UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 27, 2014
HMN Financial, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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0-24100 |
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41-1777397 |
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(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
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1016 Civic Center Drive Northwest PO Box 6057 Rochester, Minnesota |
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55903-6057 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code (507) 535-1200
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(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 4.01 |
Changes in Registrant’s Certifying Accountant. |
(b) On May 27, 2014, HMN Financial, Inc. (the “Company”) engaged CliftonLarsonAllen LLP (“CLA”) to serve as the Company’s principal accountant to audit the Company’s financial statements. During the Company’s two most recent fiscal years and the subsequent interim period through May 27, 2014, neither the Company (nor anyone on its behalf) consulted CLA regarding either:
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The application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company by CLA that was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue; or |
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Any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S- K and the related instructions) or a reportable event (as described in Item 304(a)(i)(v) of Regulation S-K). |
The Audit Committee of the Board of Directors of the Company (the “Board”) decided to move forward with a change in accountants on May 2, 2014, subject to obtaining an acceptable engagement letter with CLA. The Company’s relationship with its previous principal accountant, KPMG LLP, ceased on May 9, 2014, as previously reported in the Company’s Current Report on Form 8-K dated May 9, 2014. The Board approved the engagement letter with CLA on May 27, 2014.
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Item 5.02 |
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensation Arrangements of Certain Officers. |
(e) Change-in-Control Agreements
On May 27, 2014, the Company entered into new Change-in-Control Agreements with Bradley C. Krehbiel, (President and Chief Executive Officer), Jon J. Eberle (Senior Vice President, Chief Financial Officer and Treasurer), and Lawrence D. McGraw (Executive Vice President and Chief Operating Officer of Home Federal Savings Bank, a wholly owned subsidiary of the Company (the “Bank”)). The new Change-in-Control Agreements replace similar agreements that were previously entered into with Messrs. Krehbiel and Eberle on May 27, 2008 and represent a new agreement with Mr. McGraw. The Company had been precluded from making any payments under the previous change in control agreements during the period it was a participant in the United States Department of Treasury’s (“Treasury”) Troubled Asset Relief Program (“TARP”). The Company did not previously enter into a change in control agreement with Mr. McGraw because he joined the Company during that TARP period.
The Change-in-Control Agreements provide that if an executive’s employment is involuntarily terminated without cause (and other than as a result of the executive’s death or disability), or if the executive voluntarily terminates his employment for “good reason,” in either case after the Company or Bank enters into a letter of intent or agreement relating to a change in control that ultimately occurs, after a tender offer, exchange offer or proxy contest is commenced that results in a change of control, or within two years after a change in control, then the executive will be entitled to a lump sum cash payment equal to two times the sum of the executive’s annualized base salary as of the termination date and target annual cash incentive bonus for the calendar year in which the employment termination date occurs. The Change-in-Control Agreements also provide for lump sum payments equal to (i) 24 times the monthly amount that the Company or the Bank then pays as its share of the premiums for single employee coverage under the Company’s or Bank’s health insurance plan and (ii) the amount the Company or the Bank would otherwise expect to expend for its share of the premiums for 24 months of life and disability insurance coverage for a single employee under the Company’s or the Bank’s then current plans.
Payment of the severance benefits under the Change-in-Control Agreements is conditioned upon the executive first signing and not rescinding a release of claims against the Company. Severance benefits will be paid in a lump sum no later than 75 days after termination of employment or consummation of the change in control, as applicable.
A “change in control” generally occurs under the agreements if
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(i) |
any person other than the executive, the Company, or one of the Company’s benefit plans acquires or becomes the beneficial owner of 35% or more of the outstanding voting stock of the Company or the Bank (other than in an acquisition of voting securities or common stock directly from the Company or the Bank); |
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(ii) |
a majority of the members of the Company’s Board are replaced as a result of an actual or threatened election contest; |
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(iii) |
a reorganization, merger or consolidation involving the Company or the Bank, or a sale or other disposition of all or substantially all of the assets of the Company or the Bank, is consummated that changes ownership of the Company or the Bank by 35% or more; or |
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(iv) |
the Company’s stockholders approve a complete liquidation or dissolution of the Company or the Bank. |
“Good reason” for a voluntary termination generally occurs if there is a material diminution in an executive’s authority, duties, responsibilities or base salary or in the budget over which the executive retains authority, a material diminution in the authority, duties or responsibilities of the supervisor to whom the executive reports, the executive’s principal place of employment is relocated more than 35 miles from its current location, or any other action or inaction by the Company or the Bank constitutes a material breach of the Change-in-Control Agreement or any other agreement then in effect between such entity and the executive. Good reason for termination will not, however, exist if the executive fails to notify the Company within 90 days of the occurrence of any of the foregoing events or if the Company cures any such event within 30 days of the receipt of such notice.
The amount payable pursuant to the Change-in-Control Agreements will, if necessary, be reduced to the largest aggregate amount that will result in no portion of such payment being considered a “parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended. In addition, any amount otherwise payable under a Change in Control Agreement may be paid only if such payment is then permitted under the “golden parachute regulations” adopted by the Federal Deposit Insurance Corporation.
The foregoing summary of the terms of the Change-in-Control Agreements does not purport to be complete and is qualified in its entirety by reference to the form of Change-in-Control Agreement, a copy of which is attached hereto as Exhibit 10.1 and is incorporated by reference into this Item 5.02.
Restricted Stock Awards
The Company also granted restricted stock awards to Messrs. Krehbiel, Eberle and McGraw on May 27, 2014 involving 9,531, 6,094 and 1,583 shares, respectively. The restricted stock awards were granted under the Company’s 2009 Equity Incentive Plan, a copy of which was filed as Exhibit A to the Company’s Proxy Statement for its Annual Meeting of Stockholders held on April 28, 2009. The restricted stock awards will vest only on the date that 100% of the financial assistance provided to the Company under TARP has been repaid to the Treasury. The restricted stock awards will be forfeited if a recipient’s employment ends for any reason prior to the vesting of the shares, or if it is determined that 100% of the TARP financial assistance provided to the Company is not repaid through Treasury’s sale or disposition of the warrant it holds to acquire Company common stock or any company stock acquired upon exercise of the warrant.
A copy of the form of Restricted Stock Agreement for the awards granted on May 27, 2014 is attached hereto as Exhibit 10.2 and is incorporated by reference into this Item 5.02.
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Item 9.01 |
Financial Statements and Exhibits. |
(d) Exhibits
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Exhibit Number |
Description |
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10.1 |
Form of Change-in-Control Agreement entered into with executive officers of the Company on May 27, 2014. |
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10.2 |
Form of Restricted Stock Agreement for awards granted to executive officers of the Company on May 27, 2014. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HMN Financial, Inc. |
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Date: June 2, 2014 |
By: |
/s/ Jon Eberle |
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Jon Eberle |
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Senior Vice President, |
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| Chief Financial Officer and | |||
| Treasurer | |||
4
Exhibit 10.1
CHANGE-IN-CONTROL AGREEMENT
AGREEMENT entered into as of _____________ by and among HMN Financial, Inc., a Delaware corporation (the “Company”), the Company’s wholly-owned subsidiary Home Federal Savings Bank, a federally chartered savings bank (the “Bank”), and _________________ (the “Executive”).
WITNESSETH:
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, 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. Change in Control. No amounts or benefits shall be payable or provided for pursuant to this Agreement unless a Change in Control shall occur during the Term of this Agreement.
(a) For purposes of this Agreement, a “Change in Control” means the occurrence of any of the following:
(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 a Change in Control pursuant to this Section 1(a)(i):
(A) any acquisition or 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 of beneficial ownership by any corporation (including without limitation an acquisition in a transaction of the nature described in Section 1(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;
(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 1(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 a statutory exchange of outstanding Voting Securities of the Company or the Bank, or a 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) (any of the foregoing referred to as a “Corporate Transaction”) unless immediately following such Corporate Transaction, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and Common Stock immediately prior to Corporate Transaction 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 surviving or acquiring corporation in such Corporate Transaction 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; or
(iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or the Bank.
Notwithstanding anything stated in this Section 1(a), a Change in Control 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 1(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 or acquiring corporation (or other entity) shall, immediately after a Corporate Transaction referred to in Section 1(a)(iii), 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.
2. Payments and Benefits. If a Change in Control shall occur during the Term of this Agreement, then the Executive shall be entitled to receive from the Company or the Bank cash payments and other benefits under the following circumstances and in accordance with the following terms:
(a) If at the time of, or at any time after, the occurrence of the Change in Control and prior to the end of the Transition Period (as defined in Section 3(d)), the employment of the Executive with the Company and the Bank is involuntarily terminated for any reason other than Cause (and other than as a result of Executive’s death or Disability), or is voluntarily terminated by the Executive for Good Reason (as defined below), then, subject to satisfaction of the conditions set forth in the first sentence of Section 2(c) of this Agreement, the Executive:
(i) shall be entitled to receive from the Company or the Bank a cash payment in an amount equal to 2.0 times the sum of the following:
(A) the Executive’s annualized base salary as of the employment termination date (or, if Executive voluntarily terminates employment for Good Reason because the Company materially reduced Executive’s base salary, the Executive’s annualized base salary immediately before such material reduction); and
(B) an amount equal to the Executive’s target annual cash incentive bonus for the calendar year in which the employment termination date occurs;
such payment to be made to the Executive by the Company or the Bank in a lump sum following such termination of employment and after the expiration of all rescission periods identified in the Release (as defined in Section 2(c)) but in no event later than 75 days after such termination of employment. The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code; and
(ii) shall be entitled to a lump sum payment in an amount equal to 24 times the monthly amount the Company or the Bank expends as of the employment termination date for its share of the premiums for health insurance coverage for a single employee under the Company’s or Bank’s then current plan for employees. Such lump-sum payment will be paid to Executive at the same time as the payment specified in Section 2(a)(i). The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code, and
(iii) shall be entitled to a lump sum payment in an amount equal to the amount the Company or the Bank would otherwise expect to expend for its share of the premiums for 24 months of life and disability insurance coverage for a single employee under the Company’s or Bank’s then current plans for employees. Such lump-sum payment will be paid to Executive at the same time as the payment specified in Section 2(a)(i). The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code.
(b) If the employment of the Executive with the Company and the Bank is involuntarily terminated without Cause (other than as a result of Executive’s death or Disability), or is voluntarily terminated by the Executive for Good Reason (as defined in Section 2(d)), in either case after the Company or Bank enters into a letter of intent, an agreement in principle or a definitive agreement relating to the Change in Control that ultimately occurs, or after a tender or exchange offer or proxy contest is commenced that results in the Change in Control, then, subject to satisfaction of the conditions set forth in the first sentence of Section 2(c) of this Agreement, the Executive:
(i) shall be entitled to receive from the Company or the Bank a cash payment in the amount specified in Section 2(a)(i) above, with such payment to be made to the Executive by the Company or the Bank in a lump sum following such Change in Control and after the expiration of all rescission periods identified in the Release (as defined in Section 2(c)) but in no event later than 75 days after such Change in Control. The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code; and
(ii) shall be entitled to a lump sum payment in an amount equal to the amount specified in Section 2(a)(ii), with such payment to be made to the Executive by the Company or the Bank in a lump sum at the same time as the payment specified in Section 2(b)(i). The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code, and
(iii) shall be entitled to a lump sum payment in an amount equal to the amount specified in Section 2(a)(iii), with such payment to be made to the Executive by the Company or the Bank in a lump sum at the same time as the payment specified in Section 2(b)(i). The payment provided under this section is intended to be a short-term deferral and thus exempt from Section 409A of the Code.
(c) Notwithstanding the foregoing provisions of this Section 2, neither the Company nor the Bank will be obligated to make any payments to or on behalf of Executive under Section 2(a) or 2(b) unless (i) the Executive signs a release of claims in favor of the Company and the Bank in a form to be prescribed by the Company (the “Release”), and (ii) all applicable consideration periods and rescission periods provided by law with respect to the Release have expired without the Executive rescinding the Release. The payments provided for in this Section 2 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 (including any amounts received prior to such termination of employment for personal services rendered after the occurrence of the Change in Control) but shall be reduced by any severance pay which the Executive receives from the Company, the Bank, or their subsidiaries under any other policy or agreement of any of such entities in the event of involuntary termination of Executive’s employment.
(d) For purposes of this Agreement, the Executive’s voluntary termination of his employment will be considered to be for “Good Reason” if,
(i) there is a material diminution in the Executive’s authority, duties or responsibilities;
(ii) there is a reduction of 10% or more in the Executive’s annual base salary;
(iii) there is a material diminution in the authority, duties or responsibilities of the supervisor to whom the Executive is required to report, including a requirement that the Executive report to an officer of the Bank or the Company rather than the Board of Directors of the Company or the Bank (but only if the Executive reported to such Board of Directors immediately prior to the Change in Control);
(iv) there is a material diminution in the budget over which the Executive retains authority;
(v) there is a material change in the geographic location at which the Executive performs his primary duties (for this purpose, a requirement that the Executive relocate his principal residence by more than 35 miles or a relocation of the Company’s principal executive offices (if that is where the Executive performed his duties) by more than 35 miles shall be a “material change”); or
(vi) any other action or inaction by the Company or the Bank that constitutes a material breach by the Company or the Bank of this or any other agreement that may then be in effect between such entity and the Executive;
and the Executive provides notice to the Company within 90 days of the occurrence of any of the events described in Subsections 2(d)(i)-(vi), the Company or the Bank thereafter fails to cure such event(s) within 30 days, and the Executive’s termination of employment is effective not later than 30 days after the end of such cure period.
(e) Notwithstanding any provision to the contrary contained herein except the last sentence of this Section 2(e), if the lump sum cash payment due and the other benefits to which the Executive shall become entitled under Section 2(a) or 2(b) 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 2(d) and shall, consistent with the requirements of Section 409A of the Code, 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 2(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 2(d).
(e) The Executive shall not be required to mitigate the amount of any payment or other benefit provided for in Section 2 by seeking other employment or otherwise, nor (except as specifically provided in Section 2(a)(ii) or 2(b)) shall the amount of any payment or other benefit provided for in Section 2 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 2 shall survive the termination of this Agreement.
3. 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:
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(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; |
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(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 |
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(iii) |
the conviction of Executive of a felony. |
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(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 |
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(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 two year period commencing on the date of the earliest to occur of a Change in Control described in Section 1(a)(i), 1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof (the “Commencement Date”).
4. 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. 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 4(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 4(b) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.
5. Governing Law. Except to the extent that federal law applies, this Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any state other than the state of Minnesota.
6. 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:
(a) In the case of the Company or the Bank shall be:
HMN Financial, Inc.
Attention: Chairman of the Board
1016 Civic Center Drive NW
Rochester, Minnesota 55901
(b) In the case of the Executive shall be:
_____________________________
_____________________________
_____________________________
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.
7. 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.
8. 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) ______________, 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 180 days prior to ____________ or the expiration of the one-year extension period then in effect, as the case may be, or (B) if the Commencement Date occurs on or prior to ______________ (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.
9. Regulatory Provisions. Notwithstanding any other provision of this Agreement:
(a) Any payment or benefit to be made or provided to Executive pursuant to this Agreement shall be subject to and conditioned upon compliance with 12 CFR Part 359, “Golden Parachute and Indemnification Payments.”
(b) Incorporated by reference herein are the terms required to be contained in employment contracts by 12 CFR Section 563.39.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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HMN FINANCIAL, INC.
By: Its: |
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HOME FEDERAL SAVINGS BANK
By: Its:
Executive
______________________________ |
-9-
Exhibit 10.2
HMN FINANCIAL, INC.
2009 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT*
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Full Name of Participant: | |
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Number of Shares Covered: |
Grant Date: |
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Vesting Schedule: | |
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Date Specified in Section 3 |
Number of Share(s) Which Become Vested
[All Shares] |
This is a Restricted Stock Agreement (“Agreement”) between HMN Financial, Inc., a Delaware corporation (the “Company”), and the Participant identified in the table above.
RECITALS
WHEREAS, the Company maintains the HMN Financial, Inc. 2009 Equity Incentive Plan (the “Plan”);
WHEREAS, the Board of Directors of the Company has appointed the Compensation Committee (the “Committee”) to administer the Plan and determine the Awards to be granted under the Plan; and
WHEREAS, the Committee or its designee has determined that the Participant is eligible to receive an Award under the Plan in the form of Restricted Stock;
NOW, THEREFORE, the Company and the Participant mutually agree as follows:
______________________
* Any capitalized term used in this Agreement will have the meaning set forth in this Agreement (including the table at the beginning of this Agreement) or, if not defined in this Agreement, set forth in the Plan as it currently exists or as it is amended in the future.
TERMS AND CONDITIONS
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1. |
Issuance of Restricted Shares. |
| (a) | Subject to the terms and conditions of this Agreement, the Company has granted to the Participant Restricted Stock in the number of Shares specified at the beginning of this Agreement. Such Shares of Restricted Stock are subject to the restrictions provided for in this Agreement, and in the Plan, and are referred to collectively as the “Restricted Shares” and each as a “Restricted Share.” The terms “Restricted Shares” and “restricted stock” as used in this Agreement shall also be deemed to encompass all securities or other property (including cash) received or receivable by the Participant in replacement of or in exchange for the Restricted Shares originally issued under this Agreement pursuant to a recapitalization, reclassification, stock dividend, stock split, stock combination, Corporate Transaction or other relevant event. In any scenario in which the term “Restricted Shares” or “restricted stock” does encompass such other securities or other property, the restrictions applicable to such other securities or other property shall be evidenced and enforced to the greatest degree possible by means comparable to those prescribed in this Agreement for Shares subject to such restrictions, and where such measures are impracticable, by the Company’s retention or escrow of such other securities or other property until release to the Participant or forfeiture to the Company is called for by the terms of this Agreement or any replacement award agreement. | |
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(b) |
Each Restricted Share will be evidenced by a book-entry in the name of the Participant with the Company’s transfer agent or by one or more Common Stock certificates issued in the name of the Participant. Any such Common Stock certificate will be deposited with the Company or its designee, together with an assignment separate from the certificate, in blank, signed by the Participant, and bear an appropriate legend referring to the restricted nature of the Restricted Stock evidenced thereby. Any book-entry will be subject to transfer restrictions and accompanied by a similar legend. Upon the vesting of Shares of Restricted Stock and the corresponding lapse of the restrictions and forfeiture conditions, the transfer restrictions and restrictive legend applicable to any book-entry evidencing such Shares will be removed, or a certificate for the Shares bearing no restrictive legend will be delivered to the Participant or a Successor or a Transferee. |
2. Forfeiture and Transfer Restrictions.
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(a) |
Forfeiture. All unvested Restricted Shares will be forfeited by the Participant to the Company, and the Participant will thereafter have no right, title or interest whatsoever in such Restricted Shares, upon the earlier to occur of the following: (i) the Participant’s Service with the Company and its Affiliates is terminated for any reason, whether by the Company with or without cause, voluntarily or involuntarily by the Participant or otherwise, or (ii) the Company determines that the United States Department of the Treasury (“Treasury”) has completely sold, exercised or otherwise disposed of (A) the warrant to purchase 833,333 Shares that was issued by the Company to Treasury on December 23, 2008 (the “Warrant”) and (B) any Shares, other securities and/or other property (other than cash) acquired by Treasury upon the sale, exercise or other disposition of the Warrant, and that the net cash proceeds received by Treasury in connection therewith have not been sufficient to repay the unpaid balance, as of the date of this Agreement, of the of the $26,000,000 in financial assistance provided to the Company under the Troubled Asset Relief Program (the “Financial Assistance”) established under the Emergency Economic Stabilization Act of 2008, as amended (“EESA”). For purposes of this Agreement, “net cash proceeds” shall mean the cash proceeds received by Treasury net of the fees and costs incurred by Treasury in connection with the sale or other disposition of the Warrant, Shares, other securities and/or other property referenced in the preceding sentence, and net of any amount paid to exercise the Warrant. |
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(b) |
Actions to Effectuate Forfeiture. The Company unilaterally may instruct the Company’s transfer agent to adjust the stock register of the Company to reflect the forfeiture of any Restricted Shares. If the Company does not have custody of any and all certificates representing Restricted Shares so forfeited, the Participant must immediately return to the Company any and all certificates representing Restricted Shares so forfeited. Additionally, the Participant must deliver to Company a stock power duly executed in blank relating to any and all certificates representing Restricted Shares forfeited to the Company in accordance with the previous sentence or, if such stock power has previously been tendered to the Company, the Company will be authorized to deem such previously tendered stock power delivered, and the Company will be authorized to cancel any and all certificates representing Restricted Shares so forfeited and issue and deliver to the Participant a new certificate for any Shares which vested prior to forfeiture. For purposes of this Agreement, neither the transfer of the Participant between any combination of the Company and its Affiliates, nor a leave of absence granted to the Participant by the Company, will be deemed a termination of employment. | |
| (c) | Limitation on Transfer. Until such time as the Restricted Shares have become vested under Section 3 of this Agreement, they may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of. Any attempt to assign, transfer, pledge, hypothecate, or otherwise dispose of the Restricted Shares contrary to the provisions hereof, and the levy of any attachment or similar process upon the Restricted Shares, will be void. |
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3. |
Vesting. All of the Restricted Shares will cease to be subject to potential forfeiture and the transferability restrictions under Section 2 hereof on the date that 100% of the Financial Assistance has been repaid to Treasury. For purposes of this Agreement, the amount of such Financial Assistance that has been repaid shall be determined in the same manner as such repayment would be calculated for purposes of determining the percentage of “long-term restricted stock” awards that may become transferable under the Interim Final Rule (31 CFR Section 30.1) promulgated under Section 111 of EESA and the related guidance provided by Treasury in connection therewith (including the Frequently Asked Questions – Troubled Asset Relief Program Standards for Compensation and Corporate Governance). Restricted Shares that have so ceased to be subject to forfeiture and transferability restrictions are sometimes referred to as “vested” or as “Vested Shares” in this Agreement. |
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4. |
Corporate Transaction. If a Corporate Transaction (as defined in the Plan and including for purposes of this Agreement any Change in Control described in Section 2(g)(3) of the Plan) occurs before the Restricted Shares have vested or been forfeited, the following provisions shall apply: |
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(a) |
Repayment of Financial Assistance. If as a result of the Corporate Transaction, Treasury will be entitled to receive net cash proceeds sufficient to pay the then remaining unpaid balance of the Financial Assistance, then the Restricted Shares shall vest in full as of the closing of the Corporate Transaction. |
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(b) |
Continuation, Assumption or Replacement of Award. If as a result of the Corporate Transaction, Treasury will not be entitled to receive net cash proceeds that are sufficient to pay the then remaining unpaid balance of the Financial Assistance, but in addition thereto will retain some or all of the Warrant (as it may have been adjusted to reflect the Corporate Transaction) or will retain or have received Shares, other securities or other non-cash property in exchange for the Warrant or Shares previously acquired upon exercise of the Warrant, then the definitive agreement governing the Corporate Transaction shall provide for the continuation, assumption or replacement of this Restricted Stock Award by the surviving or successor entity (or its parent entity) in such Corporate Transaction. For purposes of this Section 4, this Restricted Stock Award will be considered assumed or replaced if, in connection with the Corporate Transaction, either (i) the contractual obligations represented by this Award are expressly assumed by the surviving or successor entity (or its parent entity) with appropriate adjustments to the number and type of Restricted Shares subject to this Award that reflects the consideration to be received in the Corporate Transaction by holders of Shares generally and preserves the intrinsic value of this Award existing at the time of the Corporate Transaction, or (ii) the Participant has received a comparable restricted stock award that reflects the consideration to be received in the Corporate Transaction by holders of Shares generally and preserves the intrinsic value of this Award existing at the time of the Corporate Transaction and is subject to substantially similar terms and conditions, including the vesting condition, as this Award. |
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5. |
Stockholder Rights. Except as otherwise specifically provided in this Agreement or the Plan, the Participant will have all the rights of a stockholder of the Company with respect to the Restricted Shares as of the Grant Date specified at the beginning of this Agreement. Any dividends or distributions, other than regular cash dividends, declared and paid with respect to Restricted Shares will be subject to the same risk of forfeiture and other restrictions as the underlying Restricted Shares. |
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6. |
Tax Withholding. The parties hereto recognize that the Company or one of its Affiliates may be obligated to withhold federal and state taxes or other taxes upon the vesting of the Restricted Shares, or, in the event that the Participant elects under Code Section 83(b) to report the receipt of the Restricted Shares as income in the year of receipt, upon the Participant’s receipt of the Restricted Shares. The Participant agrees that, at such time, if the Company or its Affiliate is required to withhold such taxes, the Participant will promptly pay, in cash upon demand to the Company or the Subsidiary having such obligation, such amounts as will be necessary to satisfy such obligation. In lieu of all or any part of a cash payment from the Participant upon the vesting of the Restricted Shares, the Committee may permit the individual to cover all or any part of the required withholdings (up to the Participant’s minimum required tax withholding rate or such other rate that will not trigger a negative accounting impact) through a reduction in the number of Vested Shares delivered to the Participant or through a delivery or tender to the Company of Shares held by the Participant or other person, in each case valued in the same manner as used in computing the withholding taxes under applicable laws. |
The Participant further acknowledges that the Company has directed the Participant to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which the Participant may reside, and the tax consequences of the Participant’s death.
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7. |
Restrictive Legends and Stop-Transfer Orders. |
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(a) |
Legends. Any certificate or certificates representing the Restricted Shares will bear the following legend (as well as any legends required by applicable state and federal corporate and securities laws) noting the existence of the restrictions set forth in this Agreement: |
| “THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE PARTICIPANT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.” |
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(b) |
Stop-Transfer Notices. The Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. | |
| (c) | Refusal to Transfer. The Company will not be required (i) to transfer on its books any Restricted Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of the Restricted Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom the Restricted Shares will have been so transferred. |
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8. |
Not Part of Employment Contract; Discontinuance of Employment. This Agreement awards Restricted Stock to the Participant, but does not impose any obligation on the Company to make any future grants or issue any future awards to the Participant or otherwise continue the participation of the Participant under the Plan. This Agreement will not give the Participant a right to continued employment or Service with the Company or any Affiliate, and the Company or Affiliate employing the Participant may terminate his or her Service and otherwise deal with the Participant without regard to the effect it may have upon him or her under this Agreement |
| By executing this Agreement, the Participant expressly acknowledges the above. |
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9. |
Interpretation of This Agreement. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan will be binding and conclusive upon the Company and the Participant. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will govern. |
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10. |
Binding Effect. This Agreement will be binding in all respects on the heirs, representatives, successors and assigns of the Participant (and included for the sake of clarification, a Successor or Transferee of the Participant), and on the successors and assigns of the Company. |
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11. |
Choice of Law. This Agreement is entered into under the laws of the State of Delaware and will be construed and interpreted thereunder (without regard to its conflict-of-law principles). |
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12. |
Entire Agreement. This Agreement and the Plan set forth the entire agreement and understanding of the parties hereto with respect to the issuance of the Restricted Shares and the administration of the Plan and supersede all prior agreements, arrangements, plans, and understandings relating to the issuance of these Restricted Shares and the administration of the Plan. |
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13. |
Amendment and Waiver. Except as provided in the Plan, this Agreement may be amended, waived, modified, or canceled only by a written instrument executed by the parties or, in the case of a waiver, by the party waiving compliance. |
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14. |
Acknowledgment of Receipt of Copy. By execution hereof, the Participant acknowledges having received a copy of the Plan. |
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15. |
No Right to Continued Employment. This Agreement will not give the Participant the right to continued employment or service with the Company or any Affiliate, and the Participant’s then employer may terminate the Participant’s employment or service at any time and otherwise deal with the Participant without regard to the effect it may have upon the Participant under this Agreement. |
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16. |
Regulatory Compliance. Notwithstanding any other provision of this Agreement: |
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(a) |
Any payment or benefit to be made or provided to the Participant pursuant to this Agreement shall be subject to and conditioned upon compliance with 12 CFR Part 359, “Golden Parachute and Indemnification Payments.” |
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(b) |
Incorporated by reference herein are the terms required to be contained in employment contracts by 12 CFR Section 563.39. |
IN WITNESS WHEREOF, the Participant and the Company have executed this Agreement as of the date of issuance specified at the beginning of this Agreement.
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PARTICIPANT |
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| HMN FINANCIAL, INC. | |||
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