EX-10 3 fx102410k2002.txt AGREEMENT TO ORGANIZE & STOCKHOLDER AGREEMENT Exhibit 10.24 Agreement to Organize and Stockholder Agreement This Agreement to Organize and Stockholder Agreement (this "Agreement") dated as of February 1, 2003, is among Heartland Financial USA, Inc., a Delaware corporation (the "Company"), and those individuals who are signatories to this Agreement (individually referred to as an "Investor" and collectively as the "Investors"). Recitals A. A new bank has been organized under the laws of the State of Arizona known as "Red Mountain Bank" (the "Bank"), and a board of directors (the "Board") has been established to supervise and govern the Bank's operations. B. The Company and the Investors (individually, an "Organizer," and collectively, the "Organizers") desire to provide additional capital to the Bank, all pursuant to the terms of this Agreement, and to take all other steps necessary to prepare the Bank to commence retail operations and transact a banking business initially in Mesa, Arizona, and to effect all of the other actions contemplated by this Agreement (collectively, the "Transaction"). C. The Organizers understand that the Transaction requires the approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Banking Department of the State of Arizona (the "Department"), and the Federal Deposit Insurance Corporation (the "FDIC"). D. Upon the completion of the organization of the Bank, the Bank will issue shares of its capital stock (the "Bank Stock") to each of the Organizers in proportion to their contributions to the Bank's capitalization and as otherwise provided in this Agreement. E. The Organizers desire to impose certain restrictions on the sale, transfer or other disposition of the Bank Stock owned by the Investors and to give the Company and the Investors the option to purchase and sell the shares of Bank Stock owned by them under certain circumstances specified in this Agreement. F. With the advice of counsel, the Board carefully considered and negotiated with the Company the terms of the initial draft of this Agreement, and have approved the form of this Agreement as the same was revised based upon such negotiations. Now, therefore, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, each of the Organizers, intending to be legally bound hereby, agrees as follows: Agreements Article 1 Bank Organization and Stock Subscription Section 1.1 Charter. The Organizers agree to use their best efforts to cause the Department to authorize the Bank under the laws of the State of Arizona to commence a banking business and otherwise to effect the Transaction. The date the Bank commences a banking business with the public is referred to as the "Charter Date." Each of the undersigned authorizes John K. Schmidt, an executive officer of the Company, or such other individual who may be chosen from time to time by the Company to serve as the undersigned's lawful agent in connection with the Transaction (the "Agent"), and further acknowledges the employment of William F. Frank as the Bank's president (the "President"). The President and the Agent shall be primarily responsible for preparing and filing all regulatory applications deemed by them to be necessary to effect the Transaction, including, but not limited to, applications with the Federal Reserve, the Department and the FDIC. Each of the Organizers agrees to cooperate fully with the President and the Agent in such efforts. Section 1.2 Subscriptions for Bank Stock. (a) The Organizers agree that the Bank's initial capitalization shall be Fourteen Million Five Hundred Thousand Dollars ($14,500,000) comprised of One Million Four Hundred Fifty Thousand (1,450,000) common shares issued at a price of Ten Dollars ($10.00) per share. The Organizers acknowledge and accept the following subscriptions for Bank Stock: (i) the Company agrees to subscribe for and purchase One Million Two Hundred Thousand (1,200,000) shares, or approximately Eighty Two and Seventy Six Hundredths Percent (82.76%), of the initial issuance of Bank Stock at an aggregate issuance price of Twelve Million Dollars ($12,000,000); and (ii) the Investors agree to subscribe for and purchase, in the aggregate, Two Hundred Fifty Thousand (250,000) shares (the "Initial Organizers' Shares"), or approximately Seventeen and Twenty Four Hundredths percent (17.24%), of the initial issuance of Bank Stock at an aggregate issuance price of Two Million Five Hundred Thousand Dollars ($2,500,000), and each of the Investors individually agrees to subscribe for and purchase Bank Stock in the amount set forth opposite his or her name on Exhibit A attached hereto, provided, however, that it is further acknowledged and reflected on Exhibit A that the Bank has previously received and expended subscription funds from certain of the Investors (the "Prior Funds") and such Investors shall be given full credit against the total amount of subscription funds that would otherwise be due and payable by such Investors pursuant to the terms of this Section. (b) The Organizers agree that Fifty Thousand (50,000) shares of additional Bank Stock, and any of the Initial Organizers' Shares up to a maximum of Twenty Five Thousand (25,000) shares that have not been subscribed for by the Charter Date (collectively, the "Additional Shares"), shall be reserved for issuance to additional investors who are mutually acceptable to the Company and the President (individually, an "Additional Investor"), provided that the issuance price for any Additional Shares which shall be determined by the Board and acceptable to the Company is no less than Eleven Dollars ($11.00) per share and that no Additional Shares shall be issued after the date which is eighteen months (18) after the Charter Date, and provided further, that any Additional Investor becomes a signatory to this Agreement. Except as expressly provided in this Agreement, any Additional Investor who becomes a signatory to this Agreement shall for all purposes of this Agreement be deemed to be an "Organizer" and an "Investor" and shall be entitled to all of the same rights and privileges, and be bound by the same obligations, of any other Organizer or Investor. (c) The Organizers agree that if the Charter Date shall not have occurred by the date which is eighteen (18) months after the date of this Agreement, unless such delay shall have been caused by the material breach by the Company of any material term of this Agreement, or unless such time is extended by mutual agreement of the Organizers, this Agreement shall terminate and each of the Organizers shall: (i) receive a pro rata portion of any of the subscription funds previously contributed (after the satisfaction of all expenses incurred in attempting to organize the Bank, including the preparation and filing of all necessary regulatory applications as described in this Agreement); and (ii) accept such distribution in full satisfaction of any amounts due under this Agreement to or from any of the other Organizers, including the Company. (d) Except as provided below in this Section, payment by an Organizer of the aggregate cash amount for the Organizer's subscription for the Bank Stock (the "Subscription Amount") shall be made in two installments, with the first installment in an amount equal to Ten Percent (10%) of the Organizer's aggregate Subscription Amount (the "First Installment"), and the second installment equal to the balance of the Organizer's Subscription Amount (the "Second Installment"). Notwithstanding the foregoing sentence, however, the amount of the Company's First Installment shall be Five Hundred Thousand Dollars ($500,000) and the amount of its Second Installment shall be Eleven Million Five Hundred Thousand Dollars ($11,500,000). Each of the Organizers irrevocably agrees to deliver to the Agent either cash, or check(s) made payable to "Red Mountain Bank Escrow Fund," in the amount of the Organizer's: (i) First Installment by no later than ten (10) days after the date of each Organizer's execution of this Agreement; and (ii) Second Installment by no later than the Charter Date, unless the Agent and the President jointly determine that the Bank needs additional funds prior to that time in order to complete the Transaction. Notwithstanding anything contained in this Section to the contrary, the full cash amount for the subscription, or the purchase, as the case may be, of Bank Stock by any Additional Investor shall be made at the time the Additional Investor becomes a signatory to this Agreement . (e) The Bank has previously been tendered a "Letter of Intent" by certain prospective shareholders expressing an interest in investing in the Bank. The Bank has elected to terminate all such Letters of Intent by a Letter of Termination sent to each such shareholder together with the uncashed check tendered by each such shareholder together with the Letter of Intent. Section 1.3 Deposit and Expenditure of Organizers' Funds. All funds collected from the Organizers pursuant to this Agreement (the "Organizers' Funds") shall be deposited into a bank account (the "Organization Account") established with the Dubuque Bank and Trust Company, Dubuque, Iowa (the "Escrow Bank"). Upon the signature of the President, funds may be withdrawn from the Organization Account to be used to pay normal and customary expenses relating to the Transaction, including, but not limited to, the following: (a) expenses arising from or relating to the organization, capitalization and operation of the Bank, including the filing of all necessary regulatory applications with the Federal Reserve, the Department and the FDIC to effect the Transaction; (b) accounting, auditing, legal, investment banking, due diligence and appraisal expenses relating to or in connection with the Transaction; (c) salary payments to the President and to any other officers or employees of the Bank that are deemed necessary by the Agent; and (d) other expenses arising from or directly relating to the Transaction; provided, however, that any expenditures in excess of Five Thousand Dollars ($5,000) shall require the joint authorization of the President and the Agent. The Organizers hereby acknowledge that the President and the Agent may begin making withdrawals from the Organization Account immediately, and accordingly, if the Transaction is not consummated, the Organizers will not receive a refund of 100% of the Organizers' Funds. Section 1.4 Books and Records. The President shall ensure that proper records of all expenditures from the Organization Account are maintained and such records shall be available for inspection by any Organizer. The President will prepare and distribute to each Organizer a monthly financial report and a copy of the monthly account statement issued by the Escrow Bank with respect to the Organization Account. Section 1.5 Additional Capital. Each of the Organizers agrees that any additional capital needed by the Bank shall be contributed by the Company in return for the issuance of additional Bank Stock, provided, however, that: (a) each Investor shall receive the right to purchase only that number of shares that would be necessary to allow such Investor to maintain the same percentage ownership of outstanding Bank Stock he or she enjoyed prior to the issuance of any additional shares of Bank Stock to the Company; (b) any right of an Investor to purchase any additional shares of Bank Stock pursuant to the provisions of this Section would not be transferable or assignable (except as provided in Section 3.6) and any shares of Bank Stock purchased in connection with the exercise of such right would be subject to all the terms of this Agreement; (c) any purchase of additional shares by an Investor pursuant to the terms of this Section must be made on the same terms and conditions as the Company; and (d) any such offer to purchase additional Bank Stock could be made to all the Investors in compliance with applicable law and without material expense to the Bank. Except as expressly provided in this Section, each of the Investors hereby waives any right granted to him or her by applicable law or otherwise to subscribe for additional Bank Stock, or if the same is not waivable, each of the Investors hereby agrees to assign to the Company any such subscription right as the same may arise in the future. Article 2 Repurchase Options and Obligations Section 2.1 Repurchase Obligation at Fifth Anniversary. (a) Upon the fifth (5th) anniversary of the Charter Date (the "Fifth Anniversary"), the Company agrees to purchase from the Investors, and each of the Investors agrees to sell to the Company, all of the Bank Stock then owned by the Investors (the "Investors' Stock") on the terms set forth in this Section. The total purchase price for the Investors' Stock shall be an amount equal to the "Repurchase Price," as defined below. (b) Except as provided in this Section, the Repurchase Price shall be the appraised value of the Investors' Stock as of the Fifth Anniversary as determined by Alex Sheshunoff Management Services, Inc. or its successor, or if neither such firm nor its successor is still in existence and performing appraisals of the stock of commercial banks, then by an independent, nationally recognized appraisal firm with no less than (ten) 10 years of experience in appraising the stock of commercial banks, jointly selected by the Company and the Investors (the "Appraised Value"). For purposes of such an appraisal, the value of the Investors' Stock shall be determined as if the whole Bank were being sold. (c) Notwithstanding anything contained herein to the contrary, if on the Fifth Anniversary: (i) the Bank has total assets of greater than Two Hundred Million Dollars ($200,000,000) and has earned greater than a Ten Percent (10%) average annual return on equity during the prior twenty four (24) months (computed in accordance with generally accepted accounting principles and based upon average equity during such twenty four month period), then in no event shall the Appraised Value represent a multiple on the Bank's net earnings for the prior twelve (12) months of less than twelve times (12x) or greater than eighteen times (18x) such trailing twelve (12) months' earnings; and (ii) the Bank has total assets of less than Two Hundred Million Dollars ($200,000,000) or has earned less than a Ten Percent (10%) average annual return on equity during the prior twenty four (24) months (computed in accordance with generally accepted accounting principles and based upon average equity during such twenty four month period), then in no event shall the Appraised Value represent a multiple on the Bank's net earnings for the prior twelve (12) months of less than six times (6x) or greater than twelve times (12x) such trailing twelve (12) months' earnings. For purposes of this Section: (x) the total assets of the Bank shall not include the amount of the assets (calculated at the time of acquisition) of any bank, thrift or other financial institution, or any branch, office or part thereof, acquired by the Bank between the date of this Agreement and the Fifth Anniversary; and (y) in computing return on equity, if the corporate overhead allocation attributed to the Bank by the Company is greater than that attributed proportionately to the Company's other subsidiaries (based on the average assets of each subsidiary), then the return on equity calculation will be adjusted such that the Bank's corporate overhead allocation equals its pro rata percentage share based upon the Bank's percentage of total average assets to the Company's total average consolidated assets. (d) The Repurchase Price shall be paid to Investors (pro rata based upon their respective percentage ownership of the Investors' Stock) in two parts: (i) the first part of the Repurchase Price, which shall be equal to each Investor's total capital contribution as reflected on Exhibit A attached hereto, shall be paid to the Investor, at the Investor's election (but subject to compliance with any applicable securities laws) in cash, common stock of the Company ("Company Stock") or a combination of cash and Company Stock; and (ii) the second part of the Repurchase Price, which shall be equal to each Investor's appropriate share of the remaining balance of the total Repurchase Price, shall be paid to the Investor, at the Company's election (but subject to compliance with any applicable securities laws) in cash, Company Stock or a combination of cash and Company Stock. For purposes of this Section, the per share value of Company Stock shall be equal to the average per share value based upon all trades of Company Stock as reported by the media services of Bloomberg, L.P., or its successor, during the ninety (90) day period prior to the Fifth Anniversary, provided, however, that if on the Fifth Anniversary purchase and sale transactions of the Company Stock are reported on the Nasdaq, then the per share value of Company Stock shall be equal to the average closing prices for Company Stock as reported on Nasdaq during the ninety (90) day period prior to the Fifth Anniversary. Section 2.2 Tender Right. Each of the Investors shall have the right, exercisable at any time after the date hereof and through the Fifth Anniversary, to tender all of the Bank Stock owned by such Investor to the Company for purchase at a cash price equal to such Investor's original investment in Bank Stock, plus a Six Percent (6%) annually compounded rate of return on such original investment (the "Tender Right"). An Investor may exercise the Tender Right by delivering to the Company written notice of such Investor's intention to tender all of the Investor's shares of Bank Stock to the Company for purchase. Upon proper exercise of the Tender Right, the Company hereby agrees to purchase for cash all of the shares of Bank Stock owned by the Investor selling such Bank Stock at the purchase price and on the terms set forth in this Article. Section 2.3 Repurchase Upon Company Change of Control. If at any time after the date hereof and through the Fifth Anniversary there is a "Change of Control of the Company" (as defined below), the Company, or its successor, agrees to purchase from the Investors, and the Investors agree to sell to the Company, all of the Bank Stock then owned by the Investors at a price per share equal to the Control Premium Price, as defined below. For purposes of this Section, a "Change of Control of the Company" shall mean the acquisition by any person or entity (a "Company Acquirer") of: (a) legal or beneficial ownership (as defined by Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of greater than Two Thirds (2/3) of the then issued and outstanding voting stock of the Company through any transaction; or (b) all or substantially all of the assets of the Company. The "Control Premium Price" shall be equal to the per share book value of the Investors' equity interest in the Bank, multiplied by the same multiple of book value as paid by the Company Acquirer for the stock or assets of the Company. For example, if the Company is sold to another entity for three times the Company's book value, the Control Premium Price would be equal to three times the per share book value of the Investors' equity interest in the Bank. Section 2.4 Terms, Time and Place of Closing. (a) Except as otherwise specifically provided by the terms of this Article, the purchase price of any Bank Stock purchased by the Company from any Investor pursuant to the terms of this Article shall be paid by delivery of a certified or cashier's check payable to the order of the selling Investor or Investors in the amount of the purchase price prescribed by the terms of this Article. (b) Except as otherwise specifically provided by the terms of this Article, the closing of the purchase and sale of any Bank Stock to be purchased and sold pursuant to the provisions of this Article (the "Closing") shall be held at such place and time and on such date as may mutually be agreed upon in writing by the Investor and the Company, or, if they fail to agree, at the main office of the Company at 10:00 a.m. on the later of: (i) the tenth (10th) Business Day (as defined below) following the determination of the purchase price to be paid in connection with such purchase of Bank Stock; (ii) thirty (30) Business Days following the action or occurrence that triggers the obligation to purchase such Bank Stock; and (iii) five (5) Business Days after the receipt of any necessary regulatory approvals for such purchase. (c) Except as otherwise specifically provided by the terms of this Article, at the Closing held pursuant to this Article, the Company shall make the delivery described in subsection (a) of this Section and the selling Investor shall deliver to the Company free and clear of all liens, claims and encumbrances (other than those imposed by this Agreement and evidenced by the legend provided for below), a certificate or certificates representing the shares of Bank Stock to be purchased and sold, duly endorsed in blank, with all taxes on the transfer, if any, paid by the transferor thereof. (d) The consummation of any purchase of Bank Stock pursuant to this Article (the "Sale Stock") shall be subject to the receipt by the Company of any necessary regulatory approvals, which the Company agrees to use its best efforts to obtain as soon as practicable, provided, however, that if the Company is unable, after the exercise of diligent efforts, within one hundred twenty (120) days after the last date provided in this Agreement for the closing of the purchase of the Sale Stock, or such longer period of time as may be mutually agreed upon by the prospective purchasers and prospective sellers of the Sale Stock, to obtain any necessary regulatory approvals, then: (i) each of the prospective sellers of the Sale Stock shall be released from any further obligations pursuant to the terms of this Agreement solely with respect to such Sale Stock and shall be free to sell the Sale Stock to any person or entity free of any lien or encumbrance imposed by the terms of this Agreement; and (ii) the Company shall be released from any further obligations pursuant to the terms of this Agreement with respect to the purchase of the Sale Stock and shall have no further rights with respect to the Sale Stock. Article 3 Representations, Warranties And Covenants Section 3.1 Bank Operations. Each of the Organizers agrees to use its, his or her best efforts to cause the Bank to be successful. Each of the Organizers acknowledges and agrees that in addition to core deposit growth, the Organizers will work to expand the Bank's operations through selected acquisitions of banks and other financial institutions, provided, however, that no offer will be made for any such institution without the prior consent of the Company. Section 3.2 Representations, Warranties and Covenants. Each of the undersigned Organizers hereby represents and warrants to, and acknowledges to and agrees with, the Agent, the President and each other Organizer as follows: (a) The attorney, accountant, executive officer or financial investment advisor for the Organizer (collectively, "Advisor") has had a reasonable opportunity to ask questions of and receive information and answers from the other Organizers and persons acting on behalf of the Bank concerning the Transaction, all such questions asked have been answered and all such information requested has been provided to the full satisfaction of the Organizer or the Organizer's Advisor, and the Organizer has extensively and on various occasions discussed with the other Organizers the possible risks of purchasing Bank Stock. (b) No oral or written representations have been made or oral or written information furnished to the Organizer or the Organizer's Advisor(s) in connection with the Organizer's agreement to purchase Bank Stock that were in any way inconsistent with the information stated in this Agreement. (c) The Organizer is not subscribing for Bank Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to each of the undersigned generally or in connection with investments in securities. (d) The Organizer's overall commitment to investments that are not readily marketable is not disproportionate to the Organizer's net worth and the Organizer's investment in the Bank will not cause such overall commitment to become disproportionate to the Organizer's net worth. (e) Any Organizer that is an individual has reached the age of majority in the state in which the Organizer resides, has adequate net worth and means of providing for the Organizer's current needs and personal contingencies, is able to bear the substantial economic risks of the investment in the Bank as evidenced by this Agreement, has no need for liquidity in such investment and, at the present time, could afford a complete loss of such investment. (f) The Organizer, individually or acting through its executive officers, has such knowledge and experience in financial and business matters so as to enable the Organizer to utilize the information made available to him, her or it in connection with his, her or its investment in the Bank in order to evaluate the merits and risks of such an investment and to make an informed investment decision with respect thereto and the Organizer has carefully evaluated the risk of such investment. (g) The Organizer is not relying on the Agent, the President, any other Organizer or any other person acting on behalf of the Bank, the Agent, the President or any of the other Organizers with respect to the Organizer's economic considerations relating to this investment; and in regard to such considerations, the Organizer has relied on the advice of, or has consulted with, his, her or its own Advisor(s). (h) The Organizer is making the investment evidenced hereby solely for the Organizer's own account as principal, for investment purposes only and not with a view to the resale or participation of any portion thereof, and no other person has a direct or indirect beneficial interest in such investment. (i) Any Organizer that is also an Investor acknowledges that the Company is under no obligation to register any Company Stock that the Organizer may receive pursuant to the terms of this Agreement, and further acknowledges that the receipt by the Organizer of any Company Stock is subject to the Company's ability to satisfy the requirements of any applicable federal or state securities laws, provided, however, that during the two-year period following the issuance by the Company to any Investor of any shares of the Company's common stock pursuant to the terms of this Agreement, the Company agrees to use its best efforts to file in a timely manner all reports required to be filed with the Securities and Exchange Commission. (j) The Organizer acknowledges that a legend will be placed on each certificate representing the Bank Stock substantially as follows: Voluntary and involuntary transfer of any of the shares represented by this certificate are governed by and in all respects subject to the terms and conditions of that certain Agreement to Organize and Stockholder Agreement among Heartland Financial USA, Inc. and certain other holders of the Bank's capital stock dated as of February 1, 2003, an executed copy of which has been deposited with the Cashier of the Bank at its registered office in Mesa, Arizona. Such Agreement imposes certain obligations on the holder of these shares in certain circumstances, which obligations and circumstances are described therein. No transfer of such shares will be made on the books of the Bank unless accompanied by evidence of compliance with the terms of such Agreement. (k) The Organizer recognizes that an investment in Bank Stock involves a number of significant risks, including, without limitation, the following considerations: (i) no Federal or state agency has passed upon the Bank Stock or made any finding or determination as to the fairness of the investment in Bank Stock; and (ii) there is no established market for the Bank Stock and it is unlikely that a public market for the Bank Stock will develop. (l) The Organizer acknowledges receipt of copies of certain financial and other information concerning the proposed operations of the Bank, and recognizes that the Bank is a de novo bank to be organized in the future and has no financial or operating history, that the organization and operation of the Bank entails significant risks, including, without limitation, that the organization of the Bank is subject to regulatory approvals and that there are no assurances that such approvals will be obtained. (m) Within five (5) days after receipt of a request from the Agent or the President, the Organizer hereby agrees to provide such information and to execute and deliver such documents as may be reasonably necessary to complete the necessary applications to organize the Bank and to comply with any and all laws and ordinances to which the Bank is subject. (n) The foregoing representations, warranties and agreements, together with all other representations and warranties made or given by the Organizer in any other written statement or document delivered in connection with the transactions contemplated hereby, shall be true and correct in all respects on and as of the date of the delivery of such statement or document as if made on and as of such date and shall survive such date. Section 3.3 Indemnification. Each Organizer agrees to indemnify and hold harmless the Bank, the Agent, the President and each of the other Organizers and all of their respective agents and representatives who are associated with the Transaction and all of the proposed officers and directors of the Bank against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representations or warranty or breach or failure by the undersigned to comply with any covenant or agreement made by the undersigned herein or in any other document furnished by the undersigned to any of the foregoing in connection with the Transaction. Section 3.4 Additional Information. Each of the undersigned hereby acknowledges and agrees that the Agent or the President may make or cause to be made such further inquiry and obtain such additional information from any of the undersigned as he may deem appropriate, and each of the undersigned hereby agrees to cooperate fully with the Agent and the President in this regard. Section 3.5 Irrevocability; Binding Effect. Each of the undersigned hereby acknowledges and agrees that: (a) the undersigned is not entitled to cancel, terminate or revoke this Agreement or any agreements of each of the undersigned hereunder; and (b) this Agreement and such other agreements shall survive the death or disability of each of the undersigned and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. Section 3.6 Transfer Restrictions. Each of the Investors hereby agrees that he or she will not sell, exchange, assign, transfer, pledge, hypothecate, give away (by lifetime transfer) or otherwise encumber or dispose of any shares of Bank Stock at any time owned by him or her without the express prior written consent of the Company, provided, however, that the foregoing shall not prohibit the transfer of shares of Bank Stock by testamentary transfer so long as each recipient of any shares of Bank Stock becomes a party to this Agreement and agrees to be bound by its terms. Article 4 Miscellaneous Section 4.1 Modification. Neither this Agreement nor any provisions hereof shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any such waiver, modification, discharge or termination is sought. Section 4.2 Notices. All notices, consents, waivers and other communications under this Agreement must be in writing (which shall include telecopier communication) and will be deemed to have been duly given if delivered by hand or by nationally recognized overnight delivery service (receipt requested), mailed with first class postage prepaid or telecopied if confirmed immediately thereafter by also mailing a copy of any notice, request or other communication by mail with first class postage prepaid to any Organizer at the address set forth on Exhibit A attached hereto or to such other person or place as an Organizer shall furnish to the other Organizers in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand, when delivered; (b) if mailed in the manner provided in this Section, five (5) Business Days after deposit with the United States Postal Service; (c) if delivered by overnight express delivery service (receipt requested), on the next Business Day after deposit with such service; and (d) if by telecopier, on the next Business Day if also confirmed by mail in the manner provided in this Section. For purposes of this Agreement, "Business Day" means any day except Saturday, Sunday and any day on which the Escrow Bank is authorized or required by law or other government action to close. Section 4.3 Counterparts. This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all parties, notwithstanding that all parties are not signatories to the same counterpart. Section 4.4 Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and there are no representations, covenants or other agreements except as stated or referred to herein. Section 4.5 Severability. Each provision of this Agreement is intended to be severable from every other provision, and the invalidity or illegality of any portion hereof shall not affect the validity or legality of the remainder hereof. Section 4.6 Assignability. This Agreement is not transferable or assignable by any of the undersigned, except as otherwise provided by Section 3.6. Section 4.7 Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa applied to residents of that state executing contracts wholly to be performed in that state. Each of the undersigned irrevocably agrees that any action or proceeding in any way, manner or respect arising out of this Agreement or any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith shall be litigated only in the courts having situs within the City of Dubuque, the State of Iowa, and each of the undersigned hereby consents and submits to the jurisdiction of any local, state or federal court located within such city and state. Each of the undersigned hereby waives any right the Organizer may have to transfer or change the venue of any litigation brought against the undersigned by the Bank or the Agent. Section 4.8 Certificate of Non-Foreign Status. Each of the undersigned declares that, to the best of the Organizer's knowledge and belief, the following statements are true, correct and complete: (a) unless an Internal Revenue Service Form 4224 has been completed, each of the undersigned is not a foreign person for purposes of U.S. income taxation (i.e., the Organizer is not a nonresident alien, nor executing this document as an officer of a foreign corporation, as a partner in a foreign partnership, or as a fiduciary of a foreign employee benefit plan, foreign trust or foreign estate); (b) the following information contained elsewhere in the subscription documents is true, correct and complete: the U.S. taxpayer or employee identification number (e.g., social security number) and the home address; and (c) the undersigned agrees to inform the Bank promptly if the undersigned becomes a nonresident alien. Section 4.9 Director Benefits. Directors of the Bank will be afforded the same benefits as directors of the Company's other financial institution subsidiaries. Section 4.10 Solicitation of Customers or Employees. Commencing with the date of this Agreement and ending on the date that is two (2) years after the effective date of the sale by an Investor of all of his or her Bank Stock (the "Non-Solicitation Period"), such Investor shall not, directly or indirectly, call on, sell to, solicit business from or render services to any of the Bank's customers who were customers of the Bank at the commencement of, and during, the Non-Solicitation Period, or recruit, persuade or attempt to recruit or persuade any employee of the Bank who was an employee of the Bank at the commencement of the Non-Solicitation Period and at the time of any such prohibited act, to leave the Bank's employ, or to become employed by any other person other than the Bank. Section 4.11 Dispute Resolution. Unless otherwise specifically provided for in this Agreement, all disputes, controversies, claims or disagreements arising out of or relating to this Agreement, (singularly, a "Dispute," and collectively, "Disputes") shall be resolved in the following manner (the "Dispute Resolution Process"), provided, however, that the Dispute Resolution Process shall be commenced only if (x) requested in a written notice (the "Notice of Dispute") describing the Dispute that is delivered to all parties to this Agreement and signed by either the Company, or by Investors owning a majority of the Bank Stock owned by all Investors and representing the joint position of all such Investors signing the Notice of Dispute and (y) the Dispute has a liquidated monetary value of greater than Five Hundred Thousand Dollars ($500,000): (a) First, within ten (10) days after the receipt of Notice of Dispute the parties representing the two opposing sides of the Dispute, or representatives of such parties with decision making authority (collectively, the "Dispute Parties," and individually, a "Dispute Party") shall meet and negotiate in good faith for a period of fifteen (15) days in an effort to resolve the Dispute. (b) Second, if within such fifteen (15) day period, the Dispute Parties have not succeeded in negotiating a resolution of the Dispute, they agree to submit the Dispute to mediation in Chicago, Illinois, in accordance with the Commercial Mediation Rules of the American Arbitration Association ("Mediation") and to bear equally the costs of the Mediation. The Dispute Parties will jointly appoint a mutually acceptable mediator, provided, however, they if they are unable to agree upon such appointment within ten (10) days from the conclusion of the negotiation period, then the Dispute Parties shall request the American Arbitration Association to appoint an appropriate mediator. The Dispute Parties shall agree to participate in good faith in the Mediation and negotiations related thereto for a period of thirty (30) days. (c) Third, if the Dispute Parties are still unable to resolve the Dispute within such thirty (30) day mediation period, the Dispute Parties shall resolve the Dispute by submitting the Dispute to binding arbitration in Chicago, Illinois, pursuant to the procedures set forth in Section 4.11(d) ("Arbitration"). (d) Each Dispute Party shall submit the Dispute to Arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in Chicago, Illinois, and under the jurisdiction of the American Arbitration Association in Chicago, Illinois, subject to the following provisions: (i) Each Dispute Party shall set forth in writing and deliver to the arbitrators its position on the issue(s) in Dispute, provided, however, that in all Disputes, there shall be only two positions: the Company's position and the joint position of all Investors who signed the related Dispute Notice. The arbitrators shall have the authority only to rule in favor of one of the two stated positions of one of the Dispute Parties with respect to each different issue, with no compromises or alternative solutions permitted. The arbitrators shall have the authority to rule for a different Dispute Party with respect to each different issue presented. If one of the Dispute Parties fails to submit its position to the arbitrators within the time period provided therefor, the arbitrators shall rule in favor of the stated position of the Dispute Party submitting such position. (ii) Within ten (10) days after submittal of the Dispute to Arbitration, the Dispute Parties shall agree upon an arbitrator. If the Dispute Parties are unable to agree upon an arbitrator, within fifteen (15) days after submittal to arbitration, each Dispute Party shall appoint an arbitrator and within ten (10) days of their appointment the two arbitrators so chosen shall nominate a third arbitrator. If within such ten (10) day period the two arbitrators fail to nominate the third arbitrator, upon written request of either Dispute Party, the third arbitrator shall be appointed by the American Arbitration Association from its commercial dispute panel of arbitrators and both Dispute Parties shall be bound by the appointment so made. If either of the Dispute Parties shall fail to appoint an arbitrator as required under this Section 4.11(d)(ii), the arbitrator appointed by the other Dispute Party shall be the sole arbitrator of the matter. (iii) The decision of the arbitrators (or such single arbitrator) shall be made within thirty (30) days of the close of the hearing in respect of the Arbitration (or such longer time as may be agreed to, if necessary, which agreement shall not be unreasonably withheld, conditioned or delayed) and the award rendered by a majority of the panel of arbitrators (or such single arbitrator) when reduced to writing and signed by them shall be final, conclusive and binding upon the Dispute Parties. Any award rendered shall be final and conclusive upon the Dispute Parties and upon all other Investors and a judgment thereon may be entered in the highest court of a forum, state or federal, having jurisdiction. The expenses of the Arbitration shall be borne equally by the Dispute Parties, provided that each party shall pay for and bear the cost of its own experts, evidence and attorneys' fees, provided, however, that in the discretion of the arbitrators, any award may include the fees and costs of a Dispute Party's attorney if the arbitrator expressly determines that the Dispute Party against whom such award is entered has caused the Dispute, controversy or claim to be submitted to Arbitration in bad faith or as a dilatory tactic. No Arbitration shall be commenced after the date when institution of legal or equitable proceedings based upon such subject matter would be barred by the applicable statute of limitations. (iv) Notwithstanding anything contained in this Section 4.11(d), any Dispute Party shall be entitled to: (A) commence legal proceedings seeking such mandatory, declaratory or injunctive relief as may be necessary to define or protect the rights and enforce the obligations contained herein or to maintain the "status quo ante" of the parties to this Agreement pending the settlement of a Dispute in accordance with the arbitration procedures set forth in this Section 4.11(d); (B) commence legal proceedings involving the enforcement of an Arbitration decision or award or judgment arising out of this Agreement, or (C) join any Arbitration or legal proceeding arising out of this Agreement with any other Arbitration or legal proceeding arising out of this Agreement. The "status quo ante" is defined as the last peaceable, uncontested status between the parties to this Agreement, provided, however, that neither the party bringing the action nor the party defending the action thereby waives its right to Arbitration of any dispute, controversy or claim arising out of or in connection with or relating to this Agreement. Section 4.12 Federal and State Securities and Other Laws. Each of the undersigned should also be aware of the following additional considerations: THE INVESTMENTS EVIDENCED BY THIS AGREEMENT ARE NOT, AND THE BANK STOCK TO BE ISSUED WILL NOT BE, SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENT AGENCY OR OTHERWISE. THE INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATES OR UNDER OTHER APPLICABLE BANKING LAWS OR REGULATIONS. SUCH INTERESTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF SUCH INTERESTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. [Signatures are on following page.] [This space left intentionally blank.] Signatures In witness whereof, this Agreement has been executed by the undersigned Organizers on the date(s) indicated below: Agent President /s/ John K. Schmidt /s/ William F. Frank _________________________ _________________________ John K. Schmidt William F. Frank Social Security Signature Number/FEIN Printed Name Date ____________________ ___________ ____________________ _______ Heartland Financial Heartland Financial USA, Inc. ___________ USA, Inc., a _______ Delaware corporation By: ___________________ Name: ______________ Title: _____________ ____________________ ___________ ____________________ _______ ____________________ ___________ ____________________ _______ ____________________ ___________ ____________________ _______ ____________________ ___________ ____________________ _______ ____________________ ___________ ____________________ _______ ____________________ ___________ ____________________ _______ Exhibit A Total Amount of Amount of Name and Address Number of Subscription First Second of Subscriber Shares (in Dollars) Installment Installment _____________________ _________ ____________ ___________ ___________ Heartland Financial $12,000,000 $ 500,000 $11,500,000 USA, Inc. 1398 Central Avenue Dubuque, Iowa 52001 Steven L. Wilcox $ Prior Funds: $ $50,000 Balance: $_________ Jeff Vogan $ Prior Funds: $ $25,000 Balance: $_________ David Jones $ Prior Funds: $ $10,000 Balance: $_________ Rick Durfee $ Prior Funds: $ $10,000 Balance: $_________ William F. Frank $ Prior Funds: $ $10,000 Balance: $_________