EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), is made and
entered into as of the 1st day of April, 1996 (the "Effective
Date"), by and between HEARTLAND FINANCIAL USA, INC., a Delaware
corporation (the "Employer"), and JAMES E. LUKAS (the
"Executive").
RECITALS
A. The Employer will own all of the issued and outstanding
stock of the Riverside Community Bank (in formation), Rockford,
Illinois (the "Bank").
B. The Employer desires to employ the Executive as an
officer of the Bank for a specified term.
C. The Executive is willing to accept such employment upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter contained, it is covenanted
and agreed by and between the parties hereto as follows:
AGREEMENTS
Position and Duties. The Employer hereby employs the
Executive as the President of the Bank, or in such other senior
executive capacity as shall be mutually agreed between the
Employer and the Executive. During the period of the Executive's
employment hereunder, the Executive shall devote his best efforts
and full business time, energy, skills and attention to the
business and affairs of the Employer. The Executive's duties and
authority shall consist of and include all duties and authority
customarily performed and held by persons holding equivalent
positions with business organizations similar in nature and size
to the Employer, as such duties and authority are reasonably
defined, modified and delegated from time to time by the board of
directors of the Employer (the "Board"), or the board of
directors of the Bank, provided, however, that in the case of
conflicting directives, those of the board of directors of the
Employer shall control. The Executive shall have the powers
necessary to perform the duties assigned to him and shall be
provided such supporting services, staff, secretarial and other
assistance, office space and accoutrements as shall be reasonably
necessary and appropriate in the light of such assigned duties.
Compensation. As compensation for the services to be
provided by the Executive hereunder, the Executive shall receive
the following compensation, expense reimbursement and other
benefits:
(a) Base Compensation. The Executive shall receive an
aggregate annual minimum base salary at the rate of ninety
thousand dollars ($90,000) payable in installments in accordance
with the regular payroll schedule of the Bank. Such base
compensation shall be subject to review annually commencing in
1996 and shall be maintained or increased during the term hereof
in accordance with the Bank's established management compensation
policies and plans.
(b) Reimbursement of Expenses. The Executive shall be
reimbursed, upon submission of appropriate vouchers and
supporting documentation, for all travel, entertainment and other
out-of-pocket expenses reasonably and necessarily incurred by the
Executive in the performance of his duties hereunder and shall be
entitled to attend seminars, conferences and meetings relating to
the business of the Bank consistent with the Bank's established
policies in that regard.
(c) Other Benefits. The Executive shall be entitled
to all benefits specifically established for him and, when and to
the extent he is eligible therefor, to participate in all plans
and benefits generally accorded to senior executives of the Bank,
including, but not limited to, pension, profit-sharing,
supplemental retirement, incentive compensation, stock option
program, stock purchase plan, disability income, split-dollar
life insurance, group life, medical and hospitalization
insurance, and similar or comparable plans, and also to
perquisites extended to similarly situated senior executives,
provided, however, that such plans, benefits and perquisites
shall be no less than those made available to all other employees
of the Bank.
(d) Withholding. The Bank shall be entitled to
withhold from amounts payable to the Executive hereunder, any
federal, state or local withholding or other taxes or charges
which it is from time to time required to withhold. The Bank
shall be entitled to rely upon the opinion of its legal counsel
with regard to any question concerning the amount or requirement
of any such withholding.
(e) Vacations. The Executive shall be entitled to an
annual vacation in accordance with the vacation policy of the
Bank which vacation shall be taken at a time or times mutually
agreeable to the Bank and the Executive.
(f) Allocations. The Executive and the Employer
intend that the Executive will be an employee of the Bank, and
that the Executive will be devoting his full time and attention
to the affairs of the Bank in his capacity as the Bank's
President. The Employer may allocate to the Bank any portion of
the Executive's salary, cash bonus and other compensation and
benefits that the Employer and the Bank deem to be a lawful and
appropriate allocation, but no such allocation will relieve the
Employer of any of its obligations to the Executive under this
Agreement.
Confidentiality and Loyalty. The Executive acknowledges
that heretofore or hereafter during the course of his employment
he has produced and may hereafter produce and have access to
material, records, data, trade secrets and information not
generally available to the public (collectively, "Confidential
Information") regarding the Employer and its subsidiaries and
affiliates. Accordingly, during and subsequent to termination of
this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any
such Confidential Information, except to the extent that such
information is or thereafter becomes lawfully available from
public sources, or such disclosure is authorized in writing by
the Employer, required by a law or any competent administrative
agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with performance by the
Executive of his duties hereunder. All records, files, documents
and other materials or copies thereof relating to the Employer's
business which the Executive shall prepare or use, shall be and
remain the sole property of the Employer, shall not be removed
from the Employer's premises without its written consent, and
shall be promptly returned to the Employer upon termination of
the Executive's employment hereunder. The Executive agrees to
abide by the Employer's reasonable policies, as in effect from
time to time, respecting avoidance of interests conflicting with
those of the Employer.
Term and Termination.
(a) Basic Term. The Executive's employment hereunder
shall be for a term of three (3) years commencing as of the
Effective Date.
(b) Premature Termination. In the event of the
termination of this Agreement by the Employer for any reason
prior to the receipt by the Employer of regulatory approval to
commence operations of the Bank in Rockford, Illinois, the
Employer shall pay the Executive one year's base salary and shall
continue to provide coverage for the Executive under the health
and life insurance programs maintained by the Employer for one
year following the date of such termination. Payments shall not
be reduced in the event the Executive obtains other employment
following the termination of employment by the Employer.
(c) Constructive Termination. If at any time during
the term of this Agreement, except in connection with a
termination pursuant to paragraph (d) of this Section 4, the
Executive is Constructively Discharged (as hereinafter defined)
then the Executive shall have the right, by written notice to the
Employer within sixty (60) days of such Constructive Discharge,
to terminate his services hereunder, effective as of thirty (30)
days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in this
Section 4 and Section 5 hereof. The Executive shall in such
event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability
insurance as if such termination of his employment was pursuant
to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be
"Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected or is removed
from the positions with the Employer set forth in Section 1
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services of any
of said offices; or
(iii) The Employer otherwise commits a
material breach of its obligations under this Agreement.
(d) Termination for Cause. This Agreement may be
terminated for cause as hereinafter defined. "Cause" shall mean:
(i) the Executive's death or his permanent disability, which
shall mean the Executive's inability, as a result of physical or
mental incapacity, substantially to perform his duties hereunder
for a period of six (6) consecutive months; (ii) a material
violation by the Executive of any applicable material law or
regulation respecting the business of the Employer; (iii) the
Executive being found guilty of a felony, an act of dishonesty in
connection with the performance of his duties as an officer of
the Employer, or which disqualifies the Executive from serving as
an officer or director of the Employer; or (iv) the willful or
negligent failure of the Executive to perform his duties
hereunder in any material respect. The Executive shall be
entitled to at least thirty (30) days' prior written notice of
the Employer's intention to terminate his employment for any
cause (except the Executive's death) specifying the grounds for
such termination, a reasonable opportunity to cure any conduct or
act, if curable, alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position
regarding any dispute relating to the existence of such cause.
(e) Termination upon Death. In the event payments are
due and owing under this Agreement at the death of the Executive,
payment shall be made to such beneficiary as Executive may
designate in writing, or failing such designation, to the
executor of his estate, in full settlement and satisfaction of
all claims and demands on behalf of the Executive. Such payments
shall be in addition to any other death benefits of the Employer
for the benefit of the Executive and in full settlement and
satisfaction of all payments provided for in this Agreement.
(f) Termination upon Disability. The Employer may
terminate the Executive's employment after having established the
Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs
the Executive's ability to substantially perform his duties under
this Agreement which continues for a period of at least one
hundred eighty (180) consecutive days. The Executive shall be
entitled to the compensation and benefits provided for under this
Agreement for any period during the term of this Agreement and
prior to the establishment of the Executive's Disability during
which the Executive is unable to work due to a physical or mental
infirmity. Notwithstanding anything contained in this Agreement
to the contrary, until the date specified in a notice of
termination relating to the Executive's Disability, the Executive
shall be entitled to return to his position with the Employer as
set forth in this Agreement in which event no Disability of the
Executive will be deemed to have occurred.
(g) Termination upon Change of Control.
(i) In the event of a Change in Control (as
defined below) of the Employer and the termination of the
Executive's employment under either A or B below, the Executive
shall be entitled to a lump sum payment equal to two (2) times
the sum of his base salary then payable and an amount equal to
the most recent bonus paid to the Executive. The Employer shall
also continue to provide coverage for the Executive under the
health and life insurance programs for two (2) years following
such termination unless and until the Executive becomes eligible
for coverage under the terms of any other health or life
insurance program of a subsequent employer. The following shall
constitute termination under this paragraph:
A. The Executive terminates his employment
under this Agreement by a written notice to that effect delivered
to the Board within six (6) months after the Change in Control.
B. The Agreement is terminated by the
Employer or its successor either in contemplation of or after the
Change in Control.
(ii) For purposes of this paragraph, the term
"Change in Control" shall mean the following:
A. The consummation of the acquisition by
any person (as such term is defined in Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"))
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty-one percent (51%) or
more of the combined voting power of the then outstanding voting
securities of the Employer; or
B. The individuals who, as of the date
hereof, are members of the Board cease for any reason to
constitute a majority of the Board, unless the election, or
nomination for election by the stockholders, of any new director
was approved by a vote of a majority of the Board, and such new
director shall, for purposes of this Agreement, be considered as
a member of the Board; or
C. Approval by stockholders of the Employer
of: (1) a merger or consolidation if the stockholders,
immediately before such merger or consolidation, do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than forty-nine percent (49%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Employer
outstanding immediately before such merger or consolidation; or
(2) a complete liquidation or dissolution or an agreement for the
sale or other disposition of all or substantially all of the
assets of the Employer.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because fifty-one percent (51%) or more
of the combined voting power of the then outstanding securities
of the Employer are acquired by: (1) a trustee or other
fiduciary holding securities under one or more employee benefit
plans maintained for employees of the entity; or (2) any
corporation which, immediately prior to such acquisition, is
owned directly or indirectly by the stockholders in the same
proportion as their ownership of stock immediately prior to such
acquisition.
(e) Regulatory Suspension and Termination.
(i) If the Executive is suspended from office
and/or temporarily prohibited from participating in the conduct
of the Employer's affairs by a notice served under Section
8(e)(3) (12 U.S.C. 1818(e)(3)) or 8(g) (12 U.S.C. 1818(g)) of
the Federal Deposit Insurance Act, as amended, the Employer's
obligations under this contract shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Employer may in its
discretion (A) pay the Executive all or part of the compensation
withheld while their contract obligations were suspended and (B)
reinstate (in whole or in part) any of the obligations which were
suspended.
(ii) If the Executive is removed and/or
permanently prohibited from participating in the conduct of the
Employer's affairs by an order issued under Section 8(e) (12
U.S.C. 1818(e)) or 8(g) (12 U.S.C. 1818(g)) of the Federal
Deposit Insurance Act, as amended, all obligations of the
Employer under this contract shall terminate as of the effective
date of the order, but vested rights of the contracting parties
shall not be affected.
(iii) If the Employer is in default as defined
in Section 3(x) (12 U.S.C. 1813(x)(1)) of the Federal Deposit
Insurance Act, as amended, all obligations of the Employer under
this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting
parties.
(iv) All obligations of the Employer under this
contract shall be terminated, except to the extent determined
that continuation of the contract is necessary for the continued
operation of the institution by the Federal Deposit Insurance
Corporation (the "FDIC"), at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Employer
under the authority contained in Section 13(c) (12 U.S.C.
1823(c)) of the Federal Deposit Insurance Act, as amended, or
when the Employer is determined by the FDIC to be in an unsafe or
unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
5. Non-Competition Covenant.
(a) Restrictive Covenant. The Employer and the
Executive have jointly reviewed the customer lists and operations
of the Employer and have agreed that the primary service area of
the Employer's lending and deposit taking functions in which the
Executive will actively participate extends to an area
encompassing a fifty (50) mile radius from the main office of the
Bank in Rockford, Illinois. Therefore, as an essential
ingredient of and in consideration of this Agreement and the
payment of the amounts described in Section 2, the Executive
hereby agrees that if his employment under this Agreement is
terminated under any of the circumstances described in either
Section 4(g)(i)A. or Section 4(g)(i)B. of this Agreement, for a
period of one (1) year after such termination (the "Restrictive
Period"), he will not directly or indirectly compete with the
business of the Employer or any of its subsidiaries, including,
but not by way of limitation, by directly or indirectly owning,
managing, operating, controlling, financing, or by directly or
indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to
solicit or induce, any employee or agent of Employer or any of
its subsidiaries to terminate employment with Employer or any of
its subsidiaries and become employed by any person, firm,
partnership, corporation, trust or other entity which owns or
operates, a bank, savings and loan association, credit union or
similar financial institution (a "Financial Institution") within
a fifty (50) mile radius of the Bank's main office in Rockford,
Illinois (the "Restrictive Covenant"). If the Executive violates
the Restrictive Covenant and the Employer brings legal action for
injunctive or other relief, the Employer shall not, as a result
of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the Restrictive Covenant.
Accordingly, the Restrictive Covenant shall be deemed to have the
duration specified in this Section 5(a) computed from the date
the relief is granted but reduced by the time between the period
when the Restrictive Period began to run and the date of the
first violation of the Restrictive Covenant by the Executive. In
the event of a premature termination under Section 4(b), the
Executive will have no continuing obligations to the Employer
under this Section. The foregoing Restrictive Covenant shall not
prohibit the Executive from owning directly or indirectly capital
stock or similar securities which are listed on a securities
exchange or quoted on the National Association of Securities
Dealers Automated Quotation System which do not represent more
than one percent (1%) of the outstanding capital stock of any
Financial Institution.
(b) Remedies for Breach of Restrictive Covenant. The
Executive acknowledges that the restrictions contained in
Sections 3 and 5(a) of this Agreement are reasonable and
necessary for the protection of the legitimate business interests
of the Employer, that any violation of these restrictions would
cause substantial injury to the Employer and such interests, that
the Employer would not have entered into this Agreement with the
Executive without receiving the additional consideration offered
by the Executive in binding himself to these restrictions and
that such restrictions were a material inducement to the Employer
to enter into this Agreement. In the event of any violation or
threatened violation of these restrictions, the Employer, in
addition to and not in limitation of, any other rights, remedies
or damages available to the Employer under this Agreement or
otherwise at law or in equity, shall be entitled to preliminary
and permanent injunctive relief to prevent or restrain any such
violation by the Executive and any and all persons directly or
indirectly acting for or with him, as the case may be.
6. Intercorporate Transfers. If the Executive shall be
voluntarily transferred to an affiliate of the Employer, such
transfer shall not be deemed to terminate or modify this
Agreement and the employing corporation to which the Executive
shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead
as the Employer as of the date of such transfer. For purposes
hereof, an affiliate of the Employer shall mean any corporation
directly or indirectly controlling, controlled by, or under
common control with the Employer.
7. Interest in Assets. Neither the Executive nor his
estate shall acquire hereunder any rights in funds or assets of
the Employer, otherwise than by and through the actual payment of
amounts payable hereunder; nor shall the Executive or his estate
have any power to transfer, assign, anticipate, hypothecate or
otherwise encumber in advance any of said payments; nor shall any
of such payments be subject to seizure for the payment of any
debt, judgment, alimony, separate maintenance or be transferable
by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
8. Indemnification.
(a) The Employer shall hold harmless and indemnify the
Executive (and his heirs, executors and administrators) to the
fullest extent permitted under applicable law against all
expenses and liabilities reasonably incurred by him in connection
with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been an officer of the
Employer or any of its subsidiaries (whether or not he continues
to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements.
(b) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding
for which the Employer has agreed to provide indemnification
under this Section 8, the Employer shall, to the full extent
permitted under applicable law, advance all expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in
settlement (collectively "Expenses") incurred by the Executive in
connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or
proceeding, subject to receipt by the Employer of a written
undertaking from the Executive to reimburse the Employer for all
Expenses actually paid by the Employer to or on behalf of the
Executive in the event it shall be ultimately determined that the
Executive is not entitled to indemnification by the Employer for
such Expenses.
9. General Provisions.
(a) Successors; Assignment. This Agreement shall be
binding upon and inure to the benefit of the Executive, the
Employer and his and its respective personal representatives,
successors and assigns, and any successor or assign of the
Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the
business and/or assets of the Employer, whether directly or
indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
as the Employer would be required to perform if no such
succession had taken place.
(b) Entire Agreement; Modifications. This Agreement
constitutes the entire agreement between the parties respecting
the subject matter hereof, and supersedes all prior negotiations,
undertakings, agreements and arrangements with respect thereto,
whether written or oral. Except as otherwise explicitly provided
herein, this Agreement may not be amended or modified except by
written agreement signed by the Executive and the Employer.
(c) Enforcement and Governing Law. The provisions of
this Agreement shall be regarded as divisible and separate; if
any of said provisions should be declared invalid or
unenforceable by a court of competent jurisdiction, the validity
and enforceability of the remaining provisions shall not be
affected thereby. This Agreement shall be construed and the
legal relations of the parties hereto shall be determined in
accordance with the laws of the state of Illinois without
reference to the law regarding conflicts of law.
(d) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be settled
exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the main office of the Employer, in
accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of
his right to be paid through the date of termination during the
pendency of any dispute or controversy arising under or in
connection with this Agreement.
(e) Legal Fees. All reasonable legal fees paid or
incurred by the Executive pursuant to any dispute or question of
interpretation relating to this Agreement shall be paid or
reimbursed by the Employer if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
(f) Waiver. No waiver by either party at any time of
any breach by the other party of, or compliance with, any
condition or provision of this Agreement to be performed by the
other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) Notices. Notices pursuant to this Agreement shall
be in writing and shall be deemed given when received; and, if
mailed, shall be mailed by United States registered or certified
mail, return receipt requested, postage prepaid; and if to the
Employer, addressed to the principal headquarters of the
Employer, attention: President; or, if to the Executive, to the
address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified
shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
HEARTLAND FINANCIAL USA, INC.
By: \s\ Lynn B. Fuller \s\ James E. Lukas
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