EXHIBIT 10.4a
CHANGE-IN-CONTROL AGREEMENT
AGREEMENT entered into as of November 1, 2000 by and between Home Federal
Savings Bank, a federally chartered savings bank (the "Bank") and a wholly
owned subsidiary of HMN Financial, Inc., a Delaware corporation (the
"Company"), and Timothy P. Johnson (the "Executive").
WITNESSETH:
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WHEREAS, the Executive is a key member of the management of the Company
and the Bank and has heretofore devoted substantial skill and effort to the
affairs of the Company and the Bank; and
WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders to continue to obtain the benefits of the
Executive's services and attention to the affairs of the Company and the Bank;
and
WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders to provide inducement for the Executive (A) to
remain in the service of the Company and the Bank in the event of any proposed
or anticipated change in control of the Company and (B) to remain in the
service of the Company and the Bank in order to facilitate an orderly
transition in the event of a change in control of the Company; and
WHEREAS, it is desirable and in the best interests of the Bank and the
Company and its shareholders that the Executive be in a position to make
judgments and advise the Company with respect to proposed changes in control of
the Company or the Bank; and
WHEREAS, the Executive desires to be protected in the event of certain
changes in control of the Company or the Bank; and
WHEREAS, Executive and the Bank are currently party to a Change in
Control Severance Agreement dated January 2, 1998 (the "Prior Agreement"); and
WHEREAS, Executive and the Bank desire to terminate the Prior Agreement;
and
WHEREAS, for the reasons set forth above, the Bank and the Executive
desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the Bank and the Executive agree as
follows:
1. EMPLOYMENT. The Executive has concurrently herewith executed an
Employment Agreement (the "Employment Agreement") which governs the terms of
the Executive's employment, unless an Event shall be deemed to have occurred as
contemplated by Section 2.
2. EVENTS. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall occur during the Term of this
Agreement.
(a) For purposes of this Agreement, an "Event" shall be deemed to
have occurred if any of the following occur:
(i) Any "person" (as defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, or any successor
statute thereto (the "Exchange Act")) acquires or becomes a
"beneficial owner" (as defined in Rule 13d-3 or any successor rule
under the Exchange Act), directly or indirectly, of securities of the
Company or the Bank representing 35% or more of the combined voting
power of the then outstanding securities entitled to vote generally
in the election of directors ("Voting Securities"), provided,
however, that the following shall not constitute an Event pursuant to
this Section 2(a)(i):
(A) any acquisition of beneficial ownership by the
Company, the Bank or a subsidiary of the Company or the Bank;
(B) any acquisition or beneficial ownership by any
employee benefit plan (or related trust) sponsored or maintained
by the Company, the Bank or one or more of their subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation (including without limitation an acquisition in a
transaction of the nature described in Section 2(a)(iii)) with
respect to which, immediately following such acquisition, more
than 65%, respectively, of (x) the combined voting power of the
Company's or the Bank's then outstanding Voting Securities and
(y) the Company's or the Bank's then outstanding common stock
(the "Common Stock") is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who
beneficially owned Voting Securities and Common Stock,
respectively, of the Company or the Bank immediately prior to
such acquisition in substantially the same proportions as their
ownership of such Voting Securities and Common Stock, as the
case may be, immediately prior to such acquisition;
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(D) any acquisition of Voting Securities or Common Stock
directly from the Company or the Bank;
(ii) Continuing Directors shall not constitute a majority of
the members of the Board of Directors of the Company. For purposes
of this Section 2(a)(ii), "Continuing Directors" shall mean: (A)
individuals who, on the date hereof, are directors of the Company,
(B) individuals elected as directors of the Company subsequent to the
date hereof for whose election proxies shall have been solicited by
the Board of Directors of the Company or (C) any individual elected
or appointed by the Board of Directors of the Company to fill
vacancies on the Board of Directors of the Company caused by death or
resignation (but not by removal) or to fill newly-created
directorships, provided that a "Continuing Director" shall not
include an individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to
the threatened election or removal of directors (or other actual or
threatened solicitation of proxies or consents) by or on behalf of
any person other than the Board of Directors of the Company;
(iii) Consummation of a reorganization, merger or consolidation
of the Company or the Bank or a statutory exchange of outstanding
Voting Securities of the Company or the Bank, unless immediately
following such reorganization, merger, consolidation or exchange, all
or substantially all of the persons who were the beneficial owners,
respectively, of Voting Securities and Common Stock immediately prior
to such reorganization, merger, consolidation or exchange
beneficially own, directly or indirectly, more than 65% of,
respectively, (x) the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors and (y) the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger, consolidation
or exchange in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger, consolidation or
exchange, of the Voting Securities and Common Stock, as the case may
be;
(iv) (x) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company or the Bank or
(y) approval by the shareholders of the Company of the sale or
other disposition of all or substantially all of the assets of the
Company or the Bank (in one or a series of transactions), other
than to a corporation with respect to which, immediately following
such sale or other disposition, more than 65% of, respectively, (1)
the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (2) the then outstanding shares of common stock of
such corporation is then
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beneficially owned, directly or indirectly, by all or substantially
all of the persons who were the beneficial owners, respectively, of
the Voting Securities and Common Stock immediately prior to such
sale or other disposition in substantially the same proportions as
their ownership, immediately prior to such sale or other
disposition, of the Voting Securities and Common Stock, as the case
may be;
(v) The Company or the Bank enters into a letter of intent, an
agreement in principle or a definitive agreement relating to an Event
described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof
that ultimately results in such an Event, or a tender or exchange
offer or proxy contest is commenced which ultimately results in an
Event described in Section 2(a)(i) or 2(a)(ii) hereof; or
(vi) There shall be an involuntary termination or Constructive
Involuntary Termination of employment of the Executive, and the
Executive reasonably demonstrates that such event (x) was requested
by a party other than the Board of Directors of the Company or the
Bank that had previously taken other steps reasonably calculated to
result in an Event described in Section 2(a)(i), 2(a)(ii), 2(a)(iii)
or 2(a)(iv) hereof and which ultimately results in an Event described
in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof, or (y)
otherwise arose in connection with or in anticipation of an Event
described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof
that ultimately occurs.
Notwithstanding anything stated in this Section 2(a), an Event shall not
be deemed to occur with respect to the Executive if (x) the acquisition
or beneficial ownership of the 35% or greater interest referred to in
Section 2(a)(i) is by the Executive or by a group, acting in concert,
that includes the Executive or (y) a majority of the then combined voting
power of the then outstanding voting securities (or voting equity
interests) of the surviving corporation or of any corporation (or other
entity) acquiring all or substantially all of the assets of the Company
or the Bank shall, immediately after a reorganization, merger,
consolidation, exchange or disposition of assets referred to in Section
2(a)(iii) or 2(a)(iv), be beneficially owned, directly or indirectly, by
the Executive or by a group, acting in concert, that includes the
Executive.
(b) For purposes of this Agreement, a "subsidiary" of the Company or
the Bank shall mean any entity of which securities or other ownership
interests having general voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by the Company or the Bank.
3. PAYMENTS AND BENEFITS. If any Event shall occur during the Term of
this Agreement, then the Executive shall be entitled to receive from the
Company, the Bank or
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either of their successors (which term as used herein shall include any
person acquiring all or substantially all of the assets of the Company or the
Bank) a cash payment and other benefits on the following basis (unless the
Executive's employment by the Company is terminated voluntarily or
involuntarily prior to the occurrence of the earliest Event to occur (the
"First Event"), in which case the Executive shall be entitled to no payment
or benefits under this Section 3):
(a) If at the time of, or at any time after, the occurrence of the
First Event and prior to the end of the Transition Period (as defined in
Section 4(d)), the employment of the Executive with the Company or the
Bank is voluntarily or involuntarily terminated for any reason (unless
such termination is a voluntary termination by the Executive other than a
Constructive Involuntary Termination or is on account of the death or
Disability of the Executive or is a termination by the Company or the
Bank for Cause), the Executive (or the Executive's legal representative,
as the case may be),
(i) shall be entitled to receive from the Company, the Bank
or either of their successors, upon such termination of employment
with the Company, the Bank or either of their successors, a cash
payment in an amount equal to 2.99 times the average annual base
salary payable by the Bank and included in the gross income for
Federal Income Tax purposes of the Executive during the shorter of
the period consisting of the five most recently completed taxable
years of the Executive ending before the First Event (other than an
Event described in Section 2(a)(v) or 2(a)(vi) unless the Executive
is terminated prior to the occurrence of an Event described in
Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or that portion of
such period during which the Executive was employed by the Company or
the Bank (for which purpose compensation for a partial year shall be
annualized, in accordance with temporary or final regulations
promulgated under Section 280G(d) of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision thereto,
before determining average annual compensation for the period, such
average annual compensation to be determined in accordance with
temporary or final regulations promulgated under Section 280G(d) of
the Code or any successor provision thereto and such payment to be
made to the Executive by the Company, the Bank or either of their
successors in a lump sum at the time of such termination of
employment; and
(ii) shall be entitled for two years after the termination of
the Executive's employment with the Company or the Bank to
participate in any health, disability and life insurance plan or
program in which the Executive was entitled to participate
immediately prior to the First Event as if he were an employee of the
Company or the Bank during such two-year period (except, with respect
to health insurance coverage, for those portions remaining during
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such two-year period that duplicate health insurance coverage that is
in place for the Executive under any other policy provided at the
expense of another employer); provided however, that in the event
that the Executive's participation in any such health, disability or
life insurance plan or program of the Company or the Bank is barred,
the Company or the Bank, at its sole cost and expense, shall arrange
to provide the Executive with benefits substantially similar to those
which the Executive would be entitled to receive under such plan or
program if he were not barred from participation.
(b) The payments provided for in this Section 3 shall be in addition
to any salary or other remuneration otherwise payable to the Executive on
account of employment by the Company, the Bank or one or more of either
of their subsidiaries or successors (including any amounts received prior
to such termination of employment for personal services rendered after
the occurrence of the First Event) but shall be reduced by any severance
pay which the Executive receives from the Bank, its subsidiaries or its
successor under any other policy or agreement of the Bank or its
subsidiaries in the event of involuntary termination of Executive's
employment.
(c) In the event that at any time from the date of the First Event
until the end of the Transition Period,
(i) the Executive shall not be given substantially equivalent
or greater title, duties, responsibilities and authority, in each
case as compared with the Executive's status immediately prior to the
First Event, other than for Cause or on account of Disability;
(ii) the Executive's annual base salary shall be reduced from
the Executive's annual base salary in effect immediately prior to the
First Event;
(iii) the Company or the Bank shall fail to provide the
Executive with benefits under either of their pension, profit
sharing, retirement, life insurance, medical, health and accident,
disability, bonus and incentive plans and other employee benefit
plans and arrangements that in the aggregate for all such plans and
arrangements are at least as favorable to the Executive as those
benefits covering the Executive immediately prior to the First Event
or shall fail to provide the Executive with at least the number of
paid vacation days to which the Executive was entitled immediately
prior to the First Event;
(iv) the Bank shall have failed to obtain assumption of this
Agreement by any successor as contemplated by Section 5(b) hereof;
(v) the Company or the Bank shall require the Executive to
relocate to any place other than a location within thirty-five miles
of the location at which
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the Executive performed his primary duties immediately prior to the
First Event or, if the Executive performed such duties at the
Company's principal executive offices, the Company shall relocate
its principal executive offices to any location other than a
location within thirty-five miles of the location of the principal
executive offices immediately prior to the First Event; or
a termination of employment with the Company or the Bank by the Executive
thereafter shall constitute a Constructive Involuntary Termination.
(d) Notwithstanding any provision to the contrary contained herein
except the last sentence of this Section 3(d), if the lump sum cash
payment due and the other benefits to which the Executive shall become
entitled under Section 3(a) hereof, either alone or together with other
payments in the nature of compensation to the Executive which are
contingent on a change in the ownership or effective control of the
Company or the Bank or in the ownership of a substantial portion of the
assets of the Company or the Bank or otherwise, would constitute a
"parachute payment" as defined in Section 280G of the Code or any
successor provision thereto, such lump sum payment and/or such other
benefits and payments shall be reduced (but not below zero) to the
largest aggregate amount as will result in no portion thereof being
subject to the excise tax imposed under Section 4999 of the Code (or any
successor provision thereto) or being non-deductible to the Company or
the Bank for federal income tax purposes pursuant to Section 280G of the
Code (or any successor provision thereto). The Company or the Bank in
good faith shall determine the amount of any reduction to be made
pursuant to this Section 3(d) and shall select from among the foregoing
benefits and payments those which shall be reduced. No modification of,
or successor provision to, Section 280G or Section 4999 subsequent to the
date of this Agreement shall, however, reduce the benefits to which the
Executive would be entitled under this Agreement in the absence of this
Section 3(d) to a greater extent than they would have been reduced if
Section 280G and Section 4999 had not been modified or superseded
subsequent to the date of this Agreement, notwithstanding anything to the
contrary provided in the first sentence of this Section 3(d).
(e) The Executive shall not be required to mitigate the amount of
any payment or other benefit provided for in Section 3 by seeking other
employment or otherwise, nor (except as specifically provided in Section
3(a)(ii) or 3(b)) shall the amount of any payment or other benefit
provided for in Section 3 be reduced by any compensation earned by the
Executive as the result of employment by another employer after
termination, or otherwise.
(f) The obligations of the Company and the Bank under this Section 3
shall survive the termination of this Agreement.
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4. DEFINITION OF CERTAIN ADDITIONAL TERMS.
(a) As used herein, other than in Section 2(a) hereof, the term
"person" shall mean an individual, partnership, corporation, estate,
trust or other entity.
(b) As used herein, the term "Cause" shall mean, and be limited to:
(i) an act or acts of dishonesty undertaken by Executive and
intended to result in substantial gain or personal
enrichment of Executive at the expense of the Company or
the Bank;
(ii) unlawful conduct or gross misconduct that is willful and
deliberate on Executive's part and that, in either event,
is injurious to the Company or the Bank; or
(iii) the conviction of Executive of a felony.
(iv) failure of Executive to perform his duties and
responsibilities under the Employment Agreement or to
satisfy his obligations as an officer or employee of the
Company or the Bank, which failure has not been cured by
Executive within 30 days after written notice thereof to
Executive from the Company or the Bank, as applicable; or
(v) material breach of any terms and conditions of the
Employment Agreement by Executive not caused by the
Company or the Bank, which breach has not been cured by
Executive within ten days after written notice thereof to
Executive from the Company or the Bank.
(c) As used herein, the term "Disability" shall mean the inability
of Executive to perform on a full-time basis the duties and
responsibilities of his employment with the Company or the Bank by reason
of his illness or other physical or mental impairment or condition, if
such inability continues for an uninterrupted period of 180 days or more
during any 360-day period. A period of inability shall be
"uninterrupted" unless and until Executive returns to full-time work for
a continuous period of at least 30 days.
(d) As used herein, the term "Transition Period" shall mean the one
year period commencing on the date of the earliest to occur of an Event
described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof (the
"Commencement Date") and ending one year after the Commencement Date.
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5. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
the successors, legal representatives and assigns of the parties hereto;
provided, however, that the Executive shall not have any right to assign,
pledge or otherwise dispose of or transfer any interest in this Agreement
or any payments hereunder, whether directly or indirectly or in whole or
in part, without the written consent of the Company or the Bank or either
of their successors.
(b) The Company and the Bank will require any successor (whether
direct or indirect, by purchase of a majority of the outstanding voting
stock of the Company or the Bank or all or substantially all of the
assets of the Company or the Bank, or by merger, consolidation or
otherwise), by agreement in form and substance satisfactory to the
Executive, to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company and the Bank would be
required to perform it if no such succession had taken place. Failure of
the Company or the Bank, as applicable, to obtain such agreement prior to
the effectiveness of any such succession (other than in the case of a
merger or consolidation) shall be a breach of this Agreement and shall
entitle the Executive to compensation from the Bank in the same amount
and on the same terms as the Executive would be entitled hereunder if the
Executive terminated his employment on account of a Constructive
Involuntary Termination, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date of termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which is required
to execute and deliver the agreement provided for in this Section 5(b)
or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law and "Bank" shall mean the Bank as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which is required to execute and deliver the agreement
provided for in this Section 5(b) or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
6. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Minnesota.
7. NOTICES. All notices, requests and demands given to or made pursuant
hereto shall be in writing and shall be delivered or mailed to any such party
at its address which:
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(a) In the case of the Company or the Bank shall be:
HMN Financial, Inc.
Attention: Chairman of the Board
101 North Broadway
Spring Valley, Minnesota 55975
(b) In the case of the Executive shall be:
Timothy P. Johnson
701 Bonner Court S.E.
Stewartville, Minnesota 55976
Either party may, by notice hereunder, designate a changed address. Any
notice, if mailed properly addressed, postage prepaid, registered or certified
mail, shall be deemed to have been given on the registered date or that date
stamped on the certified mail receipt.
8. SEVERABILITY; SEVERANCE. In the event that any portion of this
Agreement is held to be invalid or unenforceable for any reason, it is hereby
agreed that such invalidity or unenforceability shall not affect the other
portions of this Agreement and that the remaining covenants, terms and
conditions or portions hereof shall remain in full force and effect, and any
court of competent jurisdiction may so modify the objectionable provision as to
make it valid, reasonable and enforceable. In the event that any benefits to
the Executive provided in this Agreement are held to be unavailable to the
Executive as a matter of law, the Executive shall be entitled to severance
benefits from the Bank, in the event of an involuntary termination or
Constructive Involuntary Termination of employment of the Executive (other than
a termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period prior to the First Event.
9. TERM. This Agreement shall commence on the date of this Agreement
and shall terminate, and the Term of this Agreement shall end, on the later of
(A) October 31, 2002, provided that such period shall be extended
automatically for one year and from year to year thereafter until notice of
termination is given by the Company or the Executive to the other party hereto
at least 30 days prior to October 31, 2002 or the one-year extension period
then in effect, as the case may be, or (B) if the Commencement Date occurs on
or prior to October 31, 2002 (or prior to the end of the extension year then in
effect as provided for in clause (A) hereof), one year after the Commencement
Date.
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10. TERMINATION OF PRIOR AGREEMENT. This Agreement supercedes the Prior
Agreement which is hereby terminated and neither party shall have any rights or
obligations pursuant to the terms of the Prior Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HOME FEDERAL SAVINGS BANK
By /s/ M.F. Schumann
____________________________________
Its Chairman
_____________________________
Executive
/s/ Timothy P. Johnson
_______________________________________
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