Exhibit 10.7
[HAWTHORN BANCSHARES LETTERHEAD]
[Date]
                                                                           
                                                                                
                                                                                
Dear                                         :
     Hawthorn Bancshares, Inc. (the “Company”) is a party to a Letter Agreement
and accompanying Securities Purchase Agreement — Standard Terms (collectively,
the “Purchase Agreement”) with the United States Department of Treasury
(“Treasury”) that provides for the Company’s participation in the Capital
Purchase Program (“CPP”) established by the Treasury under the Emergency
Economic Stabilization Act of 2008 (“EESA”). Pursuant to the Purchase Agreement,
the Company issued and sold, and the Treasury purchased, shares of the Company’s
preferred stock and warrants for the purchase of the Company’s common stock.
     As a condition to the Company’s continued participation in the CPP and as a
requirement of the Treasury’s investment pursuant to the CPP, the Company is
required to adopt and abide by the Treasury’s standards for executive
compensation and corporate governance as set forth in Section 111(b) of EESA and
in 31 C.F.R. Part 30. To comply with these requirements, and in consideration of
the benefits received as a result of the Company’s participation in the CPP and
your continued employment by the Company or its subsidiaries, and
notwithstanding any other agreement or right set forth in any Benefit Plan
(defined in Section 6 below), by signing this letter agreement you agree as
follows:
     1. Prohibit Golden Parachute Payments. The Company is prohibited from
making or accruing and shall not make or accrue any golden parachute payment to
you if you are either a senior executive officer or one of the five most highly
compensated employees of the Company.
     2. Bonus and Incentive Compensation Clawback. If you are either a senior
executive officer or one of the twenty most highly compensated employees of the
Company, any bonus or other incentive compensation paid to you is subject to
recovery or “clawback” by the Company, and you agree to pay back to the Company
such bonus or other incentive compensation, if all or any portion of such bonus
or incentive compensation is based on materially inaccurate financial statements
of earnings (including, without limitation, statements of earnings, revenues and
gains), or any other materially inaccurate performance criteria, as such terms
are defined and interpreted under 31 C.F.R. Part 30.
     3. Bonus Payments. The Company is prohibited from making and shall not make
any bonus payment to you if you are one of the five most highly compensated
employees of the Company. In addition, the Treasury will review bonuses,
retention awards, and other compensation paid before February 17, 2009 to senior
executive officers and the next twenty most highly compensated employees. Such
payments are subject to recovery by the Treasury if the Treasury determines that
a payment was inconsistent with the purposes of EESA section 111 or the CPP or
otherwise contrary to the public interest.
     4. Tax Gross Up Payment. If you are either a senior executive officer or
one of the twenty most highly compensated employees of the Company, you will not
be entitled to receive from the Company any tax gross-up or other reimbursements
for the payment of taxes.

 

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     5. Effect of Restrictions. If you become contractually entitled to a golden
parachute, tax gross up or bonus payment while the Company is participating in
the CPP (and are prohibited from receiving such a payment due to the
restrictions set forth above), you will not have a right to receive, and you
will not receive, any such payment either (a) while the Company is a current
participant in the CPP or (b) after the Company ceases to participate in the
CPP. The Company’s repayment of all amounts owed to the Treasury will not revive
any payment to which you would have otherwise been contractually entitled but
for the Company’s participation in the CPP and this letter agreement.
     6. Amendment. You hereby acknowledge and agree that each of the Company’s
compensation, bonus, incentive and other benefit plans, arrangements and
agreements, including golden parachute, change of control, severance and
employment agreements (collectively, “Benefit Plans”) with respect to you are
each hereby deemed amended to the extent necessary to comply with the
requirements of the CPP and as set forth in this letter agreement. In no event
will any amendments to the Benefit Plans pursuant to this letter agreement
trigger an adverse change in circumstances or such other adverse change as set
forth in the Benefit Plans.
     7. Waiver. You voluntarily waive any claim against the Company for any
changes to your compensation or benefits that are required to comply with the
Department of the Treasury’s standards for executive compensation and corporate
governance as set forth in Section 111(b) of EESA and in 31 C.F.R. Part 30. This
waiver includes all claims you may have under the laws of the United States or
any state related to the requirements imposed by the aforementioned laws and
regulations, including without limitation a claim for any compensation or other
payments you would otherwise receive, any challenge to the process by which such
laws or regulations were adopted and any tort or constitutional claim about the
effect of these laws or regulations on your employment with the Company.
     8. Definitions and Interpretation. This letter agreement shall be
interpreted as follows:
     a) “bonus payment”, “golden parachute payment”, “gross up” and “senior
executive officer” each has the meaning assigned to such terms in 31 C.F.R.
§30.1.
     b) The determination of whether, and for what periods, you are a “senior
executive officer” or one of the top 5 or top 20 most highly compensated
employees of the Company will be made pursuant to 31 C.F.R. § 30.3.
     c) As used in this letter agreement, the term “Company” includes Hawthorn
Bank and any other entities treated as a single employer with the Company, as
such a determination is made under the definition of “TARP Recipient” in 31
C.F.R. § 30.1.
     d) This letter agreement is intended to, and will be interpreted,
administered and construed to, comply with Section 111 of EESA and 31 C.F.R.
Part 30 (and, to the maximum extent consistent with the preceding, to permit
operation of the Benefit Plans in accordance with their terms before giving
effect to this letter agreement).
     9. Miscellaneous. This letter agreement may be executed in two or more
counterparts, each of which will be deemed to be an original. This letter
agreement will be governed by and construed in accordance with the laws of
Missouri. A signature transmitted by facsimile will be deemed an original
signature. Except as set forth in paragraph 5, this letter agreement will
automatically be of no further force and effect upon the Company ceasing to
participate in the CPP and repaying all obligations to the Treasury arising from
the Treasury’s financial assistance. [This letter agreement supersedes and
replaces the prior agreement between you and the Company relating to executive
compensation that was signed on December ___, 2008 (except that the waiver
delivered in connection therewith is not superseded) — NOTE: only need this
provision for SEOs that signed in December]

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            Sincerely,

HAWTHORN BANCSHARES, INC.
      By:           David T. Turner, President             

AGREED TO AND ACCEPTED
THIS ___DAY OF ___, 20___,
INTENDING TO BE LEGALLY BOUND

                         Name:         Title:      

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PARTIES TO FOREGOING LETTER AGREEMENT
Hawthorn Bancshares, Inc. has entered into letter agreements in the form of the
foregoing letter agreement with each of the following senior executive officers
and other highly compensated employees of Hawthorn Bancshares, Inc. or of its
subsidiary bank:
          James E. Smith
          David T. Turner
          Richard G. Rose
          Kathleen L. Bruegenhemke

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