Exhibit 10.3
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this 1st day of April 1998, by and between HOME FEDERAL
SAVINGS BANK, a federally chartered savings institution (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section ll(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Company"), and Michael McNeil (the "Employee").
WHEREAS, the Employee is currently serving as Senior Vice President of the
Company; and
WHEREAS, the Company is a federally chartered stock savings bank and the
wholly-owned subsidiary of HMN Financial, Inc. (the "Holding Company"); and
WHEREAS, the Board of Directors of the Company recognizes that, as is the
case with publicly held corporations generally, the possibility of a change in
control of the Company or Holding Company may exist and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of key management personnel to the
detriment of the Company, the Holding Company and their respective stockholders;
and
WHEREAS, the Board of Directors of the Company believes it is in the best
interests of the Company to enter into this Agreement with the Employee in order
to assure continuity of management of the Company and to reinforce and encourage
the continued attention and dedication of the Employee to the Employee's
assigned duties without distraction in the face of potentially disruptive
circumstances arising from the possibility of a change in control of the Company
or the Holding Company, although no such change is now contemplated; and
WHEREAS, the Board of Directors of the Company has approved and authorized
the execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is AGREED as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the date
of the execution of this agreement and shall continue for a period of thirty
(30) full calendar months thereafter. Commencing on the first anniversary of
the execution of this agreement and on each anniversary thereafter, this
Agreement shall be extended for a period of twelve (12) months in addition to
the then-remaining term of employment under this Agreement, unless either the
Company or the Employee gives contrary written notice to the other not less than
90 days in advance of the date on which the term of employment under this
Agreement would otherwise be extended, and PROVIDED THAT no extension shall
occur unless prior to each anniversary of the Execution Date, the Board of
Directors of the Company has reviewed a formal evaluation of the Employee's
performance during the year preceding such anniversary prepared by the
disinterested members of the Board of Directors of the Company and explicitly
approved such extension of the term of this Agreement.
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Company or the Holding Company followed at any time during the term of this
Agreement by the involuntary termination of the Employee's employment, other
than for cause, as defined in Section 2(d) hereof, the provisions of Section 3
shall apply.
(b) A "change in control" of the Company or the Holding Company is defined
solely as any acquisition of control (other than by a trustee or other fiduciary
holding securities under an employee benefit plan of the Holding Company or a
subsidiary of the Holding Company), as defined in 12 C.F.R. Section 574.4, or
any successor regulation, of the Company or Holding Company which would require
the filing of an application for acquisition of control or notice of change in
control in a manner as set forth in 12 C.F.R. Section 574.3, or any successor
regulation.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Company. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without the Employee's express written
consent. In addition, any of the following actions, shall constitute involuntary
termination of employment unless consented to in writing by the Employee: (1)
change in the principal workplace of the Employee to a location outside of a 20
mile radius from the Company's headquarters office as of the date hereof; (2) a
material demotion of the Employee or material adverse change in the salary,
perquisites, benefits, contingent benefits or vacation time which had
theretofore been provided to the Employee, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Company or-the Holding Company; and (3) a material permanent
increase in the required hours of work or the workload of the Employee.
(d) The Employee shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon termination for cause. For purposes of this
Agreement, termination for "cause" shall include termination for personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal
profit, intentional failure to perform stated duties, willful violation of any
material law, rule, or regulation (other than a law, rule or regulation relating
to a traffic violation or similar offense) or final cease-and-desist order, or
material breach of any provision of this Agreement.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a change in control, followed by the
involuntary termination of the Employee's employment, other than for cause, the
Company shall pay to the Employee in a lump sum in cash within 25 business days
after the date of severance of employment an amount equal to 299 percent of the
Employee's "base amount" of compensation, as defined in Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended ("Code"). At the election of
the Employee, such payment may be made, on a pro rata basis, semi-monthly during
the twelve (12) months following the Employee's termination.
(b) Upon the occurrence of a change in control of the Company or the
Holding Company followed by the involuntary termination of the Employee's
employment, other than for cause, the Company shall cause life and health
insurance coverage substantially similar to the coverage maintained by the
Company for the Employee immediately prior to such termination to be maintained
for a period of twelve (12) months or for the remaining term of this Agreement,
whichever is greater.
4. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Employee (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible (in whole or part) by the Company for
Federal income tax purposes because of Section 28OG of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Employee pursuant to this Agreement (such amounts payable or
distributable pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount, not less than zero, expressed in present value
which maximizes the aggregate present value of Agreement Payments without
causing any Payment to be nondeductible by the Company because of Section
280G of the Code. For purposes of this Section 4, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall be
made by the Company's independent auditors, or at the election of such auditors
by such other firm or individuals of recognized expertise as such auditors may
select (such auditors or, if applicable, such other firm or individual, are
hereinafter
referred to as the "Advisory Firm"). The Advisory Firm shall within ten business
days of the Date of Termination, or at such earlier time as is requested by the
Company, provide to both the Company and the Employee an opinion (and detailed
supporting calculations) that the Company has substantial authority to deduct
for federal income tax purposes the full amount of the Agreement Payments and
that the Employee has substantial authority not to report on his/her federal
income tax return any excise tax imposed by Section 4999 of the Code with
respect to the Agreement Payments. Any such determination and opinion by the
Advisory Firm shall be binding upon the Company and the Employee. The Employee
shall determine which and how much, if any, of the Agreement Payments shall be
eliminated or reduced consistent with the requirements of this Section 4,
provided that, if the Employee does not make such determination within ten
business days of the receipt of the calculations made by the Advisory Firm, the
Company shall elect which and how much, if any, of the Agreement Payments shall
be eliminated or reduced consistent with the requirements of this Section 4 and
shall notify the Employee promptly of such election. Within five business days
of the earlier of (i) the Company's receipt of the Employee's determination
pursuant to the immediately preceding sentence of this Agreement or (ii) the
Company's election in lieu of such determination, the Company shall pay to or
distribute to or for the benefit of the Employee such amounts as are then due
the Employee under this Agreement. The Company and the Employee shall cooperate
fully with the Advisory Firm, including without limitation providing to the
Advisory Firm all information and materials reasonably requested by it, in
connection with the making of the determinations required under this Section 4.
(c) As a result of uncertainty in application of Section 28OG of the Code
at the time of the initial determination by the Advisory Firm hereunder, it is
possible that Agreement Payments will have been made by the Company which should
not have been made ("Overpayment") or that additional Agreement Payments will
not have been made by the Company which should have been made ("Underpayment"),
in each case, consistent with the calculations required to be made hereunder.
In the event that the Advisory Firm, based upon the assertion by the Internal
Revenue Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Company to or for the
benefit of Employee shall be treated for all purposes as a loan AB INITIO which
the Employee shall repay to the Company together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and no amount shall be
payable by the Employee to the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which the Employee is subject to
tax under Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Advisory Firm, based upon controlling preceding
or other substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or for
the benefit of the Employee together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Company may terminate the Employee's employment at any time, but
any termination by the Company, other than a termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Agreement. The Employee shall not have the right to receive compensation or
other benefits for any period after a termination for cause as defined in
Section 2(d) hereinabove.
(b) If the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the Company's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"),
12 U.S.C. Section 1818(e)(3) and (g)(l), the Company's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended,
and (ii) reinstate in whole or in part any of the obligations which were
suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Company's affairs by an
order issued under Section 8(e)(4) or (g)(l) of the FDIA, 12 U.S.C. Section
1818(e)(4) or (g)(l), all obligations of the Company under this Agreement
shall terminate, as of the effective date of the order, but vested rights of
the parties shall not be affected.
(d) If the Company becomes in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this provision shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated, except to the
extent determined that continuation of this Agreement is necessary for the
continued operation of the Company: (i) by the Director or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Company under the
authority contained in Section 13(c) of the FDIA, or (ii) by the Director of the
Office of Thrift Supervision ("Director") or his or her designee at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Company or when the Company is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
action.
6. REINSTATEMENT OF BENEFITS UNDER SECTION 5(b).
In the event the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Company's affairs by a notice
described in Section 5(b) hereof (the "Notice") during the term of this
Agreement and a change in control occurs, the Company will assume its
obligation to pay and the Employee will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Company's receipt of a dismissal of charges in the Notice.
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Company and the Employee, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Employee of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Employee is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
8 NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Company and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
10. NO MITIGATION.
The amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits after the date
of termination or otherwise.
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Company will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company, by
an assumption agreement in form and substance satisfactory to the Employee,
to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Failure of the Company to
obtain such an assumption agreement prior to the effectiveness of any such
succession or assignment shall be a breach of this Agreement and shall
entitle the Employee to compensation from the Company in the same amount and
on the same terms as the compensation pursuant to Section 3 hereof. For
purposes of implementing the provisions of this Section 11(a), the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would
still be payable to the Employee hereunder if the Employee had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's devisee, legatee
or other designee or if there is no such designee, to the Employee's estate.
12. NOTICE.
For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the Company at its main office
to the attention of the Board of Directors of the Company with a copy to the
Secretary of the Company, or, if to the Employee, at such home or other address
as the Employee has most recently furnished in writing to the Company.
13. AMENDMENTS.
No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.
14. PARAGRAPH HEADINGS.
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the United States to the
extent applicable and otherwise by the laws of the State of Minnesota.
17. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT.
In the event the Company purports to terminate the Employee for cause, but
it is determined by a court of competent jurisdiction or by an arbitrator
pursuant to Section 17 that cause did not exist for such termination, or if in
any event it is determined by any such court or arbitrator that the Company has
failed to make timely payment of any amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in challenging such termination
or collecting such amounts. Such reimbursement shall be in addition to all
rights to which the Employee is otherwise entitled under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
ATTEST: HOME FEDERAL SAVINGS BANK
/s/ Roxanne M. Hellickson By: /s/ Roger P. Weise
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Secretary
WITNESS: EMPLOYEE
/s/ Carol Thouin /s/ Michael McNeil
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Michael McNeil