Document:

EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

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

WITNESSETH:

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

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

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

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

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

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

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

 

 

of this Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     7. Termination.

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

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

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

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

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

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

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

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

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

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 earliest
of:

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

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

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

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	 	 	 	dependents will continue to be covered by all Welfare
Plans in which he and his spouse and other dependants were
participating immediately prior to the date of his termination as if he
continued to be an employee of Bancorp or the Bank, and Bancorp will,
or will cause the Bank to, continue to pay the costs of coverage of
Executive and his spouse and other dependents under such Welfare Plans
on the same basis as is applicable to active employees covered
thereunder; provided that, if participation in any one or more of such
Welfare Plans is not possible under the terms thereof, Bancorp will, or
will cause the Bank to, provide substantially identical benefits. If
the Company determines that coverage under the Company’s Welfare Plans
can not continue without jeopardizing the tax favored status of such
plans or that value of such benefits to Executive, his spouse and other
dependents exceeds the amount eligible for exemption as separation pay
under Treas. Reg. 1.409-1(b)(9) then, no later than the March 15 of the
calendar year following the calendar year in which Executive’s
employment terminates, the Company may make a lump sum cash payment to
Executive equal to the value of such benefits.
	 
	 	(iv)	 	If the employment of Executive with Bancorp or the Bank is
terminated by Bancorp or the Bank for Good Cause or by the voluntary
action of Executive without Good Reason, other than due to a Change in
Control, Executive’s Base Salary (at the rate most
recently determined) and a bonus (a pro-rata portion of the bonus
paid for the most recent calendar year) shall be paid through the
date of his termination, and Bancorp shall have no obligation to
Executive or any other person under this Agreement. Such termination
shall have no effect upon Executive’s other rights, including but not
limited to rights under any Incentive, Retirement or Welfare Plan.

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

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

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

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

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

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

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

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

	 	10.	 	Indemnity. Bancorp shall indemnify Executive to the extent provided in
Article VIII, Sections 1, 2, 3, 4 and 5 of the by-laws of Bancorp, as may be amended
from time-to-time.
	 
	 	11.	 	Setoff. The payments or benefits payable to or with respect
to Executive or his spouse or beneficiary pursuant to this Agreement shall not be
reduced by the amount
of any claim, counterclaim, recoupment defense or other right of Bancorp or the Bank
against Executive or his spouse or other beneficiary or obligation of Executive or
his spouse or other beneficiary owing to Bancorp or the Bank. The payment of
benefits payable to or with respect to Executive or his spouse or other beneficiary
after termination of employment as a result of a change in control shall be absolute
and unconditional. No payments or benefits payable to or with respect to Executive
pursuant to this Agreement shall be reduced by any amount Executive or his spouse or
other beneficiary may earn or receive from employment with another employer or from
any other source. All amounts so payable by Bancorp or the
Bank shall be paid
without notice or demand. Each and every such payment made by Bancorp or the

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

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

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

     If to Bancorp: Princeton National Bancorp, Inc.

	 	 	 
	 

	 	606 South Main Street
	 

	 	Princeton, Illinois 61356
	 

	 	Attention: Chairman of the Board
	 
	 	 
	     If to Executive:

	 	James Miller
	 

	 	C/O Princeton National Bancorp, Inc.
	 

	 	606 South Main Street
	 

	 	Princeton, Illinois 61356

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

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

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

	 	 	 
	 

	 	PRINCETON NATIONAL BANCORP, INC.
	 
	 	 
	 

	 	/s/ Craig O. Wesner
	 

	 	 
	 

	 	     Craig O. Wesner
	 

	 	     Chairman of the Board of Directors
	 
	 	 
	 

	 	/s/ James Miller
	 

	 	 
	 

	 	     James Miller, Executive

14EX-10.3

Exhibit 10.3

PRINCETON NATIONAL BANCORP, INC.

2005 DEFERRED COMPENSATION PLAN

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

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

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

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

     5. Definitions

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

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

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

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

 

 

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

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

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

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

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

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

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

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

2

 

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

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

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

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

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

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

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

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

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

3

 

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

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

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

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

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

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

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

     7. Deferral Account

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

4

 

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

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

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

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

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

     8. Payment of Deferral Account Value

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

5

 

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

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

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

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

6

 

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

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

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

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

7

 

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

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

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

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

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

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

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

8

 

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

CERTIFICATION

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

	 	 	 	 	 	 	 
	 	 	PRINCETON NATIONAL BANCORP, INC.	 	 
	 
	 	 	 	 	 	 
	 
	 

	 	By:

Its:
	 	/s/ Lou Ann Birkey
 

Vice President, Investor Relations &
	 	 
	 

	 	 	 	Corporate Secretary	 	 

9

 

EXHIBIT A

PRINCETON NATIONAL BANCORP, INC.

DEFERRED COMPENSATION PLAN

ELECTION AGREEMENT

Deferral Election

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

Form of Benefit

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

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

A-1

 

Change in Election of

Form of Benefit

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

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

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

	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Dated:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Accepted by the Company this                      day of                     .	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	Its:

	 	 

President & C.E.O.
	 	 	 	 

A-2

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