8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)      December 19, 2008 (December 15, 2008)     

Princeton National Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

0-20050	36-3210283
(Commission File Number)	(IRS Employer Identification No.)

606 South Main Street
Princeton, Illinois	61356
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code           (815) 875-4444           

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-10.1

EX-10.2

EX-10.3

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

               On December 15, 2008, Princeton National Bancorp, Inc. (the “Company”) approved amended and restated employment agreements and deferred compensation plan with its President and Chief Executive Officer, Tony J. Sorcic and its Executive Vice President, James Miller. A summary of the material terms of the amended and restated agreements are as follows.

Employment Agreements

     Mr. Sorcic has an employment agreement with the Company, effective October 23, 2000, which provides for his full-time employment in his present capacity at a base compensation of $211,172 per year, or such increased amount as the Board of Directors of Citizens First National Bank (the “Bank”) may determine, plus fringe and health and welfare benefits. His term of employment is continuously extended so as to have a remaining term of two years, unless terminated sooner as a result of good cause or for good reason (see discussion below). The agreement also provides that Mr. Sorcic shall be eligible to participate in any incentive plans that the Company establishes for its executives.

     Mr. Miller has an employment agreement with the Company, effective January 8, 2003, which provides for his full-time employment in his present capacity at a base compensation of $139,984 per year, or such increased amount as the Board of Directors of the Bank may determine, plus fringe and health and welfare benefits. His term of employment is continuously extended so as to have a remaining term of eighteen months, unless terminated sooner as a result of good cause or for good reason (see discussion below). The agreement also provides that Mr. Miller shall be eligible to participate in any incentive plans that the Company establishes for its executives.

     A post-termination benefit is payable to Mr. Sorcic if, during the term of his employment agreement, the Company or the Bank terminates his employment without cause, Mr. Sorcic terminates his employment for good reason, Mr. Sorcic terminates his employment following a change in control, or the Company or Citizens Bank terminates Mr. Sorcic’s employment within the twenty-four month period following the change in control. Under any of these circumstances, Mr. Sorcic would be entitled to receive a lump sum payment equal to the greater of his monthly salary times twenty-four or the salary payable for the balance of the term of his employment agreement. For the longer of twenty-four months or the period remaining in his employment agreement, Mr. Sorcic also would be entitled to receive all benefits accrued under any incentive and retirement plan of the Company and he and his dependents would continue to be covered by all welfare plans of the Company. In addition, all outstanding stock options would become fully and immediately exercisable.

     If Mr. Sorcic dies during the term of his employment agreement, for a period of 12 months from the date of death, the Company would pay to his beneficiary Mr. Sorcic’s base salary, Mr. Sorcic’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as they would have been provided if Mr. Sorcic were an active employee and, for the period of twenty-four months following the first anniversary of Mr.

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Sorcic’s death, Mr. Sorcic’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as would have been provided if Mr. Sorcic were a retiree of the Company or the Bank.

     If Mr. Sorcic’s employment terminates due to his disability, the Company will continue to pay his base salary from the date of disability until Mr. Sorcic is eligible to receive benefit payments under the Bank’s disability plan. During the period base salary payments continue, Mr. Sorcic will remain eligible to participate in the Company’s welfare benefit plans. Base salary continuation payments are reduced by disability benefits paid to Mr. Sorcic and cease upon the cessation of disability, except salary will be paid for an additional twelve months if neither the Company nor the Bank offer Mr. Sorcic re-employment in the same position he held prior to his disability.

     A post-termination benefit is payable to Mr. Miller if, during the term of his employment agreement, the Company or the Bank terminates his employment without cause, Mr. Miller terminates his employment for good reason, Mr. Miller terminates his employment following a change in control, or the Company or the Bank terminates Mr. Miller’s employment within the twenty-four month period following the change in control. Under any of these circumstances, Mr. Miller would be entitled to receive a lump sum payment equal to the greater of his monthly salary times eighteen or the salary payable for the balance of the term of his employment agreement. For the longer of eighteen months or the period remaining in his employment agreement, Mr. Miller also would be entitled to receive all benefits accrued under any incentive and retirement plan of the Company and he and his dependents would continue to be covered by all welfare plans of the Company. In addition, all outstanding stock options would become fully and immediately exercisable.

     If Mr. Miller dies during the term of his employment agreement, for a period of 12 months from the date of death, Mr. Miller’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as they would have been provided if Mr. Miller were an active employee and for the period of twenty-four months following the first anniversary of Mr. Miller’s death, Mr. Miller’s spouse and other dependents would continue participation in the Company’s welfare benefit plans on the same terms as would have been provided if Mr. Miller were a retiree of the Company or the Bank.

     If Mr. Miller’s employment terminates due to his disability, the Company will continue to pay his base salary from the date of disability until Mr. Miller is eligible to receive benefit payments under the Bank’s disability plan. During the period base salary payments continue, Mr. Miller will remain eligible to participate in the Company’s welfare benefit plans. Base salary continuation payments are reduced by disability benefits paid to Mr. Miller and cease upon the cessation of disability, except salary will be paid for an additional twelve months if neither the Company nor the Bank offer Mr. Miller re-employment in the same position he held prior to his disability.

     A change in control is deemed to occur (i) upon the acquisition by any individual, entity or group of beneficial ownership of more than 25% of the Company’s voting stock; (ii) the commencement of a tender offer or an exchange offer for more than 20% of the Company’s outstanding voting stock; (iii) upon a merger or consolidation of the Company after which the Company’s stockholders immediately prior to the merger hold less than 25% of the voting stock

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of the surviving corporation; (iv) upon a transfer of 25% or more of the Company’s voting stock or substantially all of the property of Company, other than to an entity of which Company owns at least 50% of the voting stock; (v) upon a merger or consolidation of the Bank after which the Bank’s stockholders immediately prior to the merger hold less than 25% of the voting stock of the surviving corporation; or (vi) upon a transfer of 25% or more of the Bank’s voting stock or substantially all of the property of the Bank, other than to an entity of which the Bank owns at least 50% of the voting stock.

Amendments to Employment Agreements with Mr. Sorcic and Mr. Miller

     Effective December 15, 2008 the employment agreements have been amended to reflect current base salaries in effect for Mr. Sorcic and Mr. Miller which are $319,748 and $179,192 respectively. The employment agreements have also been amended to qualify the compensation payable under the employment agreements for exemption from treatment as deferred compensation under Section 409A of the Internal Revenue Code of 1986 (the “Code”). Payments upon death, in the case of Mr. Sorcic and severance payments following termination of employment in the case of Mr. Sorcic and Mr. Miller will generally be paid in a single lump sum payment within 30 days following termination of employment or in the case of the death benefit payable to Mr. Sorcic by March 15 of the calendar year following the calendar year in which Mr. Sorcic dies. In addition, Mr. Sorcic’s and Mr. Miller’s employment agreements have been amended to eliminate Mr. Sorcic’s and Mr. Miller’s right to receive severance benefits following their decision to voluntarily terminate employment following a change in control of the Company for any reason. Finally, as discussed below, Mr. Sorcic’s employment agreement has been amended to provide for certain rights to Company contributions pursuant to the Company’s 2005 Deferred Compensation Plan.

2005 Deferred Compensation Plan

     Mr. Sorcic participates in the Princeton National Bancorp, Inc. 2005 Deferred Compensation Plan. Under the plan, prior to the beginning of each calendar year, Mr. Sorcic may elect to defer the receipt of all or part of his compensation otherwise payable to him for the forthcoming calendar year. The plan provides that amounts Mr. Sorcic defers are credited with earnings at the prime rate minus one and one-half percent, adjusted annually, as reported in the Wall Street Journal.

     Amounts under the plan are generally payable to Mr. Sorcic upon the earliest of (i) the date his employment terminates; (ii) his death; (iii) his total and permanent disability; or (iv) the date of a change in control of the Company or the Bank. A distribution following Mr. Sorcic’s termination of employment may not occur until 6 months following the date of that termination. In addition, Mr. Sorcic may elect to be paid all or a portion of his plan benefits upon an unforeseeable financial emergency, but only to the extent that the payment is necessary to relieve that emergency.

     Amounts payable under the plan are paid either in a lump sum or ten substantially equal payments. Mr. Sorcic may change the form of benefit or waive the payment of plan accounts upon a change in control and elect to receive payments on the next payment date under the plan, but such a change in the form of benefit or a waiver of payment upon a change in control would generally require a five-year delay in the first scheduled payment under the plans.

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     Under the plan, the events that are deemed to constitute a change in control are substantially similar to the events that constitute a change in control under the employment agreement between the Company and Mr. Sorcic. See description above under the section entitled “Employment Agreements.”

Amendments to 2005 Deferred Compensation Plan

     Generally effective January 1, 2005, the plan has been amended to comply with Code Section 409A. Amendments include a revision to the definition of the term “change in control” to increase from 25% to 30% the threshold at which a change in ownership of the Company’s outstanding voting stock will be considered a change in control. In addition, certain provisions restricting the payments of plan benefits upon a plan termination and the amendment of certain defined terms to conform with the requirements of Code Section 409A have been added to the plan. Effective January 1, 2009, the rate at which earnings will be credited to a participant’s account has been changed from the prime rate minus 1 ¹/2 percentage points to the greater of the prime rate minus 1 ¹/2 percentage points or 4%.

     In addition to the changes to plan to conform to the requirements of Code Section 409A, the Company has amended the plan to provide for the crediting of discretionary contributions. Each year, the Company may authorize a discretionary contribution to a participant’s account in the plan. The amount and the terms of vesting for such discretionary contribution may be set forth in an award agreement or an employment agreement between the Company and the participant.

     Effective January 1, 2009, the Company and Mr. Sorcic have agreed to amendments to Mr. Sorcic’s employment agreement providing for an annual allocation to Mr. Sorcic’s account in the plan. Commencing on January 1, 2009 and on each of the following four successive anniversaries of that date, provided that Mr. Sorcic remains employed with the Company as of such date, the Company shall credit $25,000 to Mr. Sorcic’s discretionary contributions account in the plan. Mr. Sorcic shall become vested in such contributions at the rate of 20% per year beginning January 1, 2010, provided he is employed by the Company on that date until he is 100% vested in such contributions on January 1, 2014.

     The vested contributions described above and any earnings thereon shall be paid to Mr. Sorcic in 5 substantially equal installments, with the first installment being paid on the date Mr. Sorcic attains age 61 (i.e., June 3, 2014) and the remaining four installments being paid on each June 3^rd of the following four years. The contributions described above shall otherwise be made and administered in accordance with the terms and conditions of the plan.

Summary of Federal Income Tax Consequences of the Employment Agreements and the Plan

     The amounts payable to the Mr. Sorcic and Mr. Miller pursuant to the employment agreements are generally not included in their income for federal income tax purposes until they are actually paid. Except for any portion of severance payments under the employment agreements that are treated as excess parachute payments, as described below, the payments are intended to be deductible by the Company.

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     The payments under the employment agreements may be considered to be indirectly contingent upon a Change in Control of the Company pursuant to the provisions of Section 280G of the Internal Revenue Code. If the present value as of the date of a Change in Control of the Company, together with all other payments to the Mr. Sorcic or Mr. Miller that are considered directly or indirectly contingent upon a Change in Control, exceeds three times the executive’s base amount, then the amount in excess the executive’s base amount is considered an excess parachute payment. The executive’s base amount is generally defined as the executive’s taxable compensation paid by the Company or its bank affiliates for the five calendar years preceding the year in which the Change in Control of the Company occurs. Excess parachute payments are not deductible by the Company and subject the executive to an excise tax equal to 20% of the excess parachute payment.

     The Company intends that amounts payable pursuant to the employment agreements shall qualify for an exemption from certain requirements of Code Section 409A which include rules regarding the timing of payments to the executives. If the executives are considered key employees pursuant to Code Section 416, then payments to the executives that are considered deferred compensation must not be made until six months following the executive’s termination of employment. The Company intends that the payments under the employment agreements, as amended, will qualify for the short-term deferral exemption under Section 409A. If the employment agreements are subject to, but do not comply with Section 409A, the executive would incur an excise tax equal to 20% of the deferred compensation amounts payable under the employment agreements, plus interest in certain cases.

     Payments under the plan are generally not included in participant’s income for federal income tax purposes until they are actually paid and the payments are intended to be deductible by the Company for federal income tax purposes. Amounts under the plan are generally included in the executive’s compensation for purposes of social security payroll tax purposes at the time such amounts become vested and are not subject to a substantial risk of forfeiture. The Company intends that the plan comply with the requirements with Code Section 409A, including the provision for a six month delay in payments to participants who are considered key employees of the Company as described in the preceding paragraph. If the plan fails to comply with Section 409A, plan participants would be subject to the excise tax and interest described in the preceding paragraph.

Item 9.01 Financial Statements and Exhibits

(d)	Exhibits:
	Exhibit 10.1 Tony J. Sorcic Employment Agreement
	Exhibit 10.2 James Miller Employment Agreement
	Exhibit 10.3 Deferred Compensation Plan

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PRINCETON NATIONAL BANCORP, INC.                              (Registrant)
By:	/s/ Tony J. Sorcic
	Tony J. Sorcic, President and
	Chief Executive Officer

Dated: December 19, 2008

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EXHIBIT INDEX

Number	Description
Exhibit 10.1	Tony J. Sorcic Employment Agreement
Exhibit 10.2	James Miller Employment Agreement
Exhibit 10.3	Deferred Compensation Plan

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into as of this 15th day of December, 2008, by and between Princeton National Bancorp, Inc., a Delaware corporation (“Bancorp”), and Tony J. Sorcic (“Executive”).

WITNESSETH:

     WHEREAS, Executive is currently employed by Bancorp, as its President and Chief Executive Officer;

     WHEREAS, Executive is currently employed by Citizens First National Bank, a National banking association (the “Bank”), as its President and Chief Executive Officer under terms and conditions set forth in the employment agreement entered into between Executive and the Bank dated as of the 23rd day of October, 2000 (the “Prior Agreement”);

     WHEREAS, the Bank is a wholly-owned subsidiary of Bancorp; and

     WHEREAS, Executive and Bancorp desire to enter into this Agreement pertaining to the terms of the continued employment of Executive with Bancorp and the Bank and the security Bancorp is providing to Executive with respect to his employment in lieu of the terms and conditions of the Prior Agreement;

     NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

          1. Employment. Bancorp hereby agrees to continue to employ Executive as its President and Chief Executive Officer, and to cause the Bank to continue to employ Executive as its President Chief Executive Officer and Executive hereby accepts such continued employment by Bancorp and the Bank upon the terms and conditions herein set forth. The primary place of employment shall be at Bancorp’s and the Bank’s principal offices, located at 606 South Main Street, Princeton, Illinois 61356.

          2. Term and Automatic Renewal. The term of this Agreement and Executive’s employment hereunder will be two (2) years commencing as of the date first written above. On each day following the date first written above, this Agreement and the term of Executive’s employment hereunder will automatically renew for one (1) additional day until such time as: (i) the board of directors of Bancorp or Executive elects not to extend the term of this Agreement by

providing written notice to the other of such party’s election not to extend the term beyond the then current termination date; or (ii) Executive’s employment is terminated in accordance with Section 7 of this Agreement.

3.	Duties. Executive will, during the term hereof:
(a)	faithfully and diligently do and perform all such acts and duties and furnish such services as the Boards of Directors of Bancorp or the Bank shall direct;
(b)	do and perform all acts in the ordinary course of Bancorp’s or the Bank’s businesses (with such limits as the Boards of Directors of Bancorp or the Bank may prescribe) necessary and conducive to Bancorp’s and the Bank’s best interests;
(c)	execute all duties attendant to his office; and
(d)	devote his full time, energy, and skill to the business of Bancorp and the Bank and to the promotion of Bancorp’s and the Bank’s best interests, except for vacations, absences made necessary because of illness, authorized leaves of absence, holidays, professional meetings and seminars.

     During the term of this Agreement, Executive shall not, without the consent of the Board of Directors of Bancorp or the Bank, accept other employment or perform other services for compensation, or have any direct or indirect ownership interest in any business in competition with the Bank. Notwithstanding anything to the contrary contained herein, the expenditure of reasonable amounts of time on personal investments and charitable activities shall not be deemed a breach of this Agreement, provided that such activities do not materially interfere with the performance by Executive of his obligations under this Agreement. The Board of Directors of the Bank shall not unreasonably withhold consent to Executive’s service as a member of the board of directors of other companies.

          4. Compensation. Bancorp shall cause Bank to pay to Executive for all services to be performed by Executive during the term of this Agreement;

(a) A Base Salary at the rate of $319,748 per annum, payable in substantially equal periodic monthly payments in accordance with Bancorp’s and the Bank’s practices for other executives, managerial, and supervisory employees,

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as such practices may be determined from time to time (the “Base Salary”); and

(b)

Any annual increase in Base Salary, additional or special compensation, such as incentive pay or other bonuses, based upon Executive’s performance, as the Board of Directors of the Bank, in its discretion, may from time to time determine, based upon annual incentive opportunities made available to Executive by the Bank and upon other discretionary criteria deemed appropriate by the Board of Directors of the Bank.

All such payments will be subject to such deductions as may be required to be made pursuant to law, government regulation or order, or by agreement with, or consent of, Executive.

5.	Fringe Benefits. During the term of this Agreement:
(a)	Automobile. Bancorp shall cause the Bank to provide to Executive a full-size automobile for the exclusive use of Executive and payment of all proper company-related expenses related to such automobile, including insurance costs. Executive shall maintain the records relating to personal use as are required by Bank policy. To the extent that the expenses described in this subsection are not paid directly by Bancorp, Bancorp shall reimburse Executive in accordance with its expense reimbursement policies, but in no event later than March 15 of the calendar year following the calendar year in which the expenses are incurred.
(b)	Memberships. Bancorp will cause the Bank to pay or reimburse Executive for the following:

(i) all reasonable annual dues and membership expenses in two clubs selected and joined by Executive in which memberships are used for or necessary to the performance of Executive’s duties hereunder and all reasonable expenses incurred in furtherance of or in connection with the transaction of the business of Bancorp or the Bank hereunder at such clubs; and

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(ii) all reasonable annual dues and membership expenses in such civic and lunch clubs selected by Executive as are necessary or useful to the performance of Executive’s duties hereunder and all reasonable expenses incurred in furtherance of or in connection with the transaction of the business of Bancorp or the Bank hereunder at such civic and lunch clubs.

     All of the aforementioned amounts subject to reimbursement by the Bank to Executive shall be subject to an accounting by Executive and approval by the Bank. To the extent that the expenses described in this Section 5 are not paid directly by Bancorp, Bancorp shall reimburse Executive in accordance with its expense reimbursement policies, but in no event later than March 15 of the calendar year following the calendar year in which the expenses are incurred.

          6. Additional Benefits. Bancorp shall cause the Bank to provide the following additional benefits to Executive during the term of this Agreement:

(a)	Executive shall be eligible to participate in any incentive plans or arrangements (“Incentive Plans”) that Bancorp or the Bank may establish or practices it may follow for the benefit of its executives as in effect from time to time, and shall be entitled to receive any other bonus or discretionary compensation payments as Bancorp or the Bank may determine from time to time.
(b)	Executive shall be entitled to paid vacations in accordance with the Bank’s customary vacation practice. Executive shall also be entitled to all paid holidays given by the Bank to its other executives.
(c)	Executive and his dependents shall be entitled to participate in and receive benefits under any qualified or supplemental employee pension plan, including any defined benefit retirement plan or defined contribution retirement plan (“Retirement Plans”), health and dental plan, disability plan, survivor income plan, and life insurance plan or arrangement (“Welfare Plans”) made available by the Bank in which Executive is currently eligible to participate, and any additional or substitute Retirement or Welfare Plans Bancorp or the Bank may make available in the future to its executives,

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subject to and on a basis consistent with the terms, conditions, and overall administration of such Retirement or Welfare Plans.

(d)

Commencing on January 1, 2009 and on each of the following four successive anniversaries of that date, provided that Executive remains employed with Bancorp or the Bank as of such date, Bancorp shall credit $25,000 to Executive’s Discretionary Contributions Account in the 2005 Princeton National Bancorp, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”). Executive shall become vested in these contributions in accordance with the following schedule:

Vesting Schedule

Date Executive is Employed	Percentage
January 1, 2010		20	%
January 1, 2011		40	%
January 1, 2012		60	%
January 1, 2013		80	%
January 1, 2014		100	%

The contributions described above and any earnings thereon shall be paid to Executive in 5 substantially equal installments, with the first installment being paid on the date the Participant attains age 61 (i.e., June 3, 2014) and the remaining four installments being paid on each June 3^rd of the following four years. The contributions described above shall otherwise be made and administered in accordance with the terms and conditions of the Deferred Compensation Plan, including the provisions of Section 8(d) of the Deferred Compensation Plan governing the timing and form of payments upon the Executive’s death.

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          7. Termination.

     (a) Good Cause. The Board of Directors of Bancorp may terminate the employment of Executive with Bancorp and the Bank at any time for “Good Cause.” For purposes of the preceding sentence, “Good Cause” shall be deemed to exist if:

(i)	Executive shall engage in acts or omissions constituting dishonesty, willful misconduct, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to the business or property of Bancorp or the Bank;
(ii)	Executive shall be convicted of a felony; or
(iii)	Executive shall continue to substantially non-perform his assigned duties for a period of thirty (30) days after the Bank has given written notice to Executive of such non-performance and its intention to terminate the employment of Executive with Bancorp and the Bank because of such non-performance.

          Without limiting the generality of the foregoing, the following shall not constitute cause for the termination of the employment of Executive or the modification or diminution of any of his authority hereunder:

(i)	any personal or policy disagreement between Executive and Bancorp or the Bank or any member of the Board of Directors of Bancorp or the Bank, or
(ii)	any action taken by Executive in connection with his duties hereunder if Executive acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interest of Bancorp or the Bank and had no reasonable cause to believe his conduct was unlawful.

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          Notwithstanding anything herein to the contrary, in the event Bancorp shall terminate the employment of Executive for cause hereunder, Bancorp shall give at least thirty (30) days prior written notice to Executive specifying the reason or reasons for Executive’s termination.

     (b) Voluntary Termination. Executive shall have the right at any time during the term of this Agreement to terminate his employment with Bancorp upon giving ninety (90) days written notice of said termination to Bancorp.

     (c) Good Reason. Executive may terminate his employment with Bancorp and the Bank at any time for “Good Reason.” “Good Reason” shall be deemed to exist if Executive terminates his employment because, without his express written consent, (i) Bancorp breaches any of the terms of this Agreement, (ii) he is assigned duties materially inconsistent with the duties and responsibilities stated in the by-laws of Bancorp and the Bank for his positions, (iii) the duties and responsibilities for the President stated in the by-laws of Bancorp and the Bank, respectively, are amended to be materially inconsistent with the duties and responsibilities that would typically be expected of a President of Bancorp and the Bank, respectively, or (iv) Bancorp or the Bank changes by 50 miles or more the principal location in which Executive is required to perform services. Upon the occurrence of any event referenced in (i) through (iv) above, Executive shall, within ninety (90) days of such occurrence, provide Bancorp notice of the existence of the condition. Upon receiving notice, Bancorp shall have no more than thirty (30) days to remedy the condition. Executive shall have two years from the date of the initial existence of one of the above events to terminate his employment under this section.

     (d) Change in Control. A “Change in Control” shall be deemed to occur on the earliest of:

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership, as that term is defined in Rule 13d-3 under the

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	Exchange Act, of capital stock of Bancorp entitled to exercise more than twenty-five percent or more of the outstanding voting power of all capital stock of Bancorp entitled to vote for the election of directors (“Voting Stock”);
(ii)	The commencement by any entity, person, or group (other than Bancorp or a subsidiary of Bancorp) of a tender offer or an exchange offer for more than twenty percent of the outstanding Voting Stock of Bancorp;
(iii)	The effective time of (A) a merger or consolidation of Bancorp with one or more other corporation as a result of which the holders of the outstanding Voting Stock of Bancorp immediately prior to such merger or consolidation hold less than 75% of the Voting Stock of the surviving or resulting corporation or (B) a transfer of 25% or more of the Voting Stock, or substantially all of the property of Bancorp, other than to an entity of which Bancorp owns at least 50% of the Voting Stock; or
(iv)	The effective time of (A) a merger or consolidation of the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of the Bank immediately prior to such merger or consolidation hold less than 75% of the Voting Stock of the surviving or resulting corporation or (B) a transfer of 25% or more of the Voting Stock, or substantially all of the property of the Bank, other than to an entity of which Bancorp or the Bank owns at least 50% of the Voting Stock.

     (e) Benefits Upon Termination. The following provisions will apply during the term of this Agreement (i) if the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank for any reason other than Good Cause, (ii) if Executive terminates his employment with Bancorp or the Bank for Good Reason, or (iii)

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if the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank during the twenty-four month period following a Change in Control:

     (A) An amount equal to Executive’s aggregate Base Salary (at the rate most recently determined) for a period equal to the greater of (x) twenty-four months, or (y) the balance of the term of this Agreement pursuant to Paragraph 2 (the “Severance Period”), shall be paid to Executive in a lump sum within thirty (30) days after the date of termination.

     (B) Executive or any other person entitled to receive benefits with respect to Executive under any Incentive Plan, Retirement Plan, or any other plan or program maintained by Bancorp or the Bank shall receive any and all benefits accrued under such Plan or other plan or program, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Incentive Plan and Retirement Plan and other plan or program, and Executive’s employment shall be deemed to have terminated by reason of retirement under each such Plan or other plan or program under circumstances that have the most favorable result for Executive thereunder. Payment shall be made at the earliest date permitted under any such Plan or other plan or program. Notwithstanding the foregoing, this subsection (B) shall be interpreted in a manner that is consistent with Code Section 409A and the timing of payments to the Executive shall be not be changed to the extent that doing so would cause another plan or program to violate the requirements of Code Section 409A and for the Executive to incur excise taxes, interest costs or both.

     (C) During the Severance Period, Executive and his spouse and other dependents will continue to be covered by all Welfare Plans in which he and his spouse and other dependents were participating immediately prior to the date of his termination as if he continued to be an employee of Bancorp or the Bank, and Bancorp will, or will cause the Bank to, continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that,

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if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits. If the Company determines that coverage under the Company’s Welfare Plans can not continue without jeopardizing the tax favored status of such plans or that value of such benefits to Executive, his spouse and other dependents exceeds the amount eligible for exemption as separation pay under Treas. Reg. 1.409-1(b)(9) then, no later than the March 15 of the calendar year following the calendar year in which Executive’s employment terminates, the Company may make a lump sum cash payment to Executive equal to the value of such benefits.

     (f) If the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank for Good Cause or by the voluntary action of Executive without Good Reason, other than due to a Change in Control, Executive’s Base Salary (at the rate most recently determined) and a bonus (a pro rata portion of the bonus paid for the most recent calendar year) shall be paid through the date of his termination, and Bancorp shall have no obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive’s other rights, including but not limited to rights under any Incentive, Retirement or Welfare Plan.

          8. Death. If Executive dies during the term of this Agreement, Bancorp agrees to cause the Bank:

     (a) to pay to his beneficiary an amount equal to Executive’s aggregate annual Base Salary (at the rate most recently determined) in a lump sum payment no later than March 15 of the calendar year following the calendar year in which Executive’s death occurs;

     (b) during the one year period following Executive’s death, (the “Death Benefit Period”), to cover the spouse and other dependents of Executive under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of his death as if he continued to be an employee of Bancorp or the Bank; provided that, if participation in any one or more of such plans and arrangements is

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not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits; and

     (c) for a period of twenty-four (24) months following the Death Benefit Period, to cover the spouse and other dependents of Executive under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of his death as if he were a retired employee of Bancorp or the Bank; provided that, if participation in any one or more of such plans and arrangements is not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits.

Any death benefits payable under this Paragraph 8 are in addition to any other benefits due to Executive or his beneficiaries or dependents from Bancorp, including, but not limited to, payments under any of the Incentive, Retirement and Welfare Plans.

          9. Disability. If Executive incurs a Disability during the term of this Agreement, Executive’s obligation to perform such services hereunder will terminate and in such event Bancorp agrees to cause the Bank:

     (a) to continue to pay Executive his aggregate Base Salary (at the rate most recently determined) from the date of onset of such Disability until such time as Executive is eligible to receive disability benefits under the Bank’s disability plan, as presently or hereafter in effect (the “Disability Period”); and

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     (b) during the Disability Period and such period of time as Executive is eligible to receive disability benefits under the Bank’s disability plan, to continue to cover Executive and his dependents under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of onset of such Disability as if Executive continued to be an employee of Bancorp or the Bank; provided that, if participating in any one or more of such plans and arrangements is not possible under the terms thereunder, Bancorp will provide, or cause the Bank to provide, substantially identical benefits.

          Notwithstanding the foregoing, any payments to Executive pursuant to this Paragraph 9 shall be reduced by the amount of any disability benefits otherwise payable to Executive under any disability program maintained by Bancorp or the Bank. Amounts payable to Executive under this Paragraph 9 shall continue to be paid to a beneficiary designated in writing by him if he dies during the Disability Period. If Executive is receiving benefits hereunder and his disability ceases, his benefits under this Paragraph 9 shall terminate, provided that if his employment with Bancorp and the Bank does not recommence (because no offer of re-employment in the same position is made), the benefits he is then receiving under this Paragraph 9 shall continue for a period of twelve additional months. For purposes of this Agreement, the term “Disability” shall mean a physical or mental disability, as determined by an independent physician selected with the approval of both Bancorp and Executive, which will render Executive incapable of performing his duties under this Agreement for six consecutive months.

          10. Indemnity. Bancorp shall indemnify Executive to the extent provided in Article VIII, Sections 1, 2, 3, 4 and 5 of the by-laws of Bancorp, as may be amended from time-to-time.

          11. Setoff. The payments or benefits payable to or with respect to Executive or his spouse or beneficiary pursuant to this Agreement shall not be reduced by the amount of any claim, counterclaim, recoupment defense or other right of Bancorp or the Bank against Executive or his spouse or other beneficiary or obligation of Executive or his spouse or other beneficiary owing to Bancorp or the Bank. The payment or benefits payable to or with respect to Executive or his spouse or other beneficiary after termination of employment as a result of a change in control shall be absolute and unconditional. No payments or benefits payable to or with respect

-12-

to Executive pursuant to this Agreement shall be reduced by any amount Executive or his spouse or other beneficiary may earn or receive from employment with another employer or from any other source. All amounts so payable by Bancorp and the Bank shall be paid without notice or demand. Each and every such payment made by Bancorp or the Bank shall be final, and Bancorp and the Bank will not seek to recover all or any part of such payment from Executive or from whomsoever may be entitled thereto, for any reason whatsoever.

          12. Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Bancorp, the Bank and their respective customers, representatives and employees is of critical importance to the continued business success of Bancorp and the Bank and that it is the active policy of Bancorp and the Bank to guard as confidential certain information not available to the public and relating to the business affairs of Bancorp and the Bank. In view of the foregoing, Executive agrees that he shall not during the term of this Agreement and at any time thereafter, without the prior written consent of Bancorp, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment with Bancorp or the Bank. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information.

          13. Bancorp Assignment. Neither Bancorp nor Executive may assign this Agreement without the other party’s prior written consent, except that Bancorp’s obligations hereunder shall be binding legal obligations of any successor to all or substantially all of Bancorp’s business by purchase, merger, consolidation or otherwise.

          14. Executive Assignment. No interest of Executive or his spouse or other beneficiary under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment or other alienation or encumbrance of any kind, nor may such interest or right to receive payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse or other beneficiary, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.

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          15. Benefits Unfunded. All rights under this Agreement of Executive and his spouse or other beneficiary, shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of Bancorp or the Bank for payment of any amounts due hereunder. Neither Executive, nor his spouse or other beneficiary shall have any interest in or rights against any specific assets of Bancorp or the Bank, and Executive and his spouse and other beneficiaries shall have only the rights of a general unsecured creditor of Bancorp and the Bank.

          16. Waiver. No waiver by any 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 such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time.

          17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original.

          18. Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby.

          19. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors.

          20. Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such other address as the party being notified may have previously furnished to the other party by written notice.

If to Bancorp:	Princeton National Bancorp, Inc.
	606 South Main Street
	Princeton, Illinois 61356
	Attention: Chairman of the Board
If to Executive:	Tony J. Sorcic
	c/o Princeton National Bancorp, Inc.
	606 South Main Street
	Princeton, Illinois 61356

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          21. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of the State of Illinois.

          22. Entire Agreement. This Agreement contains the entire agreement between Bancorp and Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof, including the Prior Agreement. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Bancorp and Executive.

          23. Withholding. Bancorp or the Bank may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.

          24. Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement.

          25. Compliance with Section 409A. Notwithstanding anything contained herein to the contrary, if at the time of a termination of employment, (i) Executive is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986 (the “Code) , and the regulations and guidance thereunder in effect at the time of such termination (“409A”), and, (ii) any of the payments or benefits provided hereunder may constitute “deferred compensation” under 409A, then, and only to the extent required by such provisions, the date of payment of such payments or benefits otherwise provided shall be delayed for a period of up to 6 months following the date of termination. The parties intend, however, that this Agreement shall be exempt from the 409A as either a separation pay arrangement under Treas. Reg. 1.409A-1(b)(9) or a short term deferral of compensation under 1.409A-1(b)(4). In addition, the provisions of this Agreement relating to Code Section 409A and the severance provisions of Section 7 of this Agreement are effective January 1, 2005.

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          IN WITNESS WHEREOF, Executive has hereunto set his hand, and Bancorp has caused this Agreement to be executed in its name and on its behalf, all as of the day and year first written above.

PRINCETON NATIONAL BANCORP, INC.
By:	/s/ Craig O. Wesner
	Craig O. Wesner,
	Chairman of the Board of Directors
	/s/ Tony J. Sorcic
	Tony J. Sorcic, Executive

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into as of this 15^th day of December, 2008, by and between Princeton National Bancorp, Inc., a Delaware corporation (“Bancorp”), and James Miller (“Executive”).

WITNESSETH:

     WHEREAS, Executive is currently employed by Bancorp, as its Executive Vice President;

     WHEREAS, Executive is currently employed by Citizens First National Bank, a national banking association (the “Bank”), as its Executive Vice President under terms and conditions set forth in the employment agreement entered into between Executive and the Bank dated January 8, 2003 (the “Prior Agreement”);

     WHEREAS, the Bank is a wholly-owned subsidiary of Bancorp; and

     WHEREAS, Executive and Bancorp desire to enter into this Agreement pertaining to the terms of the continued employment of Executive with Bancorp and the Bank and the security Bancorp is providing to Executive with respect to his employment in lieu of the terms and conditions of the Prior Agreement;

     NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

     1. Employment. Bancorp hereby agrees to continue to employ Executive as its Executive Vice President, and to cause the Bank to continue to employ Executive as its Executive Vice President, and Executive hereby accepts such continued employment by Bancorp and the Bank upon the terms and conditions herein set forth. The primary place of employment shall be at Bancorp’s and the Bank’s principal offices, located at 606 South Main Street, Princeton, Illinois 61356.

     2. Term and Automatic Renewal. The term of this Agreement and Executive’s employment hereunder will be eighteen (18) months commencing as of the date first written above. On each day following the date first written above, this Agreement and the term of Executive’s employment hereunder will automatically renew for one (1) additional day until such time as: (i) the Board of Directors of the Company or Executive elects not to extend the term of this Agreement by providing written notice to the other of such party’s election not to extend the term beyond the then current termination date; or (ii) Executive’s employment is terminated in accordance with Section 7

of this Agreement.

     3. Duties. Executive will, during the term hereof:

(a)	faithfully and diligently do and perform all such acts and duties and furnish such services as the Boards of Directors of Bancorp or the Bank shall direct;
(b)	do and perform any acts in the ordinary course of Bancorp’s or the Bank’s businesses (with such limits as the Boards of Directors of Bancorp or the Bank may prescribe) necessary and conducive to Bancorp’s and the Bank’s best interests;
(c)	execute all duties attendant to his office; and
(d)	devote his full time, energy, and skill to the business of Bancorp and the Bank and to the promotion of Bancorp’s and the Bank’s best interests, except for vacations, absences made necessary because of illness, authorized leaves of absence, holidays, professional meetings, and seminars.

     During the term of this Agreement, Executive shall not, without the consent of the Boards of Directors of Bancorp or the Bank, accept other employment or perform other services for compensation, or have any direct or indirect ownership interest in any business in competition with the Bank. Notwithstanding anything to the contrary contained herein, the expenditure of reasonable amounts of time on personal investments and charitable activities shall not be deemed a breach of this Agreement, provided that such activities do not materially interfere with the performance by Executive of his obligations under this Agreement. The Board of Directors of the Bank shall not unreasonably withhold consent to Executive’s service as a member of the board of directors of other companies.

     4. Compensation. Bancorp shall cause the Bank to pay to Executive for all services to be performed by Executive during the term of this Agreement:

(a)	a base salary at the rate of $ 179,192 Per annum, payable in substantially equal periodic monthly payments in accordance with Bancorp’s and the Bank’s practices for other executives, managerial, and supervisory employees, as such practices may be determined from time to time (the “Base Salary”); and
(b)	any annual increase in Base Salary, additional or special compensation, such as incentive pay or other bonuses, based upon Executive’s performance, as

2

the Board of Directors of the Bank, in its discretion, may from time to time determine, based upon annual incentive opportunities made available to Executive by the Bank and upon other discretionary criteria deemed appropriate by the Board of Directors of the Bank.

All such payments will be subject to such deductions as may be required to be made pursuant to law, government regulation or order, or by agreement with, or consent of, Executive.

     5. Fringe Benefits. During the term of this Agreement:

(a) Memberships. Bancorp will cause the Bank to pay or reimburse Executive for the following:

(i)	all reasonable annual dues and membership expenses in one club selected and joined by Executive in which memberships are used for or necessary to the performance of Executive’s duties hereunder and all reasonable expenses incurred in furtherance of or in connection with the transaction of the business of Bancorp or the Bank hereunder at such club; and
(ii)	all reasonable annual dues and membership expenses in such civic and lunch clubs selected by Executive as are necessary or useful to the performance of Executive’s duties hereunder and all reasonable expenses incurred in furtherance of or in connection with the transaction of the business of Bancorp or the Bank hereunder at such civic and lunch clubs.

     All of the aforementioned amounts subject to reimbursement by the Bank to Executive shall be subject to an accounting by Executive and approval by the Bank. To the extent that the expenses described in this Section 5 are not paid directly by Bancorp, Bancorp shall reimburse Executive in accordance with its expense reimbursement policies, but in no event later than March 15 of the calendar year following the calendar year in which the expenses are incurred.

     6. Additional Benefits. Bancorp shall cause the Bank to provide the following additional benefits to Executive during the term of this Agreement:

(a) Executive shall be eligible to participate in any incentive plans or arrangements (“Incentive Plans”) that Bancorp or the Bank may establish or practices it may follow for the benefit of its executives as in effect from time

3

	to time, and shall be entitled to receive any other bonus or discretionary compensation payments as Bancorp or the Bank may determine from time to time.
(b)	Executive shall be entitled to paid vacations in accordance with the Bank’s customary vacation practice. Executive shall also be entitled to all paid holidays given by the Bank to its other executives.
(c)	Executive and his dependents shall be entitled to participate in and receive benefits under any qualified or supplemental employee pension plan, including any defined benefit retirement plan or defined contribution retirement plan (“Retirement Plans”), health and dental plan, disability plan, survivor income plan, and life insurance plan, or arrangement (“Welfare Plans”) made available by the Bank in which Executive is currently eligible to participate, and any additional or substitute Retirement or Welfare Plans Bancorp or the Bank may make available in the future to its executives, subject to and on a basis consistent with the terms, conditions, and overall administration of such Retirement or Welfare Plans.

     7. Termination.

     (a) Good Cause. The Board of Directors of Bancorp may terminate the employment of Executive with Bancorp and the Bank at any time for “Good Cause”. For purposes of the preceding sentence, “Good Cause” shall be deemed to exist if:

(i)	Executive shall engage in an act or omission constituting dishonesty, willful misconduct, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance;
(ii)	Executive shall be convicted of a felony; or
(iii)	Executive shall continue to substantially non-perform his assigned duties for a period of thirty (30) days after the Bank has given written notice to Executive of such non-performance and its intention to terminate the employment of Executive with Bancorp and the Bank because of such non-performance.

Without limiting the generality of the foregoing, the following shall not constitute cause for

4

the termination of employment of Executive or the modification or diminution of any of his authority hereunder:

(i)	any personal or policy disagreement between Executive and Bancorp or the Bank or any member of the board of Directors of Bancorp or Bank; or
(ii)	any action taken by Executive in connection with his duties hereunder if Executive acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interest of Bancorp or the Bank and had no reasonable cause to believe this conduct was unlawful.

     Notwithstanding anything herein to the contrary, in the event Bancorp shall terminate the employment of Executive for cause hereunder, Bancorp shall give at least thirty (30) days prior written notice to Executive.

     (b) Voluntary Termination. Executive shall have the right at any time during the term of this Agreement to terminate his employment with Bancorp upon giving ninety (90) days written notice of said termination to Bancorp

          (c) Good Reason. Executive may terminate his employment with Bancorp and the Bank at any time for “Good Reason”. “Good Reason” shall be deemed to exist if Executive terminates his employment because, without his express written consent: (i) Bancorp breaches any of the terms of this Agreement; (ii) He is assigned duties materially inconsistent with the duties and responsibilities stated in the by-laws of Bancorp and the Bank for his positions; (iii) The duties and responsibilities for the Executive Vice President stated in the by-laws of Bancorp and the Bank, respectively, are amended to be materially inconsistent with the duties and responsibilities that would typically be expected of an Executive Vice President of Bancorp and the Bank, respectively; or (iv) Bancorp or the Bank changes by 50 miles or more the principal location in which Executive is required to perform services. Upon the occurrence of any event referenced in (i) through (iv) above, Executive shall, within ninety (90) of any occurrence, provide Bancorp notice of the existence of the condition. Upon receiving notice, Bancorp shall have no more than thirty (30) days to remedy the condition. Executive shall have two years from the date of the initial existence of a violation of one of the above events to terminate his employment under this section. (a)

          (d) Change in Control. A “Change in Control” shall be deemed to occur on the

5

earliest of:

(i)	the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership, as that term is defined in rule 13d-3 under the Exchange Act, of capital stock of Bancorp entitled to exercise more than twenty-five percent (25%) or more of the outstanding voting power of all capital stock of Bancorp entitled to vote for the election of directors (“Voting Stock”);
(ii)	the commencement by any entity, person, or group (other than Bancorp or a subsidiary of Bancorp) of a tender offer or an exchange offer for more than twenty percent (25%) of the outstanding Voting Stock of Bancorp;
(iii)	the effective time of (A) a merger or consolidation of Bancorp with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp immediately prior to such merger or consolidation hold less than seventy-five percent (75%) of the Voting Stock of the surviving or resulting corporation or (B) a transfer of twenty-five percent (25%) or more of the Voting Stock, or substantially all of the property of Bancorp, other than to an entity of which Bancorp owns at least fifty percent (50%) of the Voting Stock; or
(iv)	the effective time of (A) a merger or consolidation of the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of the Bank immediately prior to such merger or consolidation hold less than seventy-five percent (75%) of the Voting Stock of the surviving or resulting corporation or (B) a transfer of twenty-five percent (25%) or more of the Voting Stock, or substantially all of the property of the Bank, other than to an entity of which Bancorp or the Bank owns at least fifty percent (50%) of the Voting Stock.

6

     (e) Benefits Upon Termination. The following provisions will apply during the term of this Agreement: (i) if the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank for any reason other than Good Cause, (ii) if Executive terminates his employment with Bancorp or the Bank for Good Reason, or (iii) if the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank during the twenty-four month period following a Change in Control:

(i)	An amount equal to Executive’s aggregate Base Salary (at the rate most recently determined) for a period equal to the greater of (x) eighteen months or (y) the balance of the term of this Agreement pursuant to Paragraph 2 (the “Severance Period”), shall be paid to Executive in a lump sum within thirty (30) days after the date of termination.
(ii)	Executive or any other person entitled to receive benefits with respect to Executive under any Incentive Plan, Retirement Plan, or any other plan or program maintained by Bancorp or the Bank shall receive any and all benefits accrued under such Plan or other plan or program, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Incentive Plan and Retirement Plan and other plan or program, the Executive’s employment shall be deemed to have terminated by reason of retirement under each such Plan or other plan or program under circumstances that have the most favorable result for Executive thereunder. Payment shall be made at the earliest date permitted under any such Plan or other plan or program. Notwithstanding the foregoing, this subsection (ii) shall be interpreted in a manner that is consistent with Code Section 409A and the timing of payments to the Executive shall be not be changed to the extent that doing so would cause another plan or program to violate the requirements of Code Section 409A and for the Executive to incur excise taxes, interest costs or both.
(iii)	During the Severance Period, Executive and his spouse and other

7

dependents will continue to be covered by all Welfare Plans in which he and his spouse and other dependants were participating immediately prior to the date of his termination as if he continued to be an employee of Bancorp or the Bank, and Bancorp will, or will cause the Bank to, continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits. If the Company determines that coverage under the Company’s Welfare Plans can not continue without jeopardizing the tax favored status of such plans or that value of such benefits to Executive, his spouse and other dependents exceeds the amount eligible for exemption as separation pay under Treas. Reg. 1.409-1(b)(9) then, no later than the March 15 of the calendar year following the calendar year in which Executive’s employment terminates, the Company may make a lump sum cash payment to Executive equal to the value of such benefits.

(iv)

If the employment of Executive with Bancorp or the Bank is terminated by Bancorp or the Bank for Good Cause or by the voluntary action of Executive without Good Reason, other than due to a Change in Control, Executive’s Base Salary (at the rate most recently determined) and a bonus (a pro-rata portion of the bonus paid for the most recent calendar year) shall be paid through the date of his termination, and Bancorp shall have no obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive’s other rights, including but not limited to rights under any Incentive, Retirement or Welfare Plan.

(8) Death. If Executive dies during the term of this Agreement, Bancorp agrees to cause the Bank:

(a) for a period or one year following Executive’s death, the(“Death Benefit

8

Period”), to cover the spouse and other dependants of Executive under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of his death as if he continued to be an employee of Bancorp or the Bank; provided that, if participation in any one or more of such plans and arrangements is not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits; and

(b)

for a period of twenty-four (24) months following the Death Benefit Period, to cover the spouse and other dependents of Executive under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of his death as if he were a retired employee of Bancorp or the Bank; provided that, if participation in any one or more of such plans and arrangements is not possible under the terms thereof, Bancorp will, or will cause the Bank to, provide substantially identical benefits.

Any death benefits payable under this Paragraph 8 are in addition to any other benefits due to Executive or his beneficiary or dependents from Bancorp, including, but not limited to, payments under any of the Incentive, Retirement, and Welfare Plans.

9. Disability. If Executive incurs a Disability during the term of this Agreement, Executive’s obligation to perform such services hereunder will terminate and in such event Bancorp agrees to cause the Bank: 1.

(a)	to continue to pay Executive his aggregate Base Salary (at the rate most recently determined) from the date of onset of such Disability until such time as Executive is eligible to receive disability benefits under the Bank’s disability plan, as presently or hereafter in effect (the “Disability Period”); and
(b)	during the Disability Period and such period of time as Executive is eligible to receive disability benefits under the Bank’s disability plan, to continue to cover Executive and his dependents under all Welfare Plans in which Executive and his spouse and other dependents were participating immediately prior to the date of onset of such Disability as if Executive

9

continued to be an employee of Bancorp or the Bank; provided that, if participating in any one or more of such plans and arrangements is not possible under the terms thereunder, Bancorp will provide, or cause the Bank to provide, substantially identical benefits.

          Notwithstanding the foregoing, any payments to Executive pursuant to this Paragraph 9 shall be reduced by the amount of any disability benefits otherwise payable to Executive under any disability program maintained by Bancorp or the Bank. Amounts payable to Executive under this Paragraph 9 shall continue to be paid to a beneficiary designated in writing by him if he dies during the Disability Period. If Executive is receiving benefits hereunder and his disability ceases, his benefits under this Paragraph 9 shall terminate, provided that if his employment with Bancorp and the Bank does not recommence (because no offer of re-employment in the same position is made), the benefits he is then receiving under this Paragraph 9 shall continue for a period of twelve (12) additional months. For purposes of this Agreement, the term “Disability” shall mean a physical or mental disability, as determined by an independent physician selected with the approval of both Bancorp and Executive, which will render Executive incapable of performing his duties under this Agreement for six consecutive months.

10.

Indemnity. Bancorp shall indemnify Executive to the extent provided in Article VIII, Sections 1, 2, 3, 4 and 5 of the by-laws of Bancorp, as may be amended from time-to-time.

11.

Setoff. The payments or benefits payable to or with respect to Executive or his spouse or beneficiary pursuant to this Agreement shall not be reduced by the amount of any claim, counterclaim, recoupment defense or other right of Bancorp or the Bank against Executive or his spouse or other beneficiary or obligation of Executive or his spouse or other beneficiary owing to Bancorp or the Bank. The payment of benefits payable to or with respect to Executive or his spouse or other beneficiary after termination of employment as a result of a change in control shall be absolute and unconditional. No payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount Executive or his spouse or other beneficiary may earn or receive from employment with another employer or from any other source. All amounts so payable by Bancorp or the Bank shall be paid without notice or demand. Each and every such payment made by Bancorp or the

10

Bank shall be final, and Bancorp and the Bank will not seek to recover all or any part of such payment from Executive or from whomsoever may be entitled thereto, for any reason whatsoever.

12.	Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Bancorp, the Bank and their respective customers, representatives and employees is of critical importance to the continued business success of Bancorp and the Bank and that it is the active policy of Bancorp and the Bank to guard as confidential certain information not available to the public and relating to the business affairs of Bancorp and the Bank. In view of the foregoing, Executive agrees that he shall not during the term of this Agreement and at any time thereafter, without the prior written consent of Bancorp, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment with Bancorp or the Bank. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial, or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information.
13.	Bancorp Assignment. Neither, Bancorp nor Executive may assign this Agreement without the other party’s prior written consent, except that Bancorp’s obligations hereunder shall be binding legal obligations of any successor to all or substantially all of Bancorp’s business by purchase, merger, consolidation, or otherwise.
14.	Executive Assignment. No interest of Executive or his spouse or other beneficiary under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment or other alienation or encumbrance of any kind, nor may such interest or right to receive payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse or other beneficiary, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.
15.	Benefits Unfunded. All rights under this Agreement of Executive and his spouse or other beneficiary, shall at all times be entirely unfunded, and no provision shall at

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	any time be made with respect to segregating any assets of Bancorp or the Bank for payment of any amounts due hereunder. Neither Executive nor his spouse or other beneficiary, shall have any interest in or rights against any specific assets of Bancorp or the Bank, and Executive and his spouse and other beneficiary shall have only the rights of a general unsecured creditor of Bancorp and the Bank.
16.	Waiver. No waiver by any 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 such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time.
17.	Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original.
18.	Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby.
19.	Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, and successors.
20.	Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such address as the party being notified may have previously furnished to the other party by written notice.

     If to Bancorp: Princeton National Bancorp, Inc.

	606 South Main Street
	Princeton, Illinois 61356
	Attention: Chairman of the Board
If to Executive:	James Miller
	C/O Princeton National Bancorp, Inc.
	606 South Main Street
	Princeton, Illinois 61356

21.	Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of the State of Illinois.
22.	Entire Agreement. This Agreement contains the entire agreement between Bancorp

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	and Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof, including but not limited to the Prior Agreement. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Bancorp and Executive.
23.	Withholding. Bancorp or the Bank may withhold from any payment that is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
24.	Headings. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement.
25.	Compliance with Section 409A. Notwithstanding anything contained herein to the contrary, if at the time of a termination of employment, (i) Executive is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986 (the “Code) , and the regulations and guidance thereunder in effect at the time of such termination (“409A”), and, (ii) any of the payments or benefits provided hereunder may constitute “deferred compensation” under 409A, then, and only to the extent required by such provisions, the date of payment of such payments or benefits otherwise provided shall be delayed for a period of up to 6 months following the date of termination. The parties intend, however, that this Agreement shall be exempt from the 409A as either a separation pay arrangement under Treas. Reg. 1.409A-1(b)(9) or a short term deferral of compensation under 1.409A-1(b)(4). In addition, the provisions of this Agreement relating to Code Section 409A and the severance provisions of Section 7 of this Agreement are effective January 1, 2005.

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          IN WITNESS WHEREOF, Executive has hereunto set his hand, and Bancorp has caused this Agreement to be executed in its name and on its behalf, all as of the day and year first above written.

PRINCETON NATIONAL BANCORP, INC.

/s/ Craig O. Wesner

     Craig O. Wesner

     Chairman of the Board of Directors

/s/ James Miller

     James Miller, Executive

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EX-10.3

Exhibit 10.3

PRINCETON NATIONAL BANCORP, INC.
2005 DEFERRED COMPENSATION PLAN

     1. Establishment. Princeton National Bancorp, Inc., a Delaware corporation (the “Company”), hereby amends and restates the Princeton National Bancorp, Inc. 2005 Deferred Compensation Plan (the “Plan”) in order to comply with the applicable provisions of the American Jobs Creation Act of 2004.

     2. Effective Date. The Plan shall become effective January 1, 2005.

     3. Purpose. The Plan has the purpose of advancing the interests of the Company, the Company’s subsidiary corporation and the shareholders of the Company by helping the Company attract and retain the services of highly qualified executives, upon whose judgment, initiative and efforts the Company is substantially dependent. The Plan also has the objective of providing a means for executives of the Company to accumulate savings through deferral of the payment of their Compensation and to defer the taxation of such Compensation.

     4. Compliance with Law. The Company intends that this Plan comply with the applicable provisions of applicable law, including, by way of example and not limitation, Section 409A of the Internal Revenue Code of 1986 (“Section 409A”) and the regulations promulgated thereunder. Any provision of this Plan which is not in compliance with such laws shall be deemed amended in such matter as is necessary to comply with applicable law and the Participant’s rights under this Plan shall be subject to the provisions of the Plan so amended.

     5. Definitions

     Bank. The term “Bank” shall mean Citizens First National Bank.

     Board of Directors. The term “Board of Directors” or “Board” shall mean the Board of Directors of the Company.

     Change in Control. A “Change in Control” shall be deemed to occur on the earliest of:

(i)

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership, as that term is defined in Rule 13d-3 under the Exchange Act, of capital stock of Company entitled to exercise more than 30% or more of the outstanding voting power of all capital stock of Company entitled to vote for the election of directors (“Voting Stock”);

(ii)

The commencement by any entity, person, or group (other than Company or a subsidiary of Company) of a tender offer or an exchange offer for more than 30% of the outstanding Voting Stock of Company;

(iii)

The effective time of (A) a merger or consolidation of Company with one or more other corporation as a result of which the holders of the outstanding Voting Stock of Company immediately prior to such merger or consolidation hold less than 70% of the Voting Stock of the surviving or resulting corporation or (B) a transfer of 30% or more of the Voting Stock, or substantially all of the property of Company, other than to an entity of which Company owns at least 50% of the Voting Stock; or

(iv)

The effective time of (A) a merger or consolidation of the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of the Bank immediately prior to such merger or consolidation hold less than 70% of the Voting Stock of the surviving or resulting corporation or (B) a transfer of 30% or more of the Voting Stock, or substantially all of the property of the Bank, other than to an entity of which Company or the Bank owns at least 50% of the Voting Stock.

          Notwithstanding the above, no event shall be considered a Change of Control, unless the event also constitutes a change in the ownership or effective control pursuant to Code Section 409A(a)(2)(A)(v) and the final regulations promulgated thereunder.

     Company. The term “Company” shall mean the Princeton National Bancorp, Inc., a Delaware Corporation and its successors and assigns.

     Compensation. The term “Compensation” shall mean the total salary, bonus and other cash compensation payable to a Participant.

     Compensation Committee. The term “Compensation Committee” shall mean the Compensation Committee of the Company’s Board of Directors.

     Crediting Rate. Except as provided below, for any Plan Year, the term “Crediting Rate” shall mean the prime rate as of the first day of the applicable Plan Year minus one and one-half percent. Effective for Plan Years beginning on or after January 1, 2009, the term “Crediting Rate” shall mean the greater of the prime rate as of the first day of the applicable Plan Year minus one and one-half percent or four percent (4%). In all cases, the prime rate shall be the prime rate that is published in the Wall Street Journal, Midwest Edition.

     Deferral Account. The term “Deferral Account” shall have the meaning given in Section 7 of the Plan.

     Discretionary Contribution. The term “Discretionary Contribution” shall mean a contribution by the Company to a Participant’s Deferral Account as authorized by the Compensation Committee of the Board of Directors of the Bank, in its sole discretion. Such contributions may be authorized and further subject to the terms and conditions of an employment agreement between the Company and a Participant.

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     Discretionary Contribution Account. The term “Discretionary Contribution Account” shall mean the portion of the Deferral Account attributable to Discretionary Contributions.

     Disability. The term “Disability” shall mean an inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or is by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

     Election Agreement. The term “Election Agreement” shall mean each and every Election Agreement executed by an Eligible Executive and delivered to the Company hereunder, the form of which is attached to the Plan as Exhibit A, and is incorporated by reference herein.

     Eligible Executive. The term “Eligible Executive” shall mean any present or future executive of the Company, or any affiliate of Company, that adopts this Plan.

     Key Employee. The term “Key Employee” shall have the meaning as set forth in Section 416(i) of the Internal Revenue Code of 1986.

     Matching Contribution. The term “Matching Contribution” shall mean any contribution to a Participant’s Deferral Account made by the Company, in its sole discretion, based on the amount of the Participant’s deferral of Compensation.

     Participant. The term “Participant” shall mean any past or present Eligible Executive who has executed and delivered an Election Agreement to the Company. The Compensation Committee shall have the discretion to determine whether any executive of the Company shall be eligible to participate in this Plan, provided that the executive selected for participation in the Plan is a member of a select group of management or a highly compensated employee.

     Payment Date. The term “Payment Date” shall mean the earliest to occur of the following dates:

(i)	Separation from Service, or in the case of a Key Employee, 6 months following Separation from Service; or;
(ii)	the Participant’s death;
(iii)	the Participant’s Separation from Service due to Disability;
(iv)	the date of a Change in Control of the Company; or
(v)	the date of an Unforeseeable Emergency.

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     Plan. The term “Plan” shall mean the Princeton National Bancorp 2005 Deferred Compensation Plan, as it may be amended from time to time.

     Plan Year. The Plan Year shall be January 1 to December 31 of each year.

     Separation from Service. The term “Separation from Service” shall mean the Participant’s termination of employment for any reason other than death provided that the termination of employment is a Separation from Service as defined in Section 409A and the regulations promulgated thereunder.

     Specified Employee. The term “Specified Employee” shall mean a key employee (as defined in Section 416(i) of the Code without regard to paragraph 5 thereof) of the Company or its Affiliates if any stock of the Company is publicly traded on an established securities market or otherwise.

     Unforeseeable Emergency. The term “Unforeseeable Emergency” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

     6. Executive Elections. Each Eligible Executive shall be given an opportunity by the Company on an annual basis to defer Compensation which such Eligible Executive has the opportunity to earn during the next succeeding Plan Year through service as an Eligible Executive. In order to participate in the Plan for a particular Plan Year, an Eligible Executive must elect in writing to participate, and such election must be made at least one month prior to the first day of the applicable Plan Year, unless otherwise specified by the Compensation Committee, except that the election for the first Plan Year may be made at any time prior to the first day of its effective date. Newly Eligible Executives shall make his or her election within 30 days following the date on which he or she first becomes eligible to participate in the Plan. An Eligible Executive may elect to defer receipt of any portion of Compensation payable for the next succeeding Plan Year. An Eligible Executive or Participant may not change an election for a Plan Year on or after the first day of that Plan Year (except in the case of an Unforeseeable Emergency, and then, only to the extent permitted by Section 409A and the regulations promulgated thereunder, as determined by the Compensation Committee).

     To make an effective election, a properly completed and executed Election Agreement must be received by the Company at the address specified on such Election Agreement.

     7. Deferral Account

          (a) Establishment of Deferral Account. The Company shall establish and maintain a Deferral Account for each Participant. The Deferral Account shall reflect all entries required to be made pursuant to the terms and conditions of the Participant’s Election Agreements made under Plan.

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          (b) Credits to Deferral Account. The Company shall credit to a Participant’s Deferral Account the Compensation that would be payable to the Participant, had the Participant not elected to participate in the Plan. Such crediting shall occur as of the date on which the Participant would have otherwise received the Compensation being deferred pursuant to the Plan absent the Participant’s deferral election.

          The Participant’s Deferral Account shall be credited with a Matching Contribution as of the date and in such amount as is determined by the Company in its sole discretion.

          The Company shall also credit to Participant’s Deferral Account any Discretionary Contributions that it makes on behalf of the Participant which may be stated as a dollar amount or a percentage of the Participant’s compensation. In the event the Company makes a Discretionary Contribution to Participant’s Discretionary Contribution Account, the vested portion of the Participant’s Account shall be a percentage of the total amount credited to his Participant’s Account determined according the vesting schedule provided to the Executive by the Committee upon declaring the Discretionary Contribution. In the alternative, the vesting schedule may be included in an employment agreement between the Company and the Participant.

          Notwithstanding the foregoing, in the event of a Change in Control or the Participant’s death or Disability, the Participant’s entire Deferral Account shall become 100% vested. In the event of Participant’s Separation from Service for any reason other than Change in Control, death or Disability, the Participant shall forfeit any unvested portion of the Discretionary Contribution Account.

          The Participant’s Deferral Account shall be credited at an annual rate equal to the Crediting Rate, compounded quarterly, and such credit shall occur on a quarterly basis, based on the average balance of the Participant’s Deferral Account for that quarter. The Compensation Committee shall keep such records as are necessary to determine the value of a Participant’s Deferral Account. The Compensation Committee shall adjust the Crediting Rate as of the first day of each Plan Year.

     8. Payment of Deferral Account Value

          (a) Deferral Accounts. Except as otherwise provided below, the Company shall, with respect to the Deferral Account for each Participant, cause to be paid to such Participant on or within 30 days after the applicable Payment Date, the value of such vested Deferral Account in either a single lump sum or in ten or fewer substantially equal annual payments, which shall be determined by assuming that the rate of return on the Deferral Account, while it is being paid to the Participant, is the Crediting Rate in effect on the Payment Date, all pursuant to the express terms and conditions of the Plan and the applicable Election Agreement. The Participant’s deferral election shall be made pursuant to Section 6 above. At the time of the Participant’s initial deferral election, the Participant shall designate the form of distribution of such deferred compensation. Prior to December 31, 2008, Participant may change his or her election with respect to the form of benefit payment provided that both of the following conditions are met: (1) the change does not result in the acceleration into 2008 a payment that would otherwise have been made in 2009 or later; and (2) the change does not result in the delay of a payment that would have been made in 2008 until 2009 or

5

later. After December 31, 2008, the Participant may change his or her election with respect to the form of distribution only if (i) such election cannot take effect for at least 12 months after it is made; (ii) except for distributions upon the Participant’s death, Disability, or Unforeseeable Emergency, the election must defer the first scheduled payment for at least 5 years; and (iii) with respect to payments to be made at a specified time or pursuant to a specified schedule, the election must be made at least 12 months before the first scheduled payment. The Participant’s Discretionary Contributions Account shall generally be distributed at the same time as the remainder the Participant’s Deferral Account. Notwithstanding the foregoing, at the time it agrees to make one or more Discretionary Contributions to a Participant’s Deferral Account, the Company may set forth in an award agreement with the Participant or in an employment agreement with the Participant different terms of payment for the Participant’s Discretionary Contribution. Such payment terms shall comply with Code Section 409A and the regulations thereunder,

          (b) Unforeseeable Emergency. Participant may withdraw all or a portion of Participant’s Plan account upon the occurrence of an Unforeseeable Emergency. The amounts distributed with respect to an Unforeseeable Emergency shall not exceed the amounts necessary to satisfy such emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent liquidation of such assets would not itself cause severe financial hardship). Notwithstanding any provision of this Section 8, any distribution on account of an unforeseeable emergency shall satisfy the requirements of Code Section 409A and the regulations thereunder.

          (c) Disability. If a Payment Date occurs by reason of a determination by the Company that the Participant has become Disabled, and if the Disability is due to mental incapacity, any cash payable shall be paid to the Participant’s legally appointed personal representative. If no such representative has been appointed, then payment shall be made to the Participant’s spouse, or if the Participant is then unmarried, then cash to be paid shall be held until the persons, who would be entitled thereto if the Participant were then to die intestate, make proper claim to the Company for such amount. Such payment shall be made to the Participant if the Disability is not due to mental incapacity.

          (d) Death. If a Payment Date occurs because the Participant dies, any cash to be paid shall be paid to the Participant’s beneficiary (or beneficiaries) as designated in the applicable Election Agreement, or, if none are so designated, in the name of and to the legally appointed personal representative of the Participant’s estate. If no legal proceedings for such appointment have been instituted within 60 days after receipt by the Company of notice of the Participant’s death, such payment shall be made as if no legal representative has been appointed in accordance with Section 8(b) above. Notwithstanding the foregoing, if cash payments have already commenced to a Participant and the Participant dies, the remaining payments shall be made to the individuals or entities as otherwise determined in this Section 8(d), at the same time such payments would have been made to the Participant.

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          (e) Six Month Delay. Notwithstanding any provision of this Plan to the contrary, if the Participant is considered a Specified Employee at Separation from Service under such procedures as established by the Company in accordance with Section 409A of the Code, benefit distributions that are made upon Separation from Service may not, to the extent required by Section 409A, commence earlier than 6 months after the date of Separation from Service. Any such distribution or series of distributions to be made due to a Separation from Service shall commence no earlier than the first day of the seventh month following the Separation from Service, provided that to the extent permitted by Section 409A of the Code, only payments scheduled to be paid during the first 6 months after the date of such Separation from Service shall be delayed and such delayed payments shall be paid in a single sum on the first day of the seventh month following the date of such Separation from Service.

     9. Administration. The Compensation Committee shall be generally responsible for the administration of the Plan, but may delegate any portion of such responsibility that the Board determines to be appropriate. The Compensation Committee shall have the power to interpret any Plan provision, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations that they deem necessary or advisable to administer the Plan. The Compensation Committee shall establish a claims procedure for the Plan to resolve any disputes that may arise in the administration of the Plan. The Company shall be the named fiduciary of the Plan.

     10. Status of Deferral Accounts. The Company shall have full and unrestricted use of all property or amounts payable pursuant to the Plan, and title to and beneficial ownership of any assets which the Company may earmark to pay the amounts hereunder shall at all times remain in the Company and no Eligible Executive shall have any property interest whatsoever in any specific assets of the Company. The Deferral Account is not intended to be a trust account or escrow account for the benefit of a Participant or any other person, or an asset segregation for the benefit of a Participant or any other person. The sole right of a Participant, or a Participant’s heirs or personal representatives, is a right as an unsecured general creditor of the Company to claim any dollar amounts consistent with the Participant’s Election Agreement and the Plan. Notwithstanding the above provisions, the Company may establish a grantor trust to provide additional security to Participants that amounts under this Plan will be properly paid, provided that the status of Participants with respect to assets of the grantor trust remains that of general unsecured creditors. In addition, the Company or the Bank may purchase insurance on a Participant’s life to provide for the payment of the Participant’s Account Balance, provided that the Company or the Bank is the sole owner of such insurance. In the event insurance is purchased on the life of a Participant, and the Participant commits suicide within two years following the purchase of such insurance or the Participant makes a material misstatement of fact on an application for such life insurance, then the Participant shall forfeit the portion of his or her Account Balance equal to the premiums paid by the Company for such insurance. The Company shall provide each Participant with an annual report of his or her Deferral Account balances within 30 days following the end of each Plan Year.

     11. Amendment or Termination. The Compensation Committee may, at any time and from time to time, terminate the Plan or make such amendments as it deems advisable; provided, however, that no such termination or amendment shall adversely affect or impair the contract rights of a Participant with respect to an effective Election Agreement, unless such Participant shall consent in writing to such termination or amendment. The Compensation Committee’s right to

7

amend the Plan shall include the right to amend prospectively the Crediting Rate. Notwithstanding anything to the contrary in Section 11, distributions following termination of the Plan shall be made in the same time and manner specified in the Plan except to the extent provided by Code Section 409A and the final regulations thereunder, including, not by way of limitation, Treas. Reg. §1.409A-3(j)(4)(ix)(A)-(D).

     12. Non-Plan Deferral Arrangements. The Company does not intend that this Plan affect any presently existing deferral arrangement or preclude the Company from implementing additional deferral arrangements.

     13. Costs of Enforcement. The Company shall pay all expenses of a Participant, including but not limited to attorney fees, incurred in enforcing payments by the Company pursuant to this Plan.

     14. Future Employment. Nothing in this Plan or in any Election Agreement shall obligate a Participant to continue to serve as an executive, or require the Company to employ the Participant for any period of time. For purposes of this provision, the term “Company” shall include any affiliate of the Company that adopts this Plan.

     15. No Alienation. No amounts deliverable under the Plan or under an Election Agreement shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrances or change, other than by will or the laws of descent and distribution.

     16. Withholding. The Company is entitled to withhold and deduct from any amounts due from the Company to a Participant, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related taxes arising directly or indirectly in connection with the Plan or any Election Agreement, and the Company may require the Participant to remit promptly to the Company the amount of such taxes before taking any future actions with respect to the Participant’s Deferral Accounts or Election Agreements. For purposes of this provision, the term “Company” shall include the any affiliate of the Company that has adopted this Plan.

     17. Binding Effect. This Agreement shall bind the Participant, the Company and any affiliate of the Company that has adopted the Plan, and their beneficiaries, survivors, executors, administrators and transferees.

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     18. Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of Illinois, except to the extent preempted by the laws of the United States of America.

CERTIFICATION

     The foregoing Plan was duly adopted by the Board of Directors on December 20, 2004 and amended on December 15, 2008.

PRINCETON NATIONAL BANCORP, INC.
By: Its:	/s/ Lou Ann Birkey Vice President, Investor Relations &
	Corporate Secretary

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EXHIBIT A

PRINCETON NATIONAL BANCORP, INC.
DEFERRED COMPENSATION PLAN
ELECTION AGREEMENT

Deferral Election

	For the Plan Year beginning January 1, 200 and ending December 31, 200 :
o	I elect to defer                     % of the Compensation payable to me by the Company in exchange for payment in cash upon the applicable Payment Date in accordance with the Plan. Notwithstanding the foregoing election, in no event do I wish to defer Compensation in excess of $                    . (If the latter blank is not completed, there will be no dollar limit on the Compensation deferred for the above referenced Plan Year.)
o	I elect to defer $                      of the Compensation payable to me by the Company in exchange for payment in cash upon the applicable Payment Date in accordance with the Plan. I will start at                      % and increase the percentage when I reach the 401(k) maximum deferral amount of $                      . Notwithstanding the foregoing election, in no event do I wish to defer Compensation in excess of $                    .

Form of Benefit

          If this is your first election as a Participant in the Plan, you must make an election as to the form of the payment of your benefit. If this is not your first election, do not complete this section.

o I elect to receive payment of my Deferral Account under the Plan in a single lump sum within 30 days of the Payment Date determined in accordance with the Plan.

o I elect to receive payment of my Deferral Account under the Plan in                      (not to exceed 10) substantially equal annual payments commencing within 30 days of the Payment Date determined in accordance with the Plan.

A-1

Change in Election of
Form of Benefit

          Except as described below, your benefit payment will be paid or commence to be paid within 30 days following your first Payment Date under the Plan. “Payment Date” means the earliest of your Separation from Service, as defined in the Plan (which includes voluntary or involuntary resignation), your death, the date of a Change in Control, or your Disability. Prior to December 31, 2008, you may change your election with respect to the form of benefit payment provided that both of the following conditions are met: (1) the change does not result in the acceleration into 2008 a payment that would otherwise have been made in 2009 or later; and (2) the change does not result in the delay of a payment that would have been made in 2008 until 2009 or later. After December 31, 2008, you may change your election with respect to the form of distribution only if (i) such election cannot take effect for at least 12 months after it is made; (ii) except for distributions upon your death, Disability, or Unforeseeable Emergency, the election must defer the first scheduled payment for at least 5 years; and (iii) with respect to payments to be made at a specified time or pursuant to a specified schedule, your election must be made at least 12 months before the first scheduled payment.

o I elect to receive payment of my Deferral Account under the Plan in a single lump sum within 30 days of the Payment Date determined in accordance with the Plan.

o I elect to receive payment of my Deferral Account under the Plan in ___ (not more than 10) substantially equal annual payments commencing within 30 days of the Payment Date determined in accordance with the Plan.

          This Election Agreement must be delivered to the Company at Princeton National Bancorp, Inc., 606 South Main Street, Princeton, Illinois 61356; Attention: Secretary at least one month prior to the first day of the applicable Plan Year, unless otherwise specified by the Compensation Committee.

		Dated:
Accepted by the Company this                      day of                     .
By:
Its:	President & C.E.O.

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