
||||||
|
Name
|
Grant
Date
|
Estimated
Future Payments Under Non-Equity Incentive Plan Awards(1)
|
All
Other Awards: Number of Securities Underlying Options(2)
|
Exercise
or Base Price of Option Awards ($/Share)
|
Grant
Date Fair Value of Stock and Options Awards(3)
|
|
|
Target
|
Maximum
|
|||||
|
Lynn
B. Fuller
Performance-based
bonus
Stock
option grants
|
1/24/08
|
$283,000
|
$283,000
|
8,000
|
$18.60
|
$38,480
|
|
John
K. Schmidt
Performance-based
bonus
Stock
option grants
|
1/24/08
|
$136,000
|
$136,000
|
4,000
|
$18.60
|
$19,240
|
|
Kenneth
J. Erickson
Performance-based
bonus
Stock
option grants
|
1/24/08
|
$125,000
|
$125,000
|
2,000
|
$18.60
|
$9,620
|
|
Douglas
J. Horstmann
Performance-based
bonus
Stock
option grants
|
1/24/08
|
$68,250
|
$87,750
|
1,500
|
$18.60
|
$7,215
|
|
Edward
H. Everts
Performance-based
bonus
Stock
option grants
|
1/24/08
|
$64,000
|
$64,000
|
1,000
|
$18.60
|
$4,810
|
(1) Because
there is the possibility of no incentive payout if the performance objectives
are not met, the threshold amount is deemed to be zero for all the named
executive officers. In addition, since Heartland’s goal is to meet all
performance objectives, the target incentive for all the named executive
officers, except for Mr. Horstmann, is deemed to be the same as the maximum
incentive amount.
(2) Options
become exercisable in three equal portions on the day of the third, fourth and
fifth anniversaries of the January 24, 2008, date of grant.
(3) The
Black-Scholes valuation model was used to determine the grant date present
values. For further discussion on this calculation, see footnote seventeen to
our audited consolidated financial statements for the year ended December 31,
2008. Significant assumptions include: risk-free interest rate, 3.10%; expected
option life, 6 years; expected volatility, 26.96%; expected dividends, 1.99%.
The ultimate value of the options will depend on the future market price of our
common stock, which cannot be forecast with reasonable accuracy. The actual
value, if any, an executive may realize upon the exercise of an option will
depend on the excess of the market value of our common stock, on the date the
option is exercised, over the exercise price of the option.
Outstanding
Equity Awards
The following table sets forth
information concerning unexercised stock options and unvested restricted stock
awards held at December 31, 2008, by the named executive officers:
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
||||||
|
Option
Awards (1)
|
Stock
Awards
|
|||||
|
Name
|
#
of Securities Underlying Unexercised Options Exercisable
|
#
of Securities Underlying Unexercised Options Unexercisable
|
Option
Exercise Price
|
Option
Expiration Date
|
Equity
Incentive Plan Awards: Number of Shares or Units of Stock That Have Not
Vested
|
Equity
Incentive Plan Awards: Market or Present Value of Unearned Shares, Units
or Other Rights That Have Not Vested(2)(3)
|
|
Lynn
B. Fuller
|
-
-
-
5,000
10,000
|
8,000
10,000
10,000
10,000
5,000
|
$18.60
$29.65
$21.60
$21.00
$19.48
|
1/24/2018
1/16/2017
2/06/2016
2/10/2015
1/20/2014
|
33,397
|
$687,644
|
|
John
K. Schmidt
|
-
-
-
3,333
6,667
10,500
3,750
9,000
|
4,000
4,000
4,000
6,667
3,333
-
-
-
|
$18.60
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$12.00
|
1/24/2018
1/16/2017
2/06/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
1/17/2010
|
13,359
|
$275,062
|
|
Kenneth
J. Erickson
|
-
-
-
1,333
2,667
6,000
2,250
3,000
4,500
|
2,000
2,000
2,000
2,667
1,333
-
-
-
-
|
$18.60
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
|
1/24/2018
1/16/2017
2/06/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
|
6,679
|
$137,521
|
|
Douglas
J. Horstmann
|
-
-
-
1,000
2,000
4,500
1,500
3,000
3,000
|
1,500
1,500
1,500
2,000
1,000
-
-
-
-
|
$18.60
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
|
1/24/2018
1/16/2017
2/06/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
|
5,754
|
$118,475
|
|
Edward
H. Everts
|
-
-
-
1,000
2,000
4,500
2,250
3,000
4,500
|
1,000
1,500
1,500
2,000
1,000
-
-
-
-
|
$18.60
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
|
1/24/2018
1/16/2017
2/06/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
|
6,262
|
$128,935
|
(1) The
schedule below reflects the vesting dates for the option awards outstanding as
of December 31, 2008:
|
Grant Date
|
Expiration Date
|
One-third Vests On Each
Of:
|
||
|
1/24/2008
|
1/24/2018
|
January
24, 2011, January 24, 2012 and January 24, 2013
|
||
|
1/16/2007
|
1/16/2017
|
January
16, 2010, January 16, 2011 and January 16, 2012
|
||
|
2/06/2006
|
2/06/2016
|
February
6, 2009, February 6, 2010 and February 6, 2011
|
||
|
2/10/2005
|
2/10/2015
|
February
10, 2008, February 10, 2009 and February 10, 2010
|
||
|
1/20/2004
|
1/20/2014
|
January
20, 2007, January 20, 2008 and January 20, 2009
|
||
|
1/21/2003
|
1/21/2013
|
January
21, 2006, January 21, 2007 and January 21, 2008
|
||
|
1/15/2002
|
1/15/2012
|
January
15, 2005, January 15, 2006 and January 15, 2007
|
||
|
6/1/2001
|
6/1/2011
|
June
1, 2004, June 1, 2005 and June 1, 2006
|
||
|
1/17/2000
|
1/17/2010
|
January
17, 2003, January 17, 2004 and January 17,
2005
|
(2) The
amounts in this column were calculated using a per share value of $20.59, the
closing market price of a share of Heartland common stock on December 31, 2008,
the last business day of the year.
(3) Pursuant
to the terms of the awards, the restricted shares shall be earned upon the
attainment of pre-established earnings and asset growth targets, which are
consistent with the primary goals of Heartland’s current 5-year plan. The
performance measures for all the listed executives, except Mr. Horstmann, are
based upon the performance of Heartland as a whole. For Mr. Horstmann, a portion
of the performance measure is based upon the performance of Heartland as a whole
and a portion is based upon the performance of Dubuque Bank and Trust, the bank
subsidiary of which he is president. On December 31 of each year beginning in
2005 and ending in 2009, the actual growth in earnings and assets will be
compared to the pre-established targets and that portion of the awarded shares
will be considered earned. Shares earned as of December 31, 2005, and vested on
January 24, 2008, were 6,603 for Mr. Fuller, 2,641 for Mr. Schmidt, 1,321 for
Mr. Erickson, 1,746 for Mr. Horstmann and 1,238 for Mr. Everts. Shares earned as
of December 31, 2006, and vested on January 20, 2009, were 7,551 for Mr. Fuller,
3,021 for Mr. Schmidt, 1,510 for Mr. Erickson, 1,399 for Mr. Horstmann and 1,416
for Mr. Everts. Shares earned as of December 31, 2007, were 7,408 for Mr.
Fuller, 2,963 for Mr. Schmidt, 1,482 for Mr. Erickson, 1,772 for Mr. Horstmann
and 1,389 for Mr. Everts. Shares earned as of December 31, 2008, were
5,617 for Mr. Fuller, 2,247 for Mr. Schmidt, 1,123 for Mr. Erickson, 1,246 for
Mr. Horstmann and 1,053 for Mr. Everts. Shares earned will become
vested upon the two-year anniversary of the date earned only if the executive is
employed through such two-year period, the targeted performance measures are met
or exceeded on the vesting date and certain regulatory events have not occurred.
The awarded shares have been registered in the name of the executive but are
retained by Heartland during the restricted period. The executive is entitled to
vote the awarded shares but will not receive any dividends on the awarded shares
until vested.
Option
Exercises and Stock Vested
The following table sets forth
certain information concerning stock option awards exercised and restricted
stock awards vested during 2008 for the named executive officers:
|
OPTION
EXERCISES AND STOCK VESTED
|
||||||||||||||||
|
Name
|
Option
Awards
|
Stock
Awards
|
||||||||||||||
|
#
of Shares Acquired on Exercise
|
Value
Realized Upon Exercise(1)
|
#
of Shares Acquired on Vesting
|
Value
Realized upon Vesting (2)
|
|||||||||||||
|
Lynn
B. Fuller
|
23,250 | $ | 212,475 | 6,603 | $ | 122,816 | ||||||||||
|
John
K. Schmidt
|
25,000 | $ | 298,390 | 2,641 | $ | 49,123 | ||||||||||
|
Kenneth
J. Erickson
|
18,000 | $ | 197,640 | 1,321 | $ | 24,571 | ||||||||||
|
Douglas
J. Horstmann
|
- | $ | - | 1,746 | $ | 32,476 | ||||||||||
|
Edward
H. Everts
|
18,000 | $ | 148,140 | 1,238 | $ | 23,027 | ||||||||||
(1) The
amounts in this column were calculated by subtracting the exercise price per
share from the market value per share of Heartland common stock on the date of
exercise.
(2) The amounts
in this column were calculated by multiplying the number of vested shares by the
market value per share of Heartland common stock on January 24, 2008, the date
such shares vested.
Potential
Payments upon Termination or Change in Control
As
discussed earlier in this document, our participation in the TARP Capital
Purchase Program requires us to abide by certain compensation restrictions which
will apply so long as we hold TARP funding. See “The Impact of Recent
Legislation on our Compensation Programs and Policies” in our Compensation
Discussion and Analysis. Additionally, the Stimulus Act prohibits any
payments to our named executive officers for departure from Heartland for any
reason, except payments for services rendered or benefits accrued.
The
following discussion and table provide an overview and an estimate of payments
that would be made under existing programs available to the named executive
officers in the event of departure from Heartland, assuming in all cases that
the preferred stock we issued under the TARP Capital Purchase Program has been
redeemed or is no longer held by the United States Department of the
Treasury. If the preferred stock remains outstanding and held by the
Department of the Treasury, we would not be allowed to make the payments
discussed below for termination upon change in control under the Stimulus
Act. The impact of the Stimulus Act upon the remaining programs
available in the event of departure from Heartland will be determined as further
clarification is provided by federal regulators.
Payments Made
Upon Death. Heartland
has a Split-Dollar Life Insurance Plan and Executive Supplemental Life Insurance
Plan that provides a death benefit to the designated beneficiaries of the
officers who have been enrolled in the plans; generally only those officers who
are in a position of Vice President or higher and have provided at least three
years of service to Heartland. The combined death benefit under the plans is two
times current compensation (salary plus bonus or commission) not to exceed
$1,000,000. This benefit continues for the officer when employment has
terminated as a result of disability, retirement or a change in control at a
benefit level that is locked at two times compensation as in effect as of the
date of termination. On December 31, 2007, Heartland terminated participation in
these life insurance plans for officers not qualifying for the early retirement
provisions. Included in this terminated group were Messrs. Schmidt and
Horstmann. An executive life insurance bonus plan was adopted by Heartland for
all the officers whose participation in the split-dollar life insurance plans
had been terminated. The bonus plan provides for a bonus amount equal to
the annual premium on a life insurance policy purchased for the officer, plus an
amount equal to 40% of the annual premium amount. The annual premium amount will
be paid directly to the insurance company and the 40% amount will be paid
directly to the employee to help cover the taxes associated with the reporting
of the premium payment as additional compensation. The policies were designed to
provide a death benefit equal to two times salary at December 31, 2007, with
annual increases of 5% per year until retirement at age 65. Additionally, the
policies were designed for premium payments until age 65 for continued coverage
through age 80 with no premium payments after age 65. Under this new plan,
there will be no continuation of premium payments by Heartland after the
employee has left employment with Heartland for any reason other than disability
or change in control. The employee is the owner of the policy and may continue
premium payments or cash out the policy upon leaving the employment of
Heartland.
Payments Made
Upon Disability. All full-time employees and officers of
Heartland, after six months of employment, are eligible for a long-term
disability benefit. The benefit begins after 90 days of total disability. The
monthly benefit amount for all full-time officers of Heartland is 66 2/3 percent
of monthly earnings with a maximum monthly benefit amount of $7,000. The monthly
payments continue until the participant dies, ceases to have a disability or
reaches age 65. The benefit includes an annual increase and a survivor benefit
of one lump sum payment equal to three times the employee’s last full monthly
benefit.
If employment of any of our officers
who have received equity awards is terminated due to disability, the terms of
our standard stock option agreement provide that the options become fully
exercisable and expire if not exercised within 12 months of the date of
disability. Additionally, the terms of our standard restricted stock agreement
provide that, upon termination due to disability, all earned shares become fully
vested and any unearned shares are forfeited.
The executive life insurance plan,
under which Messrs. Schmidt and Horstmann are participants, requires a lump sum
premium payment sufficient to provide the scheduled death benefit at the date of
disability until age 80. Additionally, the participant is to be paid
an amount equal to 40% of such lump sum payment. Notwithstanding the
foregoing, the lump sum payment will not exceed an amount that would cause the
life insurance to cease to be a “life insurance” contract under Section 7702(a)
of the Internal Revenue Code.
Payments Made
Upon Retirement. If
employment of any of our officers who have received equity awards is terminated
due to retirement, as defined within the plan, the terms of our standard stock
option agreement provide that the options become fully exercisable and expire if
not exercised within 6 months of the date of retirement. Additionally, the terms
of our standard restricted stock agreement provide that, upon termination due to
retirement, all earned shares become fully vested and any unearned shares
continue to be subject to the earning provisions as if the officer had continued
employment with Heartland. The definition of retirement for stock options
granted prior to 2008 and all restricted stock awards is on or after the date
(i) the officer reaches the age of 55 and has provided 10 years of service to
Heartland or (ii) the officer retires pursuant to the provisions of Heartland’s
retirement plan, which is currently at age 65. For stock options granted in 2008
and thereafter, the definition of retirement is on or after the date the officer
reaches the age of 65 and has provided 10 years of service to
Heartland. As of December 31, 2008, Messrs. Fuller, Erickson, Everts
and Horstmann qualified for retirement under the stock options granted prior to
2008 and under all the restricted stock awards.
Payments Made
Upon Change In
Control. In July of 2007, we entered into Change in Control
Agreements with certain officers of Heartland, including each of the named
executive officers. These agreements replaced prior agreements which
expired on December 31, 2004. The new agreements are intended to support the
best interests of stockholders by providing reasonable and fair benefits to the
named executive officers in the event of a change in control of
Heartland. The terms of the agreements provide that officers will
receive a payout ranging from 1 to 2 times the sum of their salary plus bonus
and retirement contribution, and continuation of insurance benefits from 12 to
24 months. The agreements do not provide for the payment of
“gross-ups” in order to cover any applicable federal or state taxes but instead
provide that applicable taxes, if owed, will be paid by the officers covered
under the agreements. The agreements will only take effect under the following
circumstances: (i) the acquisition by a person of 51% or more of Heartland’s
voting securities; (ii) non-incumbent directors becoming a majority of the
Board; (iii) the consummation of a merger where the prior stockholders do not
hold at least 51% of the resulting entity; or (iv) the liquidation or
dissolution of Heartland.
Our standard stock option and
restricted stock agreements contain terms that provide for the acceleration of
the vesting of any unvested stock options or shares of restricted stock upon a
change in control. Under the standard stock option agreement, the options become
fully exercisable and expire if not exercised within 6 months of the date of a
change in control. Under the standard restricted stock agreement, all earned
shares vest immediately. Unearned shares also vest immediately if the restricted
stock agreement is not fully assumed in the change in control. To the extent the
restricted stock agreements are assumed, any unearned shares will vest
immediately upon the officer’s termination of employment (i) by the successor
entity for any reason other than cause at any time following the change in
control or (ii) by the officer for good reason within 24 months of the change in
control.
The executive life insurance bonus
plan, under which Messrs. Schmidt and Horstmann are participants, requires a
lump sum premium payment sufficient to provide the scheduled death benefit at
the date of the change in control until age 80. Additionally, the
participant is to be paid an amount equal to 40% of such lump sum
payment. Notwithstanding the foregoing, the lump sum payment will not
exceed an amount that would cause the life insurance to cease to be a “life
insurance” contract under Section 7702(a) of the Internal Revenue
Code.
Payments Made
Upon Termination. If
the employment of any of the named executive officers is voluntarily or
involuntarily terminated, no additional payments or benefits will accrue to him
or be paid to him and any non-equity incentive plan compensation for the year
would be forfeited.
Under the standard stock option
agreement, the involuntary termination of employment by any of the named
executive officers will trigger the forfeiture of all vested and unvested stock
options. If termination of employment is voluntary and the officer does not
compete with Heartland, all vested stock options must be exercised within 6
months of the termination of employment and all unvested stock options are
forfeited. In the case of a voluntary or involuntary termination of employment
of any of the named executive officers, any unvested, earned or unearned, shares
of restricted stock will be forfeited.
The following table shows potential
payments to the named executive officers upon disability, death, retirement or
termination upon a change in control of Heartland. The amounts shown
assume that termination was effective as of December 31, 2008, the last business
day of the year, and are estimates of the amounts that would be paid to the
executives upon termination in addition to the base salary and bonus earned by
the executives during 2008. The actual amounts to be paid can only be
determined at the actual time of an executive’s termination.
|
POTENTIAL
PAYMENTS UPON DEATH, DISABILITY, RETIREMENT OR CHANGE IN
CONTROL
|
|||||||||||||
|
Name
|
Type
of Payment
|
Payments
Upon Death
|
Payments
Upon Disability
|
Payments
Upon Retirement(4)
|
Payments
Upon Change In Control(5)
|
||||||||
|
Lynn
B. Fuller
|
Annual
Base Pay
|
$
|
-
|
$
|
84,000
|
$
|
-
|
$
|
-
|
||||
|
Cash
Severance(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,067,342
|
|||||
|
Health/Welfare
Benefits(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
25,754
|
|||||
|
Value
of Acceleration:
|
|||||||||||||
|
Stock
Options(2)
|
$
|
32,570
|
$
|
32,570
|
$
|
16,650
|
$
|
21,470
|
|||||
|
Stock
Awards(3)
|
$
|
423,680
|
$
|
423,680
|
$
|
687,644
|
$
|
687,644
|
|||||
|
Split-Dollar
Life Insurance
|
$
|
1,000,000
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
John
K. Schmidt
|
Annual
Base Pay
|
$
|
-
|
$
|
84,000
|
$
|
-
|
$
|
-
|
||||
|
Cash
Severance(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
614,702
|
|||||
|
Health/Welfare
Benefits(1)
|
$
|
-
|
$
|
94,710
|
$
|
-
|
$
|
117,245
|
|||||
|
Value
of Acceleration:
|
|||||||||||||
|
Stock
Options(2)
|
$
|
232,458
|
$
|
232,458
|
$
|
-
|
$
|
11,660
|
|||||
|
Stock
Awards(3)
|
$
|
169,476
|
$
|
169,476
|
$
|
-
|
$
|
275,062
|
|||||
|
Life
Insurance
|
$
|
692,096
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
Kenneth
J. Erickson
|
Annual
Base Pay
|
$
|
-
|
$
|
84,000
|
$
|
-
|
$
|
-
|
||||
|
Cash
Severance(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
465,651
|
|||||
|
Health/Welfare
Benefits(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
16,916
|
|||||
|
Value
of Acceleration:
|
|||||||||||||
|
Stock
Options(2)
|
$
|
161,863
|
$
|
161,863
|
$
|
157,883
|
$
|
5,460
|
|||||
|
Stock
Awards(3)
|
$
|
84,728
|
$
|
84,728
|
$
|
137,521
|
$
|
137,521
|
|||||
|
Split-Dollar
Life Insurance
|
$
|
564,992
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
Douglas
J. Horstmann
|
Annual
Base Pay
|
$
|
-
|
$
|
84,000
|
$
|
-
|
$
|
-
|
||||
|
Cash
Severance(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
258,312
|
|||||
|
Health/Welfare
Benefits(1)
|
$
|
-
|
$
|
155,505
|
$
|
-
|
$
|
166,782
|
|||||
|
Value
of Acceleration:
|
|||||||||||||
|
Stock
Options(2)
|
$
|
124,905
|
$
|
124,905
|
$
|
121,920
|
$
|
4,095
|
|||||
|
Stock
Awards(3)
|
$
|
90,946
|
$
|
90,946
|
$
|
118,475
|
$
|
118,475
|
|||||
|
Life
Insurance
|
$
|
465,656
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
Edward
H. Everts
|
Annual
Base Pay
|
$
|
-
|
$
|
84,000
|
$
|
-
|
$
|
-
|
||||
|
Cash
Severance(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
346,239
|
|||||
|
Health/Welfare
Benefits(1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
19,135
|
|||||
|
Value
of Acceleration:
|
|||||||||||||
|
Stock
Options(2)
|
$
|
145,638
|
$
|
145,638
|
$
|
143,648
|
$
|
3,100
|
|||||
|
Stock
Awards(3)
|
$
|
79,436
|
$
|
79,436
|
$
|
128,935
|
$
|
128,935
|
|||||
|
Split-Dollar
Life Insurance
|
$
|
417,398
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
(1) The
amounts reflected on these lines will be paid in equal monthly payments for the
number of months specified for each as follows: Mr. Fuller – 24
months, Mr. Schmidt – 21 months, Messrs. Erickson and Everts – 18 months and Mr.
Horstmann – 12 months. None of the severance amounts were reduced to
avoid exceeding the 280G limitation. The health/welfare benefits
amounts for Messrs. Schmidt and Horstmann include the payments required under
the executive life insurance bonus plan.
(2) The
amount computed for the stock options was determined by multiplying the
difference between the closing market price of a share of our common stock on
December 31, 2008, ($20.59) and the exercise price per share for that option by
the number of shares subject to that option. Included in this
calculation were only the shares that had an exercise price that was less than
$20.59, the closing market price of a share of our common stock on December 31,
2008
(3) The
amount computed for the stock awards was determined by multiplying the number of
shares that vest by $20.59, the closing market price of a share of our common
stock on December 31, 2008. .
(4) For
the purposes of this calculation, it is assumed that all shares will be earned
even though they continue to be subject to the earning provisions as if the
officer had continued employment with Heartland.
(5) For
the purposes of this calculation, it is assumed that the restricted stock
agreements are not fully assumed in the change in control and, therefore, all
shares immediately vest.
Director
Compensation
The
following table shows the compensation earned by each of our directors during
2008 for service on the Heartland and its subsidiary boards:
|
DIRECTOR
COMPENSATION
|
||||||||||||
|
Name(1)
|
Fees
Earned or Paid in Cash (2)
|
Stock
Awards (3)
|
Total
|
|||||||||
|
James
F. Conlan
|
$ | 12,625 | $ | 3,300 | $ | 15,925 | ||||||
|
John
W. Cox, Jr.
|
$ | 9,150 | $ | 4,350 | $ | 13,500 | ||||||
|
Mark
C. Falb
|
$ | 12,975 | $ | 4,350 | $ | 17,325 | ||||||
|
Thomas
L. Flynn
|
$ | 14,125 | $ | 4.350 | $ | 18,475 | ||||||
|
James
R. Hill
|
$ | 2,350 | $ | 4,000 | $ | 6,350 | ||||||
(1) Lynn
B. Fuller and John K. Schmidt are not included in this table because they are
employees of Heartland and thus received no compensation for their services as a
director. The compensation they received as employees is show in the
Summary Compensation Table.
(2) The
amounts in this column include fees earned or paid in cash for services as a
director at one of Heartland’s bank subsidiaries. For service on the
Board of Dubuque Bank and Trust Company, Mr. Conlan received fees of $10,975,
Mr. Falb received fees of $9,925 and Mr. Flynn received fees of
$11,775. For service on the Board of Galena State Bank , Mr. Cox
received fees of $6,800.
(3) This
amount represents the fair value ($22.21) on May 21, 2008, the date of award and
issuance.
Non-employee
directors are eligible to receive incentive stock awards under the 2005
Long-Term Incentive Plan. In 2005, we began granting stock annually to each of
our non-employee directors in addition to the Board fees described above.
Beginning in 2008, non-employee directors are compensated for service during the
period from Heartland’s regularly scheduled 2008 Annual Meeting to Heartland’s
regularly scheduled 2009 Annual Meeting solely in the form of restricted shares
of Heartland stock granted under the 2005 Long-Term Incentive Plan in an amount
determined by the committee at its meeting on December 3, 2007. Such
shares were awarded as of the date of the 2008 Annual Meeting and shall vest on
the earlier of the one year anniversary of grant or the date of the 2009 Annual
Meeting. In the event a director leaves the Board for any reason
prior to any vesting date (other than due to death or disability), the
committee shall retain sole discretion to determine the disposition of the
unvested shares. In the event of the death or disability of the
director, the shares shall fully vest. The following grants were
approved at the December 3, 2007, compensation/nominating committee
meeting:
James F.
Conlan (1) 900
shares
John W.
Cox,
Jr.
1,000 shares
Mark C.
Falb(2)
1,100 shares
Thomas L.
Flynn
1,000 shares
James R.
Hill
1,000 shares
(1) The
total number of shares for Mr. Conlan has been reduced by 100 shares due to his
nonparticipation on the audit/corporate governance and compensation/nominating
committees.
(2) The
total number of shares for Mr. Falb includes 100 additional shares due to his
service as chair of both the audit/corporate governance and
compensation/nominating committee meetings.
The Board
of Directors directed this change because the Board firmly believes that any
compensation received by non-employee directors should be tied directly to the
success of Heartland and, by extension, the success of all Heartland
stockholders.
For the period January 1, 2008, until
the date of Heartland’s 2008 Annual Meeting, non-employee directors were paid a
fee of $950 for each board meeting attended and $700 for each committee meeting
attended. Additionally, the director acting as chairman of a board
meeting or committee meeting was paid an additional $350. These fees
were paid in the form of unrestricted shares of Heartland stock calculated by
dividing the dollar amount of fees earned by the price of shares of Heartland
stock at market close on the date of the regularly scheduled 2008 Annual
Meeting.
Compensation/Nominating Committee
Report on Executive Compensation
We have reviewed and discussed the
Compensation Discussion and Analysis with management. Based on our review and
discussion with management, we have recommended to the Board of Directors that
this Compensation Discussion and Analysis be included in this proxy statement
for the year ended December 31, 2008. We also certify that we have
reviewed with senior risk officers of Heartland, the incentive
compensation arrangements for senior executive officers (those officers listed
in the Summary Compensation Table above) and have made reasonable efforts to
ensure that such arrangements do not encourage those senior executive officers
to take unnecessary and excessive risks that threaten the value of the financial
institution.
Respectfully,
Mark C.
Falb, John W. Cox, Jr., Thomas L. Flynn, James R. Hill
Stockholder
Return Performance Presentation
The following table and graph show a
five-year comparison of cumulative total returns for Heartland Financial USA,
Inc., the Nasdaq Composite Index and the Nasdaq Bank Stock Index. Figures for
our common stock represent inter-dealer quotations, without retail markups,
markdowns or commissions and do not necessarily represent actual transactions.
Heartland became listed on Nasdaq in May, 2003. The table and graph were
prepared at our request by Research Data Group, Inc.
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Cumulative
Total Return Performance
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12/31/03
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12/31/04
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12/31/05
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12/31/06
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12/31/07
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12/31/08
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Heartland
Financial USA, Inc.
|
$ | 100.00 | $ | 109.99 | $ | 120.66 | $ | 162.73 | $ | 106.47 | $ | 120.34 | ||||||||||||
|
Nasdaq Composite
|
$ | 100.00 | $ | 110.06 | $ | 112.92 | $ | 126.61 | $ | 138.33 | $ | 80.65 | ||||||||||||
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Nasdaq
Bank
|
$ | 100.00 | $ | 111.07 | $ | 108.58 | $ | 123.71 | $ | 97.70 | $ | 74.90 | ||||||||||||
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN*
ASSUMES
$100 INVESTED ON DECEMBER 31, 2003
*Total
return assumes reinvestment of dividends
TRANSACTIONS
WITH MANAGEMENT
Directors and officers of Heartland
and our subsidiaries, and their associates, were customers of and had
transactions with us and one or more of our subsidiaries during 2008. Additional
transactions may be expected to take place in the future. All outstanding loans,
commitments to loan, transactions in repurchase agreements and certificates of
deposit and depository relationships, in the opinion of management, were made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk of
collectability or present other unfavorable features. All such loans are
approved by the subsidiary bank’s Board of Directors in accordance with the bank
regulatory requirements. Additionally, the audit/corporate governance committee
charter provides that the committee will consider and approve other material
non-lending transactions between a director and Heartland, including its
subsidiaries, to ensure that such transactions are done at arm’s length and do
not affect a director’s independence.
AUDIT/CORPORATE
GOVERANCE COMMITTEE REPORT
The audit/corporate governance
committee assists the Board in carrying out its oversight responsibilities for
our financial reporting process, audit process and internal controls. The
audit/corporate governance committee also reviews the audited financial
statements and recommends to the Board that they be included in our annual
report on Form 10-K.
The audit/corporate governance
committee has reviewed and discussed our audited financial statements for the
fiscal year ended December 31, 2008, with our management and KPMG LLP, our
independent registered public accounting firm. The audit/corporate governance
committee has also discussed with KPMG LLP the matters required to be discussed
by the Statement of Auditing Standards No. 61 (Communications with Audit
Committees). The audit/corporate governance committee has received
and discussed the written disclosures and the letter from KPMG LLP required by
applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountant’s communications with the audit committee
concerning independence, and discussed with the independent accountant its
independence. Based on the review and discussions with management and
KPMG LLP, the audit/corporate governance committee has recommended to the Board
that the audited financial statements be included in our annual report on Form
10-K for the fiscal year ended December 31, 2008, for filing with the Securities
and Exchange Commission.
Respectfully,
Mark C.
Falb, John W. Cox, Jr., Thomas L. Flynn, James R. Hill
RELATIONSHIP
WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Accountant
Fees
Audit
Fees. The aggregate amounts of fees billed by KPMG LLP during
fiscal years 2008 and 2007 for its audit of our annual financial statements and
for its required reviews of our unaudited interim financial statements included
in our quarterly reports filed were $480,000 and $487,000,
respectively.
Audit Related
Fees. The
aggregate amounts of audit related fees billed by KPMG LLP during fiscal years
2008 and 2007 were $11,500 and $15,500, respectively. The majority of these
services were related to filings with the Securities and Exchange Commission and
services related to the audits of our employee benefit and retirement plans, our
employee stock purchase plan and agreed upon procedures for the participation of
Heartland’s bank subsidiaries in loan programs through the Federal Home Loan
Banks.
Tax
Fees. During the
fiscal year 2008, KPMG LLP did not bill us for any tax related
services. During fiscal year 2007, KPMG LLP billed us $37,700 for tax
related services.
All Other
Fees. We
did not incur any fees from KPMG LLP for fiscal years 2008 and 2007 other than
the fees reported above.
The audit/corporate governance
committee, after consideration of these matters, does not believe that the
rendering of these services by KPMG LLP to be incompatible with maintaining
their independence as our independent registered public accounting
firm.
Among other things, the
audit/corporate governance committee is responsible for appointing, setting
compensation for and overseeing the work of the independent registered public
accounting firm. The audit/corporate governance committee has not adopted any
formal policy concerning pre-approval of the audit and permissible non-audit
services to be provided by KPMG LLP. These services include audit and
audit-related services, tax services and other services. Instead, on a case by
case basis, any audit or permissible non-audit service proposed to be performed
is considered by and, if deemed appropriate, approved by the audit/corporate
governance committee in advance of the performance of such service if the
expected fees are in excess of $25,000. All other audit and
audit-related services, tax services and other services with expected fees of
less than $25,000 are ratified by the audit/corporate governance committee. All
of the fees earned by KPMG LLP described above were attributable to services
pre-approved by the audit/corporate governance committee, with the exception of
the audit-related services fees incurred in conjunction with the SEC filings
associated with Heartland’s participation in the TARP Capital Purchase
Program. These fees were subsequently ratified by the audit/corporate
governance committee.
KPMG LLP has served as our external
auditor since June 1994 and our audit/corporate governance committee has
selected KPMG LLP to be our independent registered public accounting firm for
the fiscal year ending December 31, 2009.
Although we are not required to do
so, our Board of Directors recommends that the stockholders ratify the
appointment. A representative of KPMG LLP is expected to attend the meeting and
will be available to respond to appropriate questions and to make a statement if
he or she so desires. If the appointment of our independent registered public
accounting firm is not ratified, the audit/corporate governance committee of the
Board of Directors will consider the matter of the appointment. The Board of Directors recommends
that you vote your shares FOR ratification of this
appointment.
PROPOSAL
NUMBER 3— AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED
SHARES OF COMMON STOCK
On January 20, 2009, our Board of
Directors voted to approve, and to recommend that you approve at the 2009 Annual
Meeting of Stockholders, an amendment to our Certificate of Incorporation that
will increase the number of authorized shares of our common stock from
20,000,000 shares to 25,000,000 shares.
In particular, we are proposing that
the first paragraph of Article IV of our Certificate of Incorporation be amended
to provide as follows:
Article
IV
The total
number of shares of stock which the corporation shall have authority to issue is
25,000,000 shares of Common Stock, par value of $1.00 per share, and 200,000
shares of Preferred Stock, par value of $1.00 per share.
We are not proposing to increase the
number of authorized shares of preferred stock. We have designated a series of
16,000 shares of Series A Junior Participating Preferred Stock, none of which
are outstanding, to support our stockholder rights plan, and a series of 81,698
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, all of
which were issued to the United States Department of the Treasury. We
believe that the over 100,000 shares of remaining preferred stock will be
adequate for the foreseeable future.
The additional shares of common stock
for which we are seeking authorization would be a part of the existing class of
our common stock and, if and when issued, would have the same rights and
privileges as the shares of common stock that are currently outstanding. The
additional shares would not (and the shares of common stock presently
outstanding do not) entitle the holders thereof to preemptive or cumulative
voting rights.
Reasons
for the Amendment
There were 16,274,652 shares of our
common stock outstanding on January 31, 2009, 926,427 shares reserved for future
issuance under stock compensation plans, and 609,687 shares reserved for
issuance upon exercise of the warrant we recently issued to the United States
Department of the Treasury as part of its $81.7 million investment in our
preferred stock. Accordingly, we had only 2,798,921 shares available for
issuance in other transactions.
Our Board of Directors does not
believe that the remaining authorized shares that we have outstanding are
adequate to support our growth plans. Although we recently received
approximately $82 million in additional capital under the TARP Capital Purchase
Program sponsored by the United States Department of Treasury, we do not
consider this “permanent capital” that benefits our common stockholders, but
instead intend to use this capital in the short-term to support further lending
activities in our markets.
The Board believes that additional
authorized shares of common stock may be necessary to allow us to take timely
advantage of market conditions and the availability of favorable financing and
acquisition opportunities without the delay and expense associated with
convening a special stockholders' meeting (unless otherwise required by the
rules of the stock exchange on which our common stock is then
listed). The additional shares of common stock would also permit us
increased flexibility with respect to stock dividends (including stock splits
issued in the form of stock dividends), additional stock options or other
stock-based benefits, in acquisitions, for equity financings and for other
general corporate purposes. We may consider, for example, additional
equity financing to replace some or all of the investment we have received from
the United States Department of the Treasury. Nevertheless, we have
no present plans, commitment or understandings in place with regard to use of
such shares.
Except as may be required by the
rules of the Nasdaq Stock Market, we are not currently required to obtain a vote
of our stockholders to issue or sell additional shares of our common stock, and
we will not be required to obtain any vote of stockholders to issue the
additional shares that would be authorized by the amendment. Under Nasdaq
regulations, approval by a majority of the holders of common stock is required
to issue additional shares of common stock, other than in a public offering, if
the additional shares represent, or will represent after issuance, more than 20
percent of the shares of common stock outstanding before the issuance or the
issuance would result in a change in control of Heartland.
Certain
Anti-Takeover Effects
Our Board of Directors believes that
our protections against a potential hostile contest for control are adequate and
is not proposing the amendment to increase those
protections. Nevertheless, the increase in the authorized but
unissued shares of common stock could, under certain circumstances, be used to
create voting impediments to frustrate persons seeking to effect a takeover or
otherwise gain control of Heartland. Our Certificate of Incorporation currently
requires at least 70% of our outstanding shares to be voted in favor of a
proposal to approve certain business combinations involving Heartland. Although
our Board presently has no intention of doing so, shares of authorized but
unissued common stock could be issued to a holder who would obtain sufficient
voting power to assure that any such business combination or amendment to the
Certificate of Incorporation would not receive the required 70% stockholder
vote. In addition, to the extent that the adoption of the proposed amendment
renders less likely a merger or other transaction that is not negotiated with
and approved by our incumbent Board of Directors, such adoption may result in
the Board of Directors and management retaining their current
positions.
Some provisions of our Certificate of
Incorporation and bylaws could make the acquisition of control of Heartland or
the removal of our existing management more difficult, including those that
provide as follows:
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we
have a classified Board of Directors with each class serving a staggered
three-year term;
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•
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a
vote of 70% of the outstanding shares of voting stock is required to
remove directors, and such directors may only be removed for
cause;
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a
vote of 70% of the outstanding shares of voting stock is required to
amend, alter or repeal our bylaws and certain sections of our Certificate
of Incorporation;
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a
vote of 70% of the outstanding shares of voting stock is required to
effect various forms of business combination transactions;
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•
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our
Board of Directors may create new directorships and may appoint new
directors to serve for the full term of the class of directors in which
the new directorship was created and may fill vacancies on the Board of
Directors occurring for any reason for the remainder of the term of the
class of director in which the vacancy occurred;
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our
Board of Directors may designate series of preferred stock and determine
the powers, rights, preferences, qualifications and limitations of each
series, and may issue preferred stock, without a vote of
stockholders;
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stockholder
actions cannot be taken by written consent without a meeting;
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we
have advance notice procedures that require stockholder proposals and
nominations to be provided to us not less than 30 days or more than 75
days before the date of the originally scheduled annual meeting;
and
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•
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we
have adopted a stockholder rights plan under which the dilution resulting
from the acquisition of beneficial ownership of more than 15% of our
voting stock without approval of our Board causes most forms of hostile
contest for control to be
impracticable.
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These provisions are expected to
discourage coercive takeover practices and inadequate takeover bids. They are
also designed to encourage persons seeking to acquire control of Heartland to
first negotiate with our Board of Directors. We believe that the benefits of
increased protection give us the potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
Heartland and these benefits outweigh the disadvantages of discouraging the
proposals. Negotiating with the proponent could result in an improvement of the
terms of the proposal.
Board
Recommendation
Our Board of Directors recommends to
the stockholders that they vote “FOR” this proposal. The vote required to
amend the Certificate of Incorporation to increase the number of authorized
shares of common stock is a majority of the voting power of the common stock
outstanding and entitled to vote at the 2009 Annual Meeting of
Stockholders. If the proposed amendment is adopted, it will become
effective upon filing a certificate of amendment with the Delaware Secretary of
State.
PROPOSAL
4— ADVISORY VOTE ON EXECUTIVE COMPENSATION
We are asking our stockholders to
consider and approve the following resolution related to the executive
compensation that is described in the compensation tables and the Compensation
Discussion and Analysis earlier in this proxy statement:
RESOLVED,
that the stockholders approve the compensation of Heartland’s executives as
described in the Compensation Discussion and Analysis, the Summary Compensation
Table and the other executive compensation tables and related
discussion.
What
you are Approving
By approving this resolution, you will
be approving the compensation we discuss in the Compensation Discussion and
Analysis that appears on pages 16 to 36 of this proxy statement and in the
compensation tables and surrounding narrative that appear on pages 27 to 36 of
this proxy statement. In the Compensation Discussion and Analysis, we
discuss and analyze our executive compensation policies and practices for
2008. Where possible, we also discuss our plans for changes to
compensation practices for the current year and beyond. Importantly, as we note
under the caption “The Impact of Recent Legislation on our Compensation Programs
and Policies” of the Compensation Discussion and Analysis, the Stimulus Bill
will greatly affect our compensation practices going forward. Unfortunately, details
of the manner in which this new law applies to us will not become clear until
the U.S. Treasury and the SEC issue new regulations. Although some of the
requirements of the Stimulus Bill are not consistent with our policies, and
encourage higher salaries and no incentive pay, we will abide by those
requirements going forward.
We are also required to disclose in the
compensation tables, the specific compensation that we pay to our Principal
(Chief) Executive Officer, our Principal (Chief) Financial Officer and our three
most highly paid executive officers, other than the CEO and CFO. The
compensation in the summary compensation table relates to the historical amounts
we have paid these individuals in each of the last three completed years, and by
approving it, you are not approving our plan for 2009. You should
understand that all of the executive compensation tables include accounting or
other non-cash estimates of future compensation. Because of this, we encourage
you to read the footnotes and narratives which accompany each table in order to
understand any non-cash items.
Reasons
for Approval
We believe that our compensation
policies and procedures are conservative, and historically have focused those
policies on providing pay that is partially based on performance. We believe
that these policies have aligned the interests of our stockholders in long-term
growth with the interests of our management. During the unprecedented
changes that have occurred in the past two years, we believe our management has
responded appropriately, working diligently to minimize risk to our
stockholders, our depositors and our other customers. We believe the
compensation provided in 2008 is indicative of our policies, and that our
executives have fully cooperated in advancing the interests of Heartland over
their personal interests. In particular:
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in
part, at their suggestion, the salaries of our CEO and CFO were frozen for
2008 and 2009;
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•
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all
executive officer salaries were frozen for 2009 (subject to any changes
necessary to accommodate the Stimulus Bill);
and
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•
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we
paid significantly reduced bonuses in
2008.
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Further, as part of their efforts to
minimize risk and ensure that we serve the needs of our customers, both our
management and our Board of Directors determined to accept an investment from
the United States Department of the Treasury in preferred stock and a warrant
that we issued. Although we were not in need of capital to remain
well capitalized under the laws that apply to us, our management and our Board
believed that the cushion that these funds provided and the additional lending
and other business it facilitated would be beneficial to our
stockholders.
We are required to ask for your vote
under the Stimulus Bill because we accepted this preferred stock investment from
the U.S. Treasury. Your vote is advisory and will not be binding upon
Heartland or our Board of Directors. Our compensation/nominating committee,
however, will take into account the outcome of the vote when considering future
executive compensation arrangements.
The
Board of Directors recommends that the stockholders vote FOR the approval of
Heartland’s executive compensation.
PROPOSAL
NUMBER 5 —STOCKHOLDER PROPOSAL TO DECLASSIFY BOARD OF
DIRECTORS
The
Board of Directors unanimously recommends a vote “AGAINST” the stockholder
proposal.
Stockholder
Proposal
Gerald R.
Armstrong of 910 Sixteenth Street, No. 412, Denver, Colorado 80202-2917,
owner of 214.448 shares of Heartland common stock, has notified us that he
intends to present the following proposal at the Annual Meeting. As required by
the rules of the SEC, the text of the resolution and the supporting statement of
Mr. Armstrong are included below exactly as submitted by him.
Mr.
Armstrong submitted the following resolution:
That the
shareholders of HEARTLAND FINANCIAL USA, INC. request its Board of Directors to
take the steps necessary to eliminate classification of terms of the Board of
Directors to require that all Directors stand
for election annually. The Board declassification shall be completed in a manner
that does not affect the unexpired terms of the previously-elected
Directors.
The
reasons submitted by Mr. Armstrong for the resolution are as
follows:
The
proponent believes the election of directors is the strongest way that
shareholders influence the directors of any corporation. Currently, our Board of
Directors is divided into three classes with each class serving three-year
terms. Because of this structure, shareholders may only vote for
one-third of the directors each year. This is not in the best
interest of shareholders because it reduces accountability.
Xcel
Energy Inc., Devon Energy Corporation, ConocoPhillips, ONEOK, Inc. CenterPoint
Energy, Inc., Hess Corporation have adopted this practice and it has been
approved by shareholders at CH Energy Group, Inc., Central Vermont Public
Service Corporation, Black Hills Corporation, Spectra Energy Corp., and several
others, upon presentation of a similar resolution by the proponent during
2008. The proponent is a professional investor who has studied this
issue carefully.
The
performance of our management and our Board of Directors is now being more
strongly tested due to economic conditions and the accountability for
performance must be given to the shareholders whose capital has been entrusted
in the form of share investments.
A study
by researchers at Harvard Business School and the University of Pennsylvania’s
Wharton School titled “Corporate Governance and Equity Prices” (Quarterly
Journal of Economics, February, 2003), looked at the relationship between
corporate governance practices (including classified boards) and firm
performance. The study found a significant positive link between
governance practices favoring shareholders (such as annual directors’ election)
and firm value.
While
management may argue that directors need and deserve continuity, management
should become aware that continuity and tenure may be best assured when their
performance as directors is exemplary and is deemed beneficial to the best
interests of the corporation and its shareholders.
The
proponent regards as unfounded the concern expressed by some that annual
election of all directors could leave companies without experienced directors in
the event that all incumbents are voted out by shareholders. In the unlikely
event that shareholders do vote to replace all directors, such a decision would
express dissatisfaction with the incumbent directors and reflect the need for
change.
If you
agree that shareholders may benefit from greater accountability afforded by
annual election of all directors, please
vote “FOR” this proposal.
Board
of Directors’ Recommendation
The
Board of Directors unanimously recommends a vote “AGAINST” this stockholder
proposal.
Your
directors have given careful consideration in the past to shortening the terms
of directors to one year and to annual elections of all members of the Board of
Directors and we considered this change again in connection with Mr. Armstrong’s
proposal. After careful deliberation, however, we concluded that for the reasons
described below, it is in the best interests of Heartland and its stockholders
to maintain a classified Board of Directors on which the directors of three
separate classes are elected on alternative years to three year
terms.
Stability and
Continuity We
believe that the three-year staggered terms of directors provide stability and
continuity in our leadership. Staggered terms are designed to ensure that at any
given time, the Board of Directors has a majority of members who, by serving for
several years, have developed a deeper understanding of the breadth and nature
of our business. Directors who have considerable experience with and knowledge
of our business are better equipped to provide the oversight and make the
decisions required by a board of directors, and are, correspondingly, more
capable of engaging in the long-term strategic planning that is critical to a
financial institution’s success.
We
believe that this is particularly true for a mid-sized financial institution
holding company with multiple regionally-based subsidiary banks. Both
the financial accounting and controls for a financial institution holding
company and the regulatory controls to which such a company are subject have
become increasingly complex during the past few years. The
application of these complex rules and controls varies significantly based on
the location of the subsidiary banks and more importantly based on the character
of its assets and liabilities. We believe it takes a considerable
amount of time for a director to understand our operations and the application
of these rules and policies to the operations, and that a director may not be
fully productive after even a full year of service.
Further,
because we desire not to provide excessive compensation to a large board of
directors, the number of members of our Board is not large. While
rapid succession of a few members on a board with many members may not be
disruptive to board operation, we believe that annual changeover of significant
numbers of a smaller board can have a significantly adverse affect on its
operation.
Financial
Performance.
The proponent’s statement lists corporations that proponent maintains
de-classified their boards of directors because of proponent’s
efforts. Our Board of Directors has not verified that statement to be
true. However, the Board of Directors feels strongly that what may be
appropriate for one company is not appropriate for all. This “one
size fits all” view does not take into account the differences among companies
and their management. Stockholders must look at the history and
performance of a company and its record of providing stockholder
value. Heartland has an excellent record of providing stockholder
value, including during the recent turbulent economic times, and the Board of
Directors and management have demonstrated accountability to the stockholders
through the financial performance of Heartland. In particular, we
note that, in 2008, perhaps the most volatile year for financial institutions
during the past 50 years:
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Heartland
grew its loan portfolio, continuing to serve its customers, while other
banks contracted;
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Heartland
remained profitable, generating $11.3 million of net
income;
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•
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in
2008 and 2009, Heartland’s top two executive officers refused salary
increases because of the economic uncertainty in these challenging times
and for 2009, all Heartland officers with salaries equal to or greater
than $60,000 received no salary increase;
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•
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for
2008, all non-qualified stock option awards for management were deferred;
and
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•
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beginning
with the 2008 Annual Meeting, Heartland directors chose to take all
director compensation in the form of Heartland stock as opposed to cash
compensation for Board and committee
fees.
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Long-Term
Outlook. We
believe a short-term focus on profitability, which may be encouraged by one year
director terms, is not beneficial to our stockholders. We believe
that we must maintain a clear focus on the long-term interests of our
stockholders and adopt policies that support long-term growth through careful
management of our assets and liabilities rather than short-term profitability
that may be encouraged by actions such as risk-taking. The Board believes that
having a classified Board of Directors better facilitates a long-term outlook,
and provides the best value to Heartland’s stockholders.
Protection
against Unfair Takeover Proposals. A classified board of
directors can play an important role in protecting stockholders against an
unsolicited takeover proposal at an unfair price. If our Board of Directors was
not classified, a potential acquirer whose nominees receive a plurality of the
votes cast at an annual meeting of the stockholders could replace all or a
majority of the directors with its own nominees, who could then approve the
takeover proposal from that acquirer even if the price did not adequately value
Heartland. Classified board structures have been shown to be an effective means
of protecting long-term stockholder interests from abusive tactics.
A
classified board of directors encourages a potential acquirer to negotiate with
the board of directors on an arm’s-length basis, and provides the board of
directors with more time and leverage to evaluate the takeover proposal,
negotiate the best result for all stockholders and consider alternatives
available to Heartland. Moreover, a potential acquirer can always make a tender
offer to the stockholders of a company which has a classified board of
directors.
Accountability to
Stockholders We believe that a
classified board of directors makes directors no less accountable to
stockholders than a board elected annually. The fiduciary duties of directors
elected to three-year staggered terms are identical to those of directors
elected annually, and Heartland’s directors believe that they are no less
attentive to stockholder concerns as a result of having been elected to
three-year staggered terms than they would be if elected to one year
terms.
Stockholders
have the opportunity on an annual basis to express their opinion of the Board of
Directors or management and to propose to our Board alternative candidates as
directors. We have not received any proposals for alternative candidates for
election to the Board. Further, to the extent that our Board of Directors
declined to nominate a candidate, stockholders can conduct a proxy contest to
replace, or withhold votes from, the directors nominated for election that
year.
While a
board elected annually may be appropriate for some corporations that have large
boards with unitary operations in unregulated industries, that have relatively
uncomplicated operations, or that engage in short-term transactions with assets
and liabilities that do not have long-term affect, we strongly believe that it
is not appropriate for a bank holding company of our size and
focus. We also strongly believe that our performance, policies and
conduct are contrary to any suggestion that our Board is not, or that
classification causes it not to be, accountable or responsive to
stockholders.
Finally,
Heartland’s long history and culture of promoting significant internal ownership
among directors, officers and employees reinforces and ensures strong alignment
with Heartland stockholders' interests.
For the
foregoing reasons, the Board of Directors believes that this stockholder
proposal is not in the best interests of Heartland Financial or in the best
interests of our stockholders. Therefore, the Board of Directors
unanimously recommends a vote “AGAINST” this stockholder
proposal.
FAILURE
TO INDICATE CHOICE
If any stockholder returns a signed
and dated proxy card but fails to indicate a choice in regarding Proposals (1),
(2), (3) or (4) on the proxy card, the shares of such stockholder shall be voted
FOR each such proposal. If a stockholder returns a signed and dated
proxy card but fails to indicate a choice regarding Proposal (5) on the proxy
card, the shares of such stockholder shall be voted AGAINST such
proposal.
OTHER
MATTERS
We do not know of any other matters
that may be presented for consideration at the annual meeting. If any
other business does properly come before the annual meeting, the person named as
proxies on the enclosed proxy card will vote as they deem in our best
interests.
By order of the Board
of Directors
/s/ Lynn B. Fuller
Lynn B. Fuller
Chairman of the Board
Dubuque,
Iowa
April 8,
2009
ALL
STOCKHOLDERS ARE URGED TO SIGN
AND
MAIL THEIR PROXIES PROMPTLY