HMN FINANCIAL, INC.
1995 RECOGNITION AND RETENTION PLAN
AS AMENDED JULY 29, 1998
1. PLAN PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 13 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Home Federal Savings Bank, a savings institution and its
successors.
"Beneficiary"- means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse,
if any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the committee of the Board of Directors of the
Corporation referred to in Section 7 hereof.
"Continuous Service" - means the absence of any interruption or termination
of service as a director, director emeritus, advisory director, executive
officer or employee of the Corporation or any Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or between the
Corporation, its subsidiaries or its successor. With respect to any director
emeritus or advisory director, continuous service shall mean availability to
perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means HMN Financial, Inc., a Delaware corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the
Bank or an Affiliate, or, if no such plan applies, which would render such
employee or director, in the judgment of the Committee, unable to perform his
customary duties and responsibilities.
"Disinterested Person" - means any member of the Board of Directors of the
Corporation who is not being and within the prior year has not been granted any
awards related to the shares under this Plan or any other plan of the
Corporation or any of its Affiliates except for awards which (i) are calculated
in accordance with a formula as contemplated in paragraph (c)(2)(ii) of Rule
16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended; (ii)
result from participation in an ongoing securities acquisition plan meeting the
conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise from an election
by a director to receive all or part of his board fees in securities. No
Participant of an Award granted pursuant to Section 13 shall fail to meet the
definition of Disinterested Person solely by reason of such Award.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Participant" - means any director, director emeritus or advisory director
who is granted an award pursuant to Section 13 or a director, executive officer,
employee of the Corporation or any Affiliate who is selected by the Committee to
receive an Award.
"Plan" - means the 1995 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee in
accordance with applicable Office of Thrift Supervision Regulations for the
purpose of determining when restrictions are in effect under Section 3 hereof
with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in Section
3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. TERMS AND CONDITIONS OF RESTRICTED STOCK. The Committee shall have full
and complete authority, subject to the limitations of the Plan and applicable
Office of Thrift Supervision Regulations, to grant Awards and, in addition to
the terms and conditions contained in paragraphs (a) through (f) of this
Section 3, to provide such other terms and conditions (which need not be
identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine.
(a) At the time of an Award, the Committee shall establish for each
Participant a Restricted Period which shall not be less than 12 months,
during which or at the expiration of which, as the Committee shall
determine and provide in the agreement referred to in paragraph (d) of
this Section 3, the Shares awarded as Restricted Stock shall vest, and
subject to any such other terms and conditions as the Committee shall
provide, Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, voted or otherwise encumbered by the Participant,
except as hereinafter provided, during the Restricted Period. Except for
such restrictions, and subject to paragraphs (c) and (e) of this Section 3
and Section 4 hereof, the Participant as owner of such shares shall have
all the rights of a stockholder. Subject to compliance with applicable
Office of Thrift Supervision Regulations, the Committee shall have the
authority, in its discretion, to accelerate the time at which any or all
of the restrictions shall lapse with respect thereto, or to remove any or
all of such restrictions, whenever it may determine that such action is
appropriate by reason of changes in applicable tax or other laws or other
changes in circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 5, hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death or
disability), unless the Committee shall otherwise determine, all Shares of
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous
Service by reason of death or disability, Restricted Stock then still
subject to restrictions imposed by paragraph (a) of this
Section 3 will be free of those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded
under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in
blank, with the Corporation and shall bear the following (or a similar)
legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) contained in the 1995 Recognition and
Retention Plan of HMN Financial, Inc. Copies of such Plan are on
file in the offices of the Secretary of HMN Financial, Inc., 101
North Broadway, Spring Valley, MN 55975.
(d) At the time of any Award, the Participant shall enter into an
Agreement with the Corporation in a form specified by the Committee,
agreeing to the terms and conditions of the Award and such other matters
as the Committee, in its sole discretion, shall determine (the "Restricted
Stock Agreement").
(e) The payment to the Participant of any dividends declared or paid by
the Corporation on any Restricted Stock shall be deferred and held by the
Corporation for the account of the Participant until the earlier to occur
of (i) the lapsing of the restrictions imposed under paragraph (a) of this
Section 3 or (ii) the forfeiture of such shares under paragraph (b) of
this Section 3. There shall be credited at the end of each year (or
portion thereof) interest on the amount of the Participant's account at
the beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with
interest accrued thereon, shall be made upon the earlier to occur of the
events specified in (i) and (ii) of the immediately preceding sentence.
(f) At the expiration of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall redeliver to the Participant (or where
the relevant provision of paragraph (b) of this Section 3 applies in the
case of a deceased Participant, to his legal representative, beneficiary
or heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 3 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph
(a) of this Section 3.
4. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change in
the outstanding Shares subsequent to the effective date of the Plan by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
or exchange of shares, merger, consolidation or any change in the corporate
structure or Shares of the Corporation, the maximum aggregate number and class
of shares as to which Awards may be granted under the Plan and the number and
class of shares with respect to which Awards theretofore have been granted under
the Plan shall be appropriately adjusted by the Committee, whose determination
shall be conclusive. Any shares of stock or other securities received, as a
result of any of the foregoing, by a Participant with respect to Restricted
Stock shall be subject to the same restrictions and the certificate(s) or
other instruments representing or evidencing such shares or securities shall be
legended and deposited with the Corporation in the manner provided in Section 3
hereof.
5. EFFECT OF CHANGE IN CONTROl. Each of the events specified in the
following clauses (i) through (iii) of this Section 5 shall be deemed a "change
of control":
(i) any third person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, shall become the beneficial owner of shares of
the Corporation with respect to which 25% or more of the total number of votes
may be cast for the election of the Board of Directors of the Corporation, (ii)
as a result of, or in connection with, any cash tender offer, exchange offer,
merger or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Corporation
shall cease to constitute a majority of the Board of Directors of the
Corporation, or (iii) the shareholders of the Corporation shall approve an
agreement providing either for a transaction in which the Corporation will
cease to be an independent publicly owned entity or for a sale or other
disposition of all or substantially all the assets of the Corporation. If the
Continuous Service of any Participant of the Corporation is involuntarily
terminated for whatever reason, at any time within 18 months after a change in
control, unless the Committee shall have otherwise provided, any Restricted
Period with respect to Restricted Stock theretofore awarded to such
Participant shall lapse upon such termination and all Shares awarded as
Restricted Stock shall become fully vested in the Participant to whom
such Shares were awarded.
6. ASSIGNMENTS AND TRANSFERS. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or
transferred except (i) in the event of the death of a Participant, by will or
the laws of descent and distribution, or (ii) pursuant to a qualified domestic
relations order as defined in the Code or Title I of ERISA or the rules
thereunder.
7. ADMINISTRATION. The Plan shall be administered by a Committee consisting
of three or more members, each of whom shall be a Disinterested Person;
provided, however, that with respect to Awards granted to or held by any
director of the corporation who is not a full-time employee of the corporation,
the Plan shall be administered by the Board of Directors of the corporation.
The members of the Committee shall be appointed by the Board of Directors of the
corporation. The Committee or the Board of Directors, as the case may be,
shall have sole and complete authority and discretion to (i) select Participants
and grant Awards;
(ii) determine the number of Shares to be subject to types of Awards generally
as well as to individual Awards granted under the Plan; (iii) determine the
terms and conditions upon which Awards shall be granted under the Plan; (iv)
describe the form and terms of instruments evidencing such grants; and (v)
establish from time to time regulations for the administration of the Plan,
interpret the Plan and make all determinations deemed necessary or advisable for
the administration of the Plan. A majority of the Committee or the Board of
Directors, as the case may be, shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee or the Board of
Directors, as the case may be, without a meeting shall be acts of the
Committee or Board of Directors.
8. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards
may be made under the Plan is 2% of the total Shares issued in the Bank's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred. Any Award made
pursuant to this Plan, which Award is subject to the requirements of Office of
Thrift Supervision Regulations, shall vest in five equal annual installments
with the first installment vesting on the one-year anniversary of the date of
grant, except in the event of death, disability or a change in control as
defined in Section 5 of this Plan.
In the event Office of Thrift Supervision Regulations are amended (the
"Amended Regulations") to permit shorter vesting periods, any Award made
pursuant to this Plan, which Award is subject to the requirements of such
Amended Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities
legislation. The Corporation shall not be required to deliver any Shares under
the Plan prior to (i) the admission of such shares to listing on any stock
exchange on which Shares may then be listed, and (ii) the completion of such
registration or other qualification of such Shares under any state or Federal
law, rule or regulation, as the Committee shall determine to be necessary
or advisable.
9. EMPLOYEE RIGHTS UNDER THE PLAN. No director, director emeritus, advisory
director, officer or employee shall have a right to be selected as a Participant
nor, having been so selected, to be selected again as a Participant and no
director, officer, employee or other person shall have any claim or right to be
granted an Award under the Plan or under any other incentive or similar plan of
the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
10. WITHHOLDING TAX. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Corporation shall have the right to require the Participant or
other person receiving such shares to pay the Corporation the amount of any
taxes which the Corporation is required to withhold with respect to such
shares; or, in lieu thereof, to retain or sell without notice, a sufficient
number of shares held by it to cover the amount required to be withheld. The
Corporation shall have the right to deduct from all dividends paid with respect
to shares of Restricted Stock the amount of any taxes which the Corporation is
required to withhold with respect to such dividend payments. No discretion or
choice shall be conferred upon any Participant with respect to the form,
timing or method of any such tax withholding.
11. AMENDMENT OR TERMINATION. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that no such amendment shall be made without approval of the
stockholders of the Corporation which shall (i) materially increase the
aggregate number of Shares with respect to which Awards may be made under the
Plan (except pursuant to Section 4), (ii) materially increase the benefits
accruing to Participants or (iii) materially change the requirements as to
eligibility for participation in the Plan, provided, however, that no such
amendment, suspension or termination shall impair the rights of any Participant,
without his consent, in any Award theretofore made pursuant to the Plan.
Notwithstanding anything in this Plan to the contrary, to the extent that
the Plan provides for formula awards, as defined in Rule 16b-3(c)(2)(ii)
under the Securities Exchange Act of 1934, as amended, such provisions may not
be amended more than once every six months, other than to comport with
changes in the Code, ERISA or the rules thereunder.
12. TERM OF PLAN. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.