Document:

exhibit101090707.htm

    CHANGE
      OF CONTROL AGREEMENT

     

    THIS
      CHANGE OF CONTROL AGREEMENT (this “Agreement”) is made as of
      the [__] day of [_________________] 2007, (the
“Effective Date”) by and between HEARTLAND
      FINANCIAL USA, INC.,
      an Iowa corporation, (the “Company”) and «Employee» (the
“Employee”).

     

    RECITALS

    A.           The
      Employee is currently serving as an employee of the Company or one of its
      Affiliates.

     

    B.           The
      Company desires to continue to employ the Employee as an employee of the Company
      or one of its Affiliates and the Employee is willing to continue such
      employment.

     

    C.           The
      Company recognizes that circumstances may arise in which a change of control
      of
      the Company through acquisition or otherwise may occur thereby causing
      uncertainty of employment without regard to the competence or past contributions
      of the Employee, which uncertainty may result in the loss of valuable services
      of the Employee, and the Company and the Employee wish to provide reasonable
      security to the Employee against changes in the employment relationship in
      the
      event of any such change of control.

     

    NOW,
      THEREFORE, in consideration of the premises and of the covenants and
      agreements hereinafter contained, it is covenanted and agreed by and between
      the
      parties hereto as follows:

     

    1.  Payment
      of Severance Amount.  If the Employee’s employment by the
      Company, or any Affiliate or successor of the Company, shall be subject to
      a
      Termination within the Covered Period, then the Company shall provide the
      Employee the following benefits:

     

    A.  Commencing
      on the Termination Date, the Employee shall receive the applicable Severance
      Amount (less any amount described in Section 1B
      below) paid in twelve (12) substantially equal monthly
      installments, with each successive payment being due on the monthly anniversary
      of the Termination Date.

     

    B.  To
      the
      extent any portion of the applicable Severance Amount exceeds the “safe harbor”
amount described in Treasury Regulations Section 1.409A-1(b)(9)(iii)(A), the
      Employee shall receive such portion of the applicable Severance Amount that
      exceeds the “safe harbor” amount in a single lump sum payment payable within
      five (5) days after the Employee’s Termination that is related to the Change of
      Control.

     

    C.  Within
      five (5) days after the Employee’s Termination that is related to the Change of
      Control, the Company shall pay the Employee a lump sum payment in an amount
      equal to the sum of all amounts earned or accrued through the Termination Date,
      including any annual salary, bonus, vacation pay, sick pay or other paid time
      off, which has accrued but has not been paid or used.

     

    The
      Employee’s rights following a Termination with respect to any benefits,
      incentives or awards provided to the Employee pursuant to the terms and
      conditions of any plan, program or arrangement sponsored or maintained by the
      Company, whether tax-qualified or not, including but not limited to the
      Company’s 2005 Long-Term Incentive Plan, which are not specifically addressed
      herein, shall be subject to the terms and conditions of such plan, program
      or
      arrangement and this Agreement shall have no effect upon such terms and
      conditions except as specifically provided herein.

     

    2.  Definitions.  As
      used throughout this Agreement, all of the terms defined in this paragraph
      2
      shall have the meanings given below.

     

    A.  An
      “Affiliate” shall mean any entity which owns or controls, is
      owned by or is under common ownership or control with, the Company.

     

    B.  “Base
      Compensation” shall mean the amount equal to the sum of (i) the greater
      of Employee’s then-current annual salary or the Employee’s annual salary as of
      the date one (1) day prior to the Change of Control; (ii) the average of the
      three (3) most recent bonuses paid to the Employee; and (iii) the average of
      the
      three (3) most recent contributions made by the Company on behalf of the
      Employee to the Company’s tax-qualified retirement plans (which, as of the date
      hereof, includes the profit sharing plan, the money purchase pension plan and
      the 401(k) plan).

     

    C.  A
      “Change of Control” shall mean:

    
      	
              (i)  

            	
              the
                consummation of the acquisition by any person (as such term is defined
                in
                Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
                amended
                (the “1934 Act”)) of beneficial ownership (within the
                meaning of Rule 13d-3 promulgated under the 1934 Act) of fifty-one
                percent
                (51%) or more of the combined voting power of the then outstanding
                Voting
                Securities of the Company; or

               

            

    

    
      	
              (ii)  

            	
              the
                individuals who, as of the date hereof, are members of the Board
                of
                Directors of the Company (the “Board”) cease for any
                reason to constitute a majority of the Board, unless the election,
                or
                nomination for election by the stockholders, of any new director
                was
                approved by a vote of a majority of the Board, and such new director
                shall, for purposes of this Agreement, be considered as a member
                of the
                Board; or

               

            

    

    
      	
              (iii)  

            	
              the
                consummation by the Company of:  (1) a merger or consolidation
                if the stockholders, immediately before such merger or consolidation,
                do
                not, as a result of such merger or consolidation, own, directly or
                indirectly, more than fifty-one percent (51%) of the combined voting
                power
                of the then outstanding Voting Securities of the entity resulting
                from
                such merger or consolidation in substantially the same proportion
                as their
                ownership of the combined voting power of the Voting Securities of
                the
                Company outstanding immediately before such merger or consolidation;
                or
                (2) a complete liquidation or dissolution or an agreement for the
                sale or other disposition of all or substantially all of the assets
                of the
                Company.

            

    

     

    Notwithstanding
      the foregoing, a Change of Control shall not be deemed to occur solely because
      fifty-one percent (51%) or more of the combined voting power of the then
      outstanding securities of the Company are acquired by:  (1) a trustee
      or other fiduciary holding securities under one or more employee benefit plans
      maintained for employees of the entity; or (2) any corporation which,
      immediately prior to such acquisition, is owned directly or indirectly by the
      stockholders in the same proportion as their ownership of stock immediately
      prior to such acquisition.

     

    D.  “Covered
      Period” shall mean the period beginning six (6) months prior to a
      Change of Control and ending twenty-four (24) months after a Change of
      Control.

     

    E.  “Good
      Reason” shall mean the Employee’s voluntary Termination of employment
      for one or more of the following reasons; provided, however, that for
      any of the following events that occur during the six (6) month period prior
      to
      a Change of Control, the Employee may only voluntarily terminate employment
      for
      Good Reason based upon such circumstances by giving written notice (as described
      below) on or before the date which is 30 days following such Change of
      Control:

     

    
      	
              (i)  

            	
              an
                adverse change in the nature, scope or status of the Employee’s position,
                authorities or duties from those in effect immediately prior to the
                Covered Period, including, without limitation, if the Employee ceases
                to
                be an executive officer of a public company, if immediately prior
                to the
                Covered Period the Employee was an executive officer of a public
                company;

               

            

    

    
      	
              (ii)  

            	
              a
                reduction in Employee’s annual salary, bonus opportunity, benefits, or
                other compensation plan;

               

            

    

    
      	
              (iii)  

            	
              relocation
                of Employee’s primary place of employment of more than 50 miles from
                Employee’s primary place of employment prior to the Covered Period or a
                requirement that Employee engage in travel that is materially greater
                than
                prior to the Covered Period;

               

            

    

    
      	
              (iv)  

            	
              failure
                by the acquirer to assume this Agreement at the time of the Change
                of
                Control, or;

               

            

    

    
      	
              (v)  

            	
              a
                material breach by the Company, or its successor, of this
                agreement.

            

    

     

    Notwithstanding
      the foregoing, prior to the Employee’s voluntary Termination for Good Reason,
      the Employee must give the Company written notice of the existence of any
      condition set forth in clause (i) – (v) above within 90 days of such initial
      existence and the Company shall have 30 days from the date of such notice in
      which to cure the condition giving rise to Good Reason, if
      curable.  If, during such 30-day period, the Company cures the
      condition giving rise to Good Reason, no benefits shall be due under paragraph
      1
      of this Agreement with respect to such occurrence.  If, during such
      30-day period, the Company fails or refuses to cure the condition giving rise
      to
      Good Reason, the Employee shall be entitled to benefits under paragraph 1 of
      this Agreement upon such Termination; provided such Termination occurs within
      24
      months of such initial existence of the applicable condition.

     

    F.  “Severance
      Amount” shall mean an amount equal to [2.0 – Fuller] [1.75 –
Schmidt] [1.50 – Erickson and Everts] [1.0 - others] times the
      Employee’s Base Compensation.

     

    G.  “Termination”
      shall mean termination of the Employee’s employment either:

     

    
      	
              (i)  

            	
              by
                the Company or its successor, as the case may be, other than a Termination
                for Cause or any termination as a result of death or disability;
                or

               

            

    

    
      	
              (ii)  

            	
              by
                the Employee for Good Reason.

               

            

    

    
      	
              (iii)  

            	
              Voluntary
                retirement by the Employee shall not constitute a “Termination” hereunder,
                unless it otherwise constitutes a Good Reason
                termination.

            

    

     

    H.  “Termination
      Date” shall mean the date of employment termination indicated in the
      written notice provided by the Company or the Employee to the
      other.

     

    I.  “Termination
      for Cause” shall mean only a termination by the Company as a result of:

     

    
      	
              (i)  

            	
              Employee’s
                willful and continuing failure, that is not remedied within twenty
                days
                after receipt of written notice of such failure from the Company,
                to
                perform his obligations hereunder; 

               

            

    

    
      	
              (ii)  

            	
              Employee’s
                conviction of, or the pleading of nolo contendre to, a crime of
                embezzlement, fraud or a felony under the laws of the United States
                or any
                state thereof;

               

            

    

    
      	
              (iii)  

            	
              Employee’s
                breach of fiduciary responsibility; or

               

            

    

    
      	
              (iv)  

            	
              an
                act of dishonesty by Employee which is materially injurious to the
                Company.

            

    

     

    Any
      determination of Cause under this Agreement shall be made by resolution adopted
      by unanimous vote of the Board at a meeting called and held for that
      purpose.  Employee shall be provided with reasonable notice of such
      meeting and shall be given the opportunity to be heard, with the presence of
      counsel, prior to the vote being taken by the Board.

     

    J.  “Voting
      Securities” shall mean any securities which ordinarily possess the
      power to vote in the election of directors without the happening of any
      pre-condition or contingency.

     

    3.  Excise
      Tax Limitation.

     

    A.  It
      is the
      intention of the Company and the Employee that no portion of any payment under
      this Agreement, or payments to or for the benefit of the Employee under any
      other agreement or plan, be deemed to be an “Excess Parachute Payment” as
      defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
      “Code”), or its successors.  It is agreed that the
      present value of and payments to or for the benefit of the Employee in the
      nature of compensation, receipt of which is contingent on the Change of Control,
      and to which Section 280G of the Code applies (in the aggregate “Total
      Payments”) shall not exceed an amount equal to one dollar less than the
      maximum amount which the Company may pay without loss of deduction under Section
      280G(a) of the Code.  Present value for purposes of this Agreement
      shall be calculated in accordance with Section 280G(d)(4) of the
      Code.  Within one hundred and twenty (120) days following the earlier
      of (A) the giving of the notice of termination or (B) the giving of notice
      by
      the Company to the Employee of its belief that there is a payment or benefit
      due
      the Employee which will result in an excess parachute payment as defined in
      Section 280G of the Code, the Employee and the Company, at the Company’s
      expense, shall obtain the opinion of an Independent Advisor (as defined below),
      which opinion need not be unqualified, which sets forth (A) the Employee’s
      applicable Base Amount (as defined under Section 280G of the Code), (B) the
      present value of Total Payments and (C) the amount and present value of any
      excess parachute payments.  In the event that such opinion determines
      that there would be an excess parachute payment, the payment hereunder or any
      other payment determined by such Independent Advisor to be includable in Total
      Payments shall be modified, reduced or eliminated as specified by the Employee
      in writing delivered to the Company within ninety (90) days of his receipt
      of
      such opinions or, if the Employee fails to so notify the Company, then as the
      Company shall reasonably determine, so that under the bases of calculation
      set
      forth in such opinions there will be no excess parachute payment.  The
      provisions of this paragraph, including the calculations, notices and opinion
      provided for herein shall be based upon the conclusive presumption that (A)
      the
      compensation and benefits provided for in Section 2.B
      hereof and (B) any other compensation earned by the Employee pursuant to the
      Company’s compensation programs which would have been paid in any event, are
      reasonable compensation for services rendered, even though the timing of such
      payment is triggered by the Change of Control.  In the event that the
      provisions of Sections 280G and 4999 of the Code are repealed without
      succession, this paragraph shall be of no further force or effect.

     

    B.  The
      Company and the Employee hereby recognize that the restrictive covenants under
      Section 6have
      value and that the value shall be recognized in the Section 280G
      calculations by an allocation of a portion of the termination benefits to the
      restrictive covenant provisions based on the fair market value of such
      restrictive covenant provisions.  The Independent Advisor shall make
      the determination of the fair value to be allocated to the restrictive covenant
      provisions.

     

    C.  For
      purposes of this Agreement, “Independent Advisor” shall mean an
      independent nationally recognized accounting firm approved by the Company and
      the Employee, where such approval shall not be unreasonably withheld by either
      party.

     

    4.  Medical
      and Dental Benefits.  If the Employee’s employment by the
      Company or any Affiliate or successor of the Company shall be subject to a
      Termination within the Covered Period, then to the extent that the Employee
      or
      any of the Employee’s dependents may be covered under the terms of any medical
      and dental plans of the Company (or any Affiliate) for active employees
      immediately prior to the termination, the Company will provide the Employee
      and
      those dependents with equivalent coverages for [the shorter of
      (A) [twenty-four (24) months – Fuller] [twenty-one (21) months -
      Schmidt] or (B) the maximum period allowed pursuant to Treasury
      Regulations Section 1.409A-1(b)(9)(v) which would be exempt from the definition
      of “deferred compensation” thereunder] [a period not to exceed [eighteen
      (18) months – Erickson and Everts] [twelve (12) months – others]], with
      the Employee required to make no contribution to such Insurance Benefit during
      such period.  The coverages may be procured directly by the Company
      (or any Affiliate, if appropriate) apart from, and outside of the terms of
      the
      plans themselves; provided that the Employee and the Employee’s dependents
      comply with all of the conditions of the medical or dental plans, with the
      cost
      to the Company not to exceed the cost for continued COBRA
      coverage.  In the event the Employee or any of the Employee’s
      dependents become eligible for coverage under the terms of any other medical
      and/or dental plan of a subsequent employer which plan benefits are comparable
      to Company (or any Affiliate) plan benefits, coverage under Company (or any
      Affiliate) plans will cease for the eligible Employee and/or
      dependent.  The Employee and Employee’s dependents must notify the
      Company (or any Affiliate) of any subsequent employment and provide information
      regarding medical and/or dental coverage available.  In the event the
      Company (or any Affiliate) discovers that the Employee and/or dependent has
      become employed and not provided the above notification, all payments and
      benefits under this Agreement will cease.

     

    5.  Out-Placement
      Counseling.  If the Employee’s employment by the Company
      or any Affiliate or successor of the Company shall be subject to a Termination
      within the Covered Period, the Company will provide out-placement counseling
      assistance in the form of either (i) reimbursement of the expenses incurred
      for such assistance within the twelve (12) month period following the
      Termination Date, or (ii) a pre-paid executive-level program, in either case,
      the amount shall not exceed one-quarter (1/4) of the Employee’s Base
      Compensation on the Termination Date.

     

    6.  Restrictive
      Covenants.

     

    A.  Confidential
      Information.  Employee acknowledges
      that, during the course of his  employment with the Company, Employee
      may produce and have access to confidential and/or proprietary non-public
      information concerning the Company and its Affiliates, including marketing
      materials, financial and other information concerning customers and prospective
      customers, customers lists, records, data, trade secrets, proprietary business
      information, pricing and profitability information and policies, strategic
      planning, commitments, plans, procedures, litigation, pending litigation and
      other information not generally available to the public (collectively,
“Confidential Information”).  Employee agrees not to
      directly or indirectly use, disclose, copy or make lists of Confidential
      Information for the benefit of anyone other than the Company, either during
      or
      after his  employment with the Company, except to the extent that such
      information is or thereafter becomes lawfully available from public sources,
      or
      such disclosure is authorized in writing by the Company, required by law or
      any
      competent administrative agency or judicial authority, or otherwise as
      reasonably necessary or appropriate in connection with performance by Employee
      of his  duties hereunder.  Employee agrees that, if he
      receives a subpoena or other court order or is otherwise required by law to
      provide information to a governmental authority or other person concerning
      the
      activities of the Company or any of its Affiliates, or his  activities
      in connection with the business of the Company or any of its Affiliates,
      Employee will immediately notify the Company of such subpoena, court order
      or
      other requirement and deliver forthwith to the Company a copy thereof and any
      attachments and non-privileged correspondence related
      thereto.  Employee shall take reasonable precautions to protect
      against the inadvertent disclosure of Confidential
      Information.  Employee agrees to abide by the Company’s reasonable
      policies, as in effect from time to time, respecting avoidance of interests
      conflicting with those of the Company and its Affiliates.  In this
      regard, Employee shall not directly or indirectly render services to any person
      or entity where Employee’s service would involve the use or disclosure of
      Confidential Information.  Employee agrees not to use any Confidential
      Information to guide him in searching publications or other publicly available
      information, selecting a series of items of knowledge from unconnected sources
      and fitting them together to claim that he did not violate any agreements set
      forth in this Agreement.  For purposes of this Agreement, the
      Company’s “Affiliates” include each company, corporation,
      partnership, bank, savings bank, savings and loan association, credit union
      or
      other financial institution, directly or indirectly, which is controlled by,
      controls, or is under common control with, the Company, and “control” means
      (x) the ownership of 51% or more of the voting securities or other voting
      interest or other equity interest of any corporation, partnership, joint venture
      or other business entity, or (y) the possession, directly or indirectly, of
      the power to direct or cause the direction of the management and policies of
      such corporation, partnership, joint venture or other business
      entity.

     

    B.  Documents
      and Property.  All records, files,
      documents and other materials or copies thereof relating to the business of
      the
      Company and its Affiliates, which Employee shall prepare, receive, or use,
      shall
      be and remain the sole property of the Company and, other than in connection
      with performance by Employee of his  duties hereunder, shall not be
      removed from the premises of the Company or any of its Affiliates without the
      Company’s prior written connect, and shall be promptly returned to the Company
      upon Employee’s termination of employment together with all copies (including
      copies or recordings in electronic form), abstracts, notes or reproductions
      of
      any kind made from or about the records, files, documents or other
      materials.

     

    C.  Non-Competition
      and Non-Solicitation.  The Company and
      Employee have jointly reviewed the operations of the Company and have agreed
      that the primary service area of the Company’s lending and deposit taking
      functions in which Employee has actively participated extends to an area
      encompassing a fifty (50) mile radius from the main office of Dubuque Bank
      and
      Trust Company (“DB&T”) and a twenty-five (25) mile radius
      of any office of the Company or any Affiliate where the Employee has provided
      any services during the twelve (12) month period preceding the Change
      of
      Control (the “Restrictive
      Area”).  Therefore, as an essential ingredient of and in
      consideration for the Company’s entering into this Agreement and his continued
      employment by the Company, Employee agrees that, during
      his  employment with the Company and for a period of
[twenty-four (24) months - Fuller] [twenty-one (21) months - Schmidt]
      [eighteen (18) months – Erickson and Everts] [twelve (12) months - others]
immediately following the termination of his employment for any reason,
      whether or not Employee is then receiving or will receive benefits under this
      Agreement, provided such termination occurs during the term of this Agreement
      (the “Restrictive Period”), he will not, except with the
      express prior written consent of the Company, directly or indirectly, do any
      of
      the following (all of which are collectively referred to in this agreement
      as
      the “Restrictive Covenant”):

     

    
      	
              (i)  

            	
              Engage
                or invest in, own, manage, operate, finance, control, or participate
                in
                the ownership, management, operation or control of, be employed by,
                associated with, or in any manner connected with, serve as a director,
                officer or consultant to, lend his name or any similar name to, lend
                his
                credit to, or render services or advice to, any person, firm, partnership,
                corporation or trust which owns or operates, a bank, savings and
                loan
                association, credit union or similar financial institution (a
                “Financial Institution”) with an office located, or to be
                located at an address identified in a filing with any regulatory
                authority, within the Restrictive Area; provided however, that
                the ownership by Employee of shares of the capital stock of any Financial
                Institution which shares are listed on a securities exchange or quoted
                on
                the National Association of Securities Dealers Automated Quotation
                System
                and which do not represent more than five percent (5%) of the
                institution’s outstanding capital stock, shall not violate any terms of
                this Agreement;

               

            

    

    
      	
              (ii)  

            	
              Employee
                will not, directly or indirectly, either for himself, or any Financial
                Institution: (1) induce or attempt to induce any employee of the
                Company or any of its Affiliates to leave the employ of the Company
                or any
                of its Affiliates; (2) in any way interfere with the relationship
                between the Company or any of its Affiliates and any employee of
                the
                Company or any of its Affiliates; (3) employ, or otherwise engage as
                an employee, independent contractor or otherwise, any employee of
                the
                Company or any of its Affiliates; or (4) induce or attempt to induce
                any customer, supplier, licensee, or business relation of the Company
                or
                any of its Affiliates to cease doing business with the Company or
                any of
                its Affiliates or in any way interfere with the relationship between
                the
                Company or any of its Affiliates and their respective customers,
                suppliers, licensees or business relations.

               

            

    

    
      	
              (iii)  

            	
              Employee
                will not, directly or indirectly, either for himself, or any Financial
                Institution, solicit the business of any person or entity known to
                Employee to be a customer of the Company or any of its Affiliates,
                where
                Employee, or any person reporting to Employee, had personal contact
                with
                such person or entity, with respect to products, activities or services
                which compete in whole or in part with the products, activities or
                services of the Company or any of its Affiliates.

               

            

    

    
      	
              (iv)  

            	
              Employee
                will not, directly or indirectly, serve as the agent, broker or
                representative of, or otherwise assist, any person or entity in obtaining
                services or products from any Financial Institution within the Restrictive
                Area, with respect to the products, activities or services which
                compete
                in whole or in part with the products, activities or services of
                the
                Company or any of its Affiliates.

               

            

    

    D.  Work
      for Hire Provisions.

     

    
      	
              (i)  

            	
              Exclusive
                Rights of the Company in Work
                Product.  The parties acknowledge
                and agree that all work performed by Employee for the Company or
                any of
                its Affiliates shall be deemed “work for hire.”  The Company
                shall at all times own and have exclusive right, title and interest
                in and
                to all Confidential Information and Inventions (as defined below),
                and the
                Company shall retain the exclusive right to license, sell, transfer
                and
                otherwise use and dispose of the same.  Any and all enhancements
                of the technology of the Company or any of its Affiliates that are
                developed by Employee shall be the exclusive property of the
                Company.  Employee hereby assigns to the Company any right,
                title and interest in and to all Inventions that he may have, by
                law or
                equity, without additional consideration of any kind whatsoever from
                the
                Company or any of its Affiliates.  Employee agrees to execute
                and deliver any instruments or documents and to do all other things
                (including the giving of testimony) requested by the Company (both
                during
                and after the termination of his employment with the Company) in
                order to
                vest more fully in the Company or any of its Affiliates all ownership
                rights in the Inventions (including obtaining patent, copyright or
                trademark protection therefore in the United States and/or foreign
                countries).

               

            

    

    
      	
              (ii)  

            	
              Definitions
                and Exclusions.  For purposes of
                this Agreement, “Inventions” means all systems,
                procedures, techniques, manuals, data bases, plans, lists, inventions,
                trade secrets, copyrights, patents, trademarks, discoveries, innovations,
                concepts, ideas and software conceived, compiled or developed by
                Employee
                in the course of his employment with the Company or any of its Affiliates
                and/or comprised, in whole or part, of Confidential
                Information.  Notwithstanding the foregoing, Inventions shall
                not include:  (i) any inventions independently developed by
                Employee and not derived, in whole or part, from any Confidential
                Information or (ii) any invention made by Employee prior to his
                exposure to any Confidential Information.

               

            

    

    E.  Remedies
      for Breach of Restrictive
      Covenants.  Employee has reviewed the
      provisions of this Agreement with legal counsel, or has been given adequate
      opportunity to seek such counsel, and Employee acknowledges and expressly agrees
      that the covenants contained in this Section 6
      are reasonable with respect to their duration, geographical area and
      scope.  Employee further acknowledges that the restrictions contained
      in this Section 6are
      reasonable and necessary for the protection of the
      legitimate business interests of the Company, that they create no undue
      hardships, that any violation of these restrictions would cause substantial
      injury to the Company and such interests, that the Company would not have agreed
      to employ Employee without receiving Employee’s agreement to be bound by these
      restrictions and that such restrictions were a material inducement to the
      Company to hire Employee and to enter into this Agreement.  In the
      event of any violation or threatened violation of these restrictions, the
      Company, in addition to and not in limitation of, any other rights, remedies
      or
      damages available to the Company under this Agreement or otherwise at law or
      in
      equity, shall be entitled to preliminary and permanent injunctive relief to
      prevent or restrain any such violation by Employee and any and all persons
      directly or indirectly acting for or with her, as the case may be.

     

    7.  Notices.  Notices
      and all other communications under this Agreement shall be in writing and shall
      be deemed given when mailed by United States registered or certified mail,
      return receipt requested, postage prepaid, addressed as follows:

     

    If
      to the
      Company to:

    

    Heartland
      Financial USA, Inc.

    Attention:  President

    1398
      Central Avenue

    Box
      778

    Dubuque,
      Iowa  52004-0778

    

    If
      to the
      Employee to:

    

    «Employee»

    «Street»

    «City»,
      «State»  «Zip»

    

    or
      to
      such other address as either party may furnish to the other in writing, except
      that notices of changes of address shall be effective only upon
      receipt.

     

    8.  Applicable
      Law.  This Agreement is entered into under, and shall be
      governed for all purposes by, the laws of the state of Iowa.

     

    9.  Severability.  If
      a court of competent jurisdiction determines that any provision of this
      Agreement is invalid or unenforceable, then the invalidity or unenforceability
      of that provision shall not affect the validity or enforceability of any other
      provision of this Agreement and all other provisions shall remain in full force
      and effect.  The various covenants and provisions of this Agreement
      are intended to be severable and to constitute independent and distinct binding
      obligations.  Without limiting the generality of the foregoing, if the
      scope of any covenant contained in this Agreement is too broad to permit
      enforcement to its full extent, such covenant shall be enforced to the maximum
      extent permitted by law, and the Employee hereby agrees that such scope may
      be
      judicially modified accordingly.

     

    10.  Withholding
      of Taxes.  The Company may withhold from any benefits
      payable under this Agreement all federal, state, city or other taxes as may
      be
      required pursuant to any law, governmental regulation or ruling.

     

    11.  Not
      an Employment Agreement.  Nothing in this Agreement shall
      give the Employee any rights (or impose any obligations) to continued employment
      by the Company or any Affiliate or successor of the Company, nor shall it give
      the Company any rights (or impose any obligations) for the continued performance
      of duties by the Employee for the Company or any Affiliate or successor of
      the
      Company.

     

    12.  No
      Assignment.  The Employee’s rights to receive payments or
      benefits under this Agreement shall not be assignable or transferable whether
      by
      pledge, creation of a security interest or otherwise, other than a transfer
      by
      will or by the laws of descent or distribution.  In the event of any
      attempted assignment or transfer contrary to this paragraph, the Company shall
      have no liability to pay any amount so attempted to be assigned or
      transferred.  This Agreement shall inure to the benefit of and be
      enforceable by the Employee’s personal or legal representatives, executors,
      administrators, successors, heirs, distributees, devisees and
      legatees.

     

    13.  Successors.  This
      Agreement shall be binding upon and inure to the benefit of the Company, its
      successors and assigns (including, without limitation, any company into or
      with
      which the Company may merge or consolidate).  The Company agrees that
      it will not effect the sale or other disposition of all or substantially all
      of
      its assets unless either (a) the person or entity acquiring the assets, or
      a
      substantial portion of the assets, shall expressly assume by an instrument
      in
      writing all duties and obligations of the Company under this Agreement, or
      (b)
      the Company shall provide, through the establishment of a separate reserve,
      for
      the payment in full of all amounts which are or may reasonably be expected
      to
      become payable to the Employee under this Agreement.

     

    14.  Legal
      Fees.  All reasonable legal fees and related expenses
      (including the costs of experts, evidence and counsel) paid or incurred by
      the
      Employee pursuant to any dispute or question of interpretation relating to
      this
      Agreement shall be paid or reimbursed by the Company if the Employee is
      successful on the merits pursuant to a legal judgment, arbitration or
      settlement.

     

    15.  Term.  The
      “Term” of this Agreement shall be the period commencing on the
      Effective Date and ending on December 31, 2009.  As of December 31,
      2009, and each December 31 thereafter, the Term shall automatically renew for
      an
      additional one-year period unless the Company notifies the Employee in writing
      that the Term will not be renewed.  Any such notice of non-renewal
      must be delivered to the Employee at least 180 days before the date on which
      the
      Term would otherwise automatically renew.  In the event of a Change of
      Control during the Term, this Agreement shall remain in effect for the Covered
      Period.

     

    16.  Survival.  The
      provisions of Section 6 shall
      survive the termination of this Agreement.

     

    17.  Amendment.  This
      Agreement may not be amended or modified except by written agreement signed
      by
      the Employee and the Company.

     

    18.  Internal
      Revenue Code Section 409A.

     

    A.  Six-Month
      Delay in Payment.  If, as of the Termination Date, the
      Employee is a Specified Employee (as defined below), then, to the extent
      required pursuant to Code Section 409A, payment of any portion of the Severance
      Amount that would otherwise have been paid to the Employee during the six-month
      period following the Termination Date and which would constitute deferred
      compensation under Code Section 409A (the “Delayed Payments”)
      shall be delayed until the date that is six months and one day following the
      Termination Date or, if earlier, the date of the Employee’s death (the
“Delayed Payment Date”).  As of the Delayed Payment
      Date, the Delayed Payments [plus interest at a rate equal to the then
      current prime rate, for the period of delay] shall be paid to the
      Employee in a single lump sum.  Any portion of the Severance Amount
      that was not otherwise due to be paid during the six-month period following
      the
      Termination Date shall be paid to the Employee in accordance with the payment
      schedule established under paragraph 1 of this Agreement.

     

    B.  Separation
      Pay Not Subject to Code Section 409A.  To the extent that
      any portion, or all, of the Severance Amount meets the requirements of (i)
      and
      (ii) of this subparagraph B, the six-month delay rule set forth in subparagraph
      A above shall not apply to such portion of the Severance Amount.  The
      Severance Amount, or any portion thereof, will not be subject to the six-month
      delay rule set forth in subparagraph A above if and to the extent it is paid
      to
      the Employee no later than the last day of the second calendar year following
      the year in which the Termination occurs and it does not exceed two times the
      lesser of:

     

    
      	
              (i)  

            	
              The
                sum of the Employee’s annual compensation (as determined in accordance
                with Section 1.409A-1(b)(9)(iii) of the regulations issued under
                Code
                Section 409A) for the calendar year preceding the year of Termination;
                or

               

            

    

    
      	
              (ii)  

            	
              The
                maximum amount that may be taken into account under a qualified plan
                pursuant to Code Section 401(a)(17) for the calendar year in which
                the
                Termination occurs.

            

    

     

    C.  Definitions.

     

    
      	
              (i)  

            	
              “Specified
                Employee” shall mean an individual who is a “key employee” (as
                defined in Code Section 416(i)(1)(A)(i), (ii) or (iii) (without regard
                to
                Code Section 416 (i)(5))) of the Company at any time during the twelve
                (12) month period ending on the Specified Employee Identification
                Date (as
                defined below).  If the Employee is a key employee as of the
                Specified Employee Identification Date, the Employee will be treated
                as a
                key employee for purposes of this Agreement for the entire twelve
                (12)
                month period beginning on the Specified Employee Effective Date (as
                defined below).  For purposes of determining whether the
                Employee is a key employee (as defined in Code Section 416(i)), the
                Company shall use the same definition of “compensation” as is used for
                purposes of the Company’s 401(k) plan.

               

            

    

    
      	
              (ii)  

            	
              “Specified
                Employee Identification Date” shall mean December 31 of any
                calendar year.

               

            

    

    
      	
              (iii)  

            	
              “Specified
                Employee Effective Date” shall mean April 1 of the calendar year
                following the year of the Specified Employee Identification
                Date.

            

    

     

    19.  Other
      Agreements.  In the event of the existence of another
      agreement between the parties which (i) is in effect during the Restricted
      Period, and (ii) which contains restrictive covenants that conflict with any
      the
      provisions of Section 6,
      then the more restrictive of such provisions from the two agreements shall
      control for the period during which both agreements would otherwise be in
      effect.

     

    20.  References.  Masculine
      pronouns are used herein solely for convenience of reference, and are intended
      to have general application.

    ******
      remainder of page intentionally left blank ******

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have caused this Agreement to be executed and
      delivered as of the day and year first written.

    HEARTLAND
      FINANCIAL USA, INC.

    

    By:  
/s/
      Marck C. Falb                                                 /s/
      Employee      
                            

        Mark
      C.
      Falb                                                                                     «Employee»

        Director

        Chairman,
      Compensation CommitteeFORM OF WARRANT

EXHIBIT 4.18

[FORM OF DAWSON JAMES WARRANT]

NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

CARRINGTON LABORATORIES, INC.

SERIES F-1 WARRANT

	
Warrant No. F-1-[ ]
	
Dated:  April 26, 2007

Carrington Laboratories, Inc., a Texas corporation (the "Company"), hereby certifies that, for value received, [Name of Holder] or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of [          ] shares of common stock, $0.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $2.01 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after October 26, 2007 and through and including the date that is five years after the Effective Date of the initial Registration Statement filed pursuant to the Securities Purchase Agreement (the "Expiration Date"), and subject to the following terms and conditions.  This Warrant (this "Warrant") is one of a series of similar Warrants issued in connection with that certain Securities Purchase Agreement, dated as of April 25, 2007, by and among the Company and the Purchasers identified therein (the "Purchase Agreement").  All such Warrants are referred to herein, collectively, as the "Warrants."

1.         Definitions.  In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement.

2.         Registration of Warrant.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

3.         Registration of Transfers.  The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein.  Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

4.         Exercise and Duration of Warrants.

(a)        This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after October 26, 2007 through and including the Expiration Date.  At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Expiration Date exceeds the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date if a "cashless exercise" may occur at such time pursuant to Section 10 below.

(b)        A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached hereto (the "Exercise Notice"), appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice and if a "cashless exercise" may occur at such time pursuant to this Section 10 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date."  The Holder shall not be required to deliver the original Warrant in order to affect an exercise hereunder.  Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

(c)        Upon delivery of the Exercise Notice, with payment in respect thereof, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder's account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be.

5.         Delivery of Warrant Shares.  

(a)        Upon exercise of this Warrant, the Company shall promptly (but in no event later than three Trading Days after the Exercise Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling shareholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act.  The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date.  The Company may, and upon request of the Holder shall use its reasonable best efforts to, deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.

(b)        This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares.  Upon surrender of this Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

(c)        In addition to any other rights available to a Holder, if the Company fails to deliver to the Holder the Warrant Shares by the third Trading Day after the date on which delivery is required by this Warrant, (x) the Company shall pay in cash to the Holder on each day after such third Trading Day that the issuance of such Warrant Shares is not timely effected an amount equal to 1.0% of the product of (1) the sum of the number of Warrant Shares not issued to the Holder on a timely basis and to which the Holder is entitled and (2) the VWAP of the Warrant Shares on the Trading Day immediately preceding the last possible date which the Company could have issued such Warrant Shares to the Holder without violating this provision, or (y) if after such third Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock or deliver such Common Stock to the Holder's account and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving rise to the Company's obligation to deliver such Warrant Shares.

(d)        The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Common Stock upon exercise of the Warrant  as required pursuant to the terms hereof.

6.         Charges, Taxes and Expenses.   Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof.  The Holder shall be responsible for all income tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

7.         Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe.

8.         Reservation of Warrant Shares.  The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, at least the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.  The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed.

9.         Certain Adjustments.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.

(a)        Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

(b)        Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, distributes to holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any dividend or (v) any other asset or cash (in each case, "Distributed Property"), then in each such case: 
(i)     the Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution shall be reduced (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be the average of the Closing Prices for the five Trading Days immediately prior to (but not including) such record date and of which the numerator shall be such average less the then fair market value of the Distributed Property distributed in respect of  one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser").  In such event, Holders holding Series F Warrants exercisable for a majority of the Common Stock issuable upon exercise of all Series F Warrants, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser.  As an alternative to the foregoing adjustment to the Exercise Price, at the request of the Holder delivered before the 90th day after such record date, the Company will deliver to the Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that the Holder would have been entitled to receive in respect of the Warrant Shares for which this Warrant could have been exercised immediately prior to such record date.  If such Distributed Property is not delivered to a Holder pursuant to the preceding sentence, then upon expiration of or any exercise of the Warrant that occurs after such record date, such Holder shall remain entitled to receive, in addition to the Warrant Shares otherwise issuable upon such exercise (if applicable), such Distributed Property; and

(ii)     the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distributed Property multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (i); provided that in the event that the Distribution is of shares of Common Stock (or common stock) ("Other Shares of Common Stock") of a company whose common shares are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the distribution of the Distributed Property had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the distribution of the Distributed Property pursuant to the terms of the immediately preceding paragraph (i) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (ii).

(c)        Fundamental Transactions.  If, at any time while this Warrant is outstanding the Company shall, directly or indirectly, in one or more related transactions, (i) effect any merger or consolidation of the Company with or into another Person in which the shareholders of the Company prior to the effective date of such transaction own less than 66 2/3% of the issued and outstanding voting rights and equity interests of the surviving corporation following the date of such transaction, (ii) effect any sale of 30% or more of its assets in one or a series of related transactions, (iii) engage in any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (iv) effect any reorganization, reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 9(a) above), (v) engage in an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under the Exchange Act) of more than one-third of the voting rights or equity interests in the Company, (vi) replace more than one-half of the members of the Company's board of directors that is not approved by those individuals who are members of the board of directors on the date hereof (or other directors previously approved by such individuals); (vii) engage in a recapitalization, reorganization or other transaction involving the Company or any Subsidiary that constitutes or results in a transfer of more than one-half of the voting rights or equity interests in the Company; (viii) consummate a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act with respect to the Company, or (ix) execute (or its controlling shareholders execute) of an agreement providing for or reasonably likely to result in any of the foregoing events (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, at the option of the Holder, (a) upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive, upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration") or (b) cash within five Trading Days after such election (or, if later, on the effective date of the Fundamental Transaction), equal to the Black-Scholes value of the remaining then unexercised portion of this Warrant on the date of such election.  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  In the event of a Fundamental Transaction, the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement in form and substance reasonably satisfactory to the Holder providing that:
     (x)      this Warrant shall thereafter entitle the Holder to purchase the Alternate Consideration in accordance with this Section 9(c), 

     (y)     in the case of any such successor or purchasing Person, upon such consolidation, merger, statutory exchange, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company's obligations under this Warrant and the Purchase Agreement, and 

     (z)     if registration or qualification is required under the Exchange Act or applicable state law for the public  resale by the Holder of shares of stock and other securities so issuable upon exercise of this Warrant, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, statutory exchange, combination or sale.  

If, in the case of any Fundamental Transaction, the Alternate Consideration includes shares of stock, other securities, other property or assets of a Person other than the Company or any such successor or purchasing Person, as the case may be, in such Fundamental Transaction, then such written agreement shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors of the Company shall reasonably consider necessary by reason of the foregoing.  At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof.  The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. 

(d)        Subsequent Equity Sales.
(i)     If, at any time while this Warrant is outstanding, the Company or any Subsidiary issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents") at a price per share of Common Stock (the "Effective Price") less than the Exercise Price (as adjusted hereunder to such date), then the Exercise Price shall be reduced to equal the Effective Price.  If, at any time while this Warrant is outstanding, the Company or any Subsidiary issues Common Stock or Common Stock Equivalents at an Effective Price greater than the Exercise Price (as adjusted hereunder to such date) but less than the average Closing Price over the five Trading Days prior to such issuance (the "Adjustment Price"), then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Adjustment Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance.  For purposes of this paragraph, in connection with any issuance of any Common Stock Equivalents, (A) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (B) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (C) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents.

(ii)     If, at any time while this Warrant is outstanding, the Company or any Subsidiary issues Common Stock Equivalents with an Effective Price or a number of underlying shares that floats or resets or otherwise varies or is subject to adjustment based (directly or indirectly) on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date).

(iii)     Notwithstanding the foregoing, no adjustment will be made under this paragraph (d) in respect of any Excluded Stock.

(iv)     Unless and until such time as the Company receives the Company Shareholder Approval, no adjustment pursuant to Section 9(e) shall cause the Exercise Price to be less than $2.01, as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction (the "Exercise Floor Price").

(e)        Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

(f)        Calculations.  All calculations under this Section 9 shall be rounded up to the nearest cent or the nearest share, as applicable.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

(g)        Notice of Adjustments.  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent.

(h)        Notice of Corporate Events.  If the Company  (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits shareholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 

(i)        Other Events.  If any event occurs of the type contemplated by the provisions of this Section 9 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 9(i) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 9.

10.         Payment of Exercise Price.  The Holder shall pay the Exercise Price (i) in immediately available funds or (ii) if elected by the Holder, the Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

	 	
X = Y [(A-B)/A]

	where:

	 
	 	
X = the number of Warrant Shares to be issued to the Holder.

	 	 
	 	
Y = the number of Warrant Shares with respect to which this Warrant is being exercised.

	 	 
	 	
A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date.

	 	 
	 	
B = the Exercise Price.

          For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.

11.         Limitation on Exercise.  (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.99% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise).  For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph.  The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation.  The Holder shall have the right at any time and from time to time, to waive the provisions of this Section and to increase the Maximum Percentage (but not in excess of 9.9%) unless the Holder shall have, by written instrument delivered to the Company, irrevocably waived its rights to so increase its Maximum Percentage, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase will apply only to the Holder and not to any other holder of Warrants.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.

(b)     If the Company has not previously obtained Company Shareholder Approval, then the Company may not issue shares of Common Stock in excess of the Issuable Maximum upon exercise of the Warrants.  The "Issuable Maximum" means a number of shares equal to 19.99% of the Company's outstanding shares on the First Closing Date.  Each Holder (or such Holder's successor in interest) shall be entitled to a portion of the Issuable Maximum (and any amounts to be paid in excess thereof) equal to the quotient obtained by dividing: (x) the principal amount of Debentures issued and sold to such Holder at the First Closing and the Second Closing by (y) the aggregate principal amount of Debentures issued and sold by the Company at the First Closing and the Second Closing.  If any Holder (or such Holder's successor in interest) shall no longer hold Debentures or Warrants, then such Holder's remaining portion of the Issuable Maximum (and any amounts to be paid in excess thereof) shall be allocated pro-rata among the remaining Holders. If on any Exercise Date: (A) the sum of (I) the aggregate number of shares of Common Stock that would then be issuable upon exercise in full of all then outstanding Warrants and conversion in full of all then outstanding principal amount and accrued interest on the Debentures and (II) all shares of Common Stock previously issued pursuant to any of the Debentures and Warrants, would exceed the Issuable Maximum, and (B) the Company shall not have previously obtained Company Shareholder Approval, then, (with respect to such exercise) the Company shall issue to the exercising Holder the lesser of (i) the number of shares of Common Stock to be issued pursuant to the Exercise Notice and (ii) a number of shares of Common Stock equal to such Holder's pro-rata portion (which shall be calculated pursuant to the terms hereof) of the Issuable Maximum less all Underlying Shares previously issued under the Debentures and the Warrants to such Holder.  The Company and the Holder understand and agree that shares of Common Stock issued to and then held by the Holder as a result of exercises of Warrants shall not be entitled to cast votes on any resolution to obtain Company Shareholder Approval pursuant hereto.  The Company and the Holder acknowledge and agree that this Section 11(b) is meant to work in conjunction with Section 6(b)(iii) under the Debentures so that in no instance are Underlying Shares issued so that the aggregate amount of Common Stock issued hereunder and thereunder exceeds the Issuable Maximum unless the Company has obtained Company Shareholder Approval.

12.         Fractional Shares.  The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant.  If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the number of Warrant Shares to be issued will be rounded up to the nearest whole share.

13.         Notices.  Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices or communications shall be as set forth in the Purchase Agreement.

14.         Warrant Agent.  The Company shall serve as warrant agent under this Warrant.  Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act.  Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.

15.         Miscellaneous.

(a)        Subject to the restrictions on transfer set forth on the first page hereof, this Warrant may be assigned by the Holder.  This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction in compliance with Section 9(c).  This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns.  Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing signed by the Company and the Holder or, if applicable, their successors and assigns.

(b)        The Company will not, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment.  Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant.

(c)        
GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  EACH PARTY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

(d)        The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

(e)        In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

	 
	
CARRINGTON LABORATORIES, INC.

	 
	 
	
By:                                                     

	
Name:                                                

	
Title:                                                   

FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant)

To:  CARRINGTON LABORATORIES, INC.

The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by Carrington Laboratories, Inc., a Texas corporation (the "Company").  Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

	
1.    
	
The Warrant is currently exercisable to purchase a total of ______________ Warrant Shares.

	 	 	 
	
2.    
	
The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares pursuant to the Warrant.

	 	 	 
	
3.    
	
The Holder intends that payment of the Exercise Price shall be made as (check one):

	 	 	 
	 	
____
	
"Cash Exercise" under Section 10

	 	 	 
	 	
____
	
"Cashless Exercise" under Section 10 (if permitted)

	 	 	 
	
4.    
	
If the holder has elected a Cash Exercise, the holder shall pay the sum of $____________ to the Company in accordance with the terms of the Warrant.

	 	 	 
	
5.    
	
Pursuant to this exercise, the Company shall deliver to the holder _______________ Warrant Shares in accordance with the terms of the Warrant.

	 	 	 
	
6.    
	
Following this exercise, the Warrant shall be exercisable to purchase a total of ______________ Warrant Shares.

	 	 	 
	 	 	 
	
Dated:                      ,      
	 	
Name of Holder:

	 	 	 
	 	 	
(Print)                                       

	 	 	 
	 	 	
By:                                            

	 	 	
Name:                                       

	 	 	
Title:                                          

	 	 	 
	 	 	
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase  ____________ shares of Common Stock of Carrington Laboratories, Inc. to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Carrington Laboratories, Inc. with full power of substitution in the premises.

	 	 
	 	 
	
Dated:                      ,      
	 
	 	 
	 	
                                                       

	 	
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

	 	 
	 	
                                                       

	 	
Address of Transferee

	 	 
	 	
                                                       

	 	 
	 	
                                                       

	 	 
	 	 
	
In the presence of:

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