-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPBO3tUYBTr6TcbEkznfPeNwJkXSDBBJkZFOHplvn70pqfq3AAyjQK05YujVu5mG W2L1DwNBX6FU97zYOp96jQ== 0000946275-03-000715.txt : 20031020 0000946275-03-000715.hdr.sgml : 20031020 20031020113000 ACCESSION NUMBER: 0000946275-03-000715 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20031118 FILED AS OF DATE: 20031020 EFFECTIVENESS DATE: 20031020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS FINANCIAL CORP CENTRAL INDEX KEY: 0000934739 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411799504 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25342 FILM NUMBER: 03947261 BUSINESS ADDRESS: STREET 1: 53 FIRST ST SW STREET 2: P.O. BOX 310 CITY: WELLS STATE: MN ZIP: 56097 BUSINESS PHONE: 5075533151 MAIL ADDRESS: STREET 1: 53 1ST ST SW STREET 2: PO BOX 310 CITY: WELLS STATE: MN ZIP: 56097 DEF 14A 1 def14a_111803-0129.txt SPECIAL PROXY 11-18-03 - WELLS FINANCIAL CORP. SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the registrant [X] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material pursuant to Rule 14a-12 Wells Financial Corp. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of filing fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement no.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- [WELLS FINANCIAL CORP. LETTERHEAD] October 20, 2003 To Our Stockholders: On behalf of the Board of Directors and management of Wells Financial Corp. (the "Company"), I cordially invite you to attend our Special Meeting of Stockholders ("Meeting") to be held at the corporate office located at 53 First Street, S.W., Wells, Minnesota on Tuesday, November 18, 2003 at 3:00 p.m., local time. The attached Notice of Special Meeting of Stockholders and Proxy Statement describe the formal business to be transacted at the Meeting. You will be asked to approve the Wells Financial Corp. 2003 Stock Option Plan and the Wells Federal Bank 2003 Stock Bonus Plan. The Board of Directors has approved these proposals and recommends that you vote FOR them. Whether or not you plan to attend the Meeting, please sign and date the enclosed form of proxy and mail it in the accompanying postage-paid return envelope as promptly as possible. This will not prevent you from voting in person at the Meeting, but will assure that your vote is counted if you are unable to attend. YOUR VOTE IS VERY IMPORTANT. Sincerely, /s/ Lonnie R. Trasamar Lonnie R. Trasamar President and Chief Executive Officer - -------------------------------------------------------------------------------- WELLS FINANCIAL CORP. 53 FIRST STREET, S.W. WELLS, MINNESOTA 56097 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18, 2003 - -------------------------------------------------------------------------------- NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Meeting") of Wells Financial Corp. (the "Company") will be held at the corporate office located at 53 First Street, S.W., Wells, Minnesota, on Tuesday, November 18, 2003 at 3:00 p.m., local time. The Meeting is for the purpose of considering and acting upon the following matters: 1. The approval of the Wells Financial Corp. 2003 Stock Option Plan; and 2. The approval of the Wells Federal Bank 2003 Stock Bonus Plan. Action may be taken on any one of the foregoing proposals at the Meeting on the date specified above or on any date or dates to which, by original or later adjournment, the Meeting may be adjourned. Stockholders of record at the close of business on October 10, 2003 are entitled to notice of and to vote at the Meeting and any adjournments thereof. You are requested to sign and date the enclosed form of proxy which is solicited by the Board of Directors and mail it promptly in the enclosed envelope. This will not prevent you from voting in person at the Meeting, but will assure that your vote is counted if you are unable to attend. YOUR VOTE IS VERY IMPORTANT. EACH STOCKHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE MEETING, IS REQUESTED TO SIGN, DATE, AND MAIL THE ENCLOSED FORM OF PROXY WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR HER PROXY AND VOTE IN PERSON ON EACH MATTER BROUGHT BEFORE THE MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE IN PERSON AT THE MEETING. BY ORDER OF THE BOARD OF DIRECTORS /s/ Richard Mueller Richard Mueller Secretary Wells, Minnesota October 20, 2003 - -------------------------------------------------------------------------------- IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROXY STATEMENT OF WELLS FINANCIAL CORP. 53 FIRST STREET, S.W. WELLS, MINNESOTA 56097 - -------------------------------------------------------------------------------- SPECIAL MEETING OF STOCKHOLDERS NOVEMBER 18, 2003 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERAL - -------------------------------------------------------------------------------- This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Wells Financial Corp. (the "Company") to be used at the Special Meeting of Stockholders of the Company which will be held at the corporate office located at 53 First Street, S.W., Wells, Minnesota, on Tuesday, November 18, 2003 at 3:00 p.m., local time (the "Meeting"). The accompanying Notice of Special Meeting of Stockholders and this Proxy Statement are being first mailed to stockholders on or about October 20, 2003. The Company is the parent company of Wells Federal Bank (the "Bank"). All properly executed written proxies that are delivered pursuant to this proxy statement will be voted on all matters that properly come before the Meeting for a vote. If your signed proxy specifies instructions with respect to matters being voted upon, your shares will be voted in accordance with your instructions. If no instructions are specified, your shares will be voted (a) FOR Proposal I (Approval of the Wells Financial Corp. 2003 Stock Option Plan) (the "Option Plan"), (b) FOR Proposal II (Approval of the Wells Federal Bank 2003 Stock Bonus Plan (the "Stock Bonus Plan"), and (c) in the discretion of the proxy holders, as to any other matters that may properly come before the Meeting (including any adjournments). Your proxy may be revoked at any time prior to being voted by: (i) filing with the Corporate Secretary of the Company (Richard Mueller, 53 First Street, S.W., P.O. Box 310, Wells, Minnesota 56097) written notice of such revocation, (ii) submitting a duly executed proxy bearing a later date, or (iii) attending the Meeting and giving the Secretary notice of your intention to vote in person. The approval of the Option Plan provides for authorizing the issuance of an additional 120,000 shares of common stock of the Company (the "Common Stock") upon the exercise of stock options to be awarded to officers, directors, employees and other persons providing services to the Company or any present or future parent or subsidiary of the Company from time to time. Upon the approval of the Option Plan, the Company will reduce the share reserve under the 1995 Stock Option Plan by 41,375 shares. The approval of the Stock Bonus Plan provides for authorization to issue up to an additional 50,000 shares of Common Stock upon awards to personnel of experience and ability in key positions of responsibility with the Bank from time to time. At the present time, the Bank intends to acquire up to 38,527 shares of Common Stock for the Stock Bonus Plan purposes through open-market purchases and the balance of such shares are held in the Bank's management stock bonus plan trust. The Stock Bonus Plan has the authority, however, to buy such common stock directly from the Company. APPROVAL OF THE OPTION PLAN AND THE STOCK BONUS PLAN MAY BE DEEMED TO HAVE CERTAIN ANTI-TAKEOVER EFFECTS WITH REGARD TO THE COMPANY. See "Proposal I - Approval of the Option Plan - Effect of Mergers, Change of Control and Other Adjustments, and - Possible Dilutive Effects of the Option Plan" and "Proposal II - Approval of the Stock Bonus Plan - Possible Dilutive Effects of the Stock Bonus Plan." -1- - -------------------------------------------------------------------------------- VOTING STOCK AND VOTE REQUIRED - -------------------------------------------------------------------------------- The Board of Directors has set the close of business on October 10, 2003, as the record date for the determination of stockholders who are entitled to notice of, and to vote at, the Meeting. On the record date, there were 1,131,436 shares of the Common Stock. Each stockholder of record on the record date is entitled to one vote for each share held. The Articles of Incorporation of the Company (the "Articles") provide that in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding shares of Common Stock (the "Limit") be entitled or permitted to any vote with respect to the shares held in excess of the Limit and such person may have his or her voting rights reduced below 10%. Beneficial ownership is determined pursuant to the definition in the Articles and includes shares beneficially owned by such person or any of his or her affiliates or associates (as defined in the Articles), shares which such person or his or her affiliates or associates have the right to acquire upon the exercise of conversion rights or options, and shares as to which such person and his or her affiliates or associates have or share investment or voting power, but shall not include shares beneficially owned by any employee stock ownership or similar plan of the Company or any subsidiary. The presence in person or by proxy of at least a majority of the outstanding shares of Common Stock entitled to vote (after subtracting any shares held in excess of the Limit) is necessary to constitute a quorum at the Meeting. As to the matters being proposed for stockholder action as set forth in Proposal I, Approval of the Option Plan, and Proposal II, Approval of the Stock Bonus Plan, and the proxy card being provided by the Board of Directors enables a stockholder to check the appropriate box on the proxy to (i) vote "FOR" the item, (ii) vote "AGAINST" the item, or (iii) vote to "ABSTAIN" on such item. An affirmative vote of the holders of a majority of the total votes cast at the Meeting, in person or by proxy, is required to constitute stockholder approval for Proposals I and II. Broker Non-Votes will not have an impact on the outcome of the vote on such matter and proxies marked "ABSTAIN" will have the same impact as a vote "AGAINST" such matter. - -------------------------------------------------------------------------------- INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON - -------------------------------------------------------------------------------- Executive officers and directors of the Company have an interest in the matters being presented for stockholder approval. Upon stockholder approval of the Stock Option Plan and the Stock Bonus Plan, executive officers and directors of the Company and the Bank may be granted stock options and restricted stock awards pursuant to the Option Plan and the Stock Bonus Plan. The approval of the Option Plan and the Stock Bonus Plan is being presented as Proposal I and Proposal II, respectively. See "Security Ownership of Certain Beneficial Owners" for information regarding the number of shares of Common Stock beneficially owned by executive officers and directors. - -------------------------------------------------------------------------------- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - -------------------------------------------------------------------------------- Persons and groups owning in excess of 5% of the Common Stock are required to file certain reports regarding such ownership pursuant to the Securities Exchange Act of 1934, as amended. The following table sets forth, as of the record date, persons or groups who own more than 5% of the Common Stock and the ownership of each director, named executive officer, and all executive officers and directors of the Company -2- as a group. Other than as noted below, management knows of no person or group that owns more than 5% of the outstanding shares of Common Stock at the record date.
PERCENT OF SHARES AMOUNT AND NATURE OF BENEFICIAL OF COMMON STOCK NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1)(2) OUTSTANDING - ------------------------------------ --------------- ----------- Wells Federal Bank, fsb 119,717(3) 10.6% Employee Stock Ownership Plan 53 First Street, S.W. Wells, Minnesota 56097 De Prince, Race & Zollo, Inc. 80,000(4) 7.1% 201 S. Orange Avenue, Suite 850 Orlando, Florida 32801 Lonnie R. Trasamar 1,243 * Gerald D. Bastian 32,546(5) 2.8% Randel I. Bichler 11,385(6)(10) * Dale E. Stallkamp 29,311(7) 2.5% Richard Mueller 14,786(6)(8) 1.3% David Buesing 11,186(6)(7) * James D. Moll 13,208(9) 1.1% All directors and executive officers 113,665(11) 9.8% of the Company as a group (7 persons) - --------------------------- * Less than 1%. (1) Includes shares of Common Stock held directly as well as by spouses or minor children, in trust and other indirect ownership, over which shares the individuals exercise sole voting and/or investment power, unless otherwise indicated. (2) Beneficial ownership as of the Voting Record Date. (3) The Bank's Employee Stock Ownership Plan ("ESOP") purchased such shares for the exclusive benefit of ESOP participants with funds borrowed from the Company. These shares are held in a suspense account and are allocated among ESOP participants annually on the basis of compensation as the ESOP debt is repaid. (4) Based on a 13G filed with the Securities and Exchange Commission on February 12, 2003. (5) Includes exercisable options to purchase 4,616 shares of Common Stock. (6) Excludes 119,717 shares of Common Stock held under the ESOP and shares held under the Management Stock Bonus Plan for which such individual serves as a member of the ESOP or Management Stock Bonus Plan Committee or Trustee Committee. Such individual disclaims beneficial ownership with respect to such shares held in a fiduciary capacity. The Board of Directors or the ESOP Committee may instruct the ESOP Trustees regarding investments of funds contributed to the ESOP. The ESOP Trustees must vote all allocated shares held in the ESOP in accordance with the instructions of the participating employees. Unallocated shares and allocated shares for which no timely direction is received will be voted by the ESOP Trustees as directed by the Board of Directors or the ESOP Committee, subject to the ESOP Trustees' fiduciary duties. Shares held in the Management Stock Bonus Plan are voted by the Management Stock Bonus Plan Trustees as directed by the Management Stock Bonus Plan Committee. At the record date, there were 12,835 shares in the Management Stock Bonus Plan. (7) Includes exercisable options to purchase 6,561 shares of Common Stock. (8) Includes exercisable options to purchase 5,535 shares of Common Stock. (9) Includes exercisable options to purchase 2,025 shares of Common Stock. (10) Includes exercisable options to purchase 2,187 shares of Common Stock. (11) Includes exercisable options to purchase 27,485 shares of Common Stock.
-3- - -------------------------------------------------------------------------------- DIRECTOR AND EXECUTIVE OFFICER COMPENSATION - -------------------------------------------------------------------------------- DIRECTOR COMPENSATION Members of the Board of Directors of the Company are not compensated by the Company for serving as a director. During 2002, each member of the Board of Directors of the Bank received a fee of $1,000 per month regardless of attendance at Board meetings. For 2002, non-employee directors received between $100 and $250 per committee meeting attended ($23,200 in the aggregate) for Audit, Employment Enhancement, Agriculture Credit Committee and Building Site Committee meetings. For the year ended December 31, 2002, aggregate fees paid to directors totaled $95,200. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth the compensation awarded to or earned by the Chief Executive Officer and other highly compensated officers for the years ended December 31, 2000, 2001 and 2002, as applicable. No other executive officer of the Company had a salary and bonus during such period that exceeded $100,000 for services rendered in all capacities to the Bank or the Company in the aggregate.
Annual Compensation (1) ------------------------------------------- Name and Other Annual All Other Principal Position Year Salary Bonus Compensation(2) Compensation - ------------------- ---- ------------ ----- --------------- ------------ Lonnie R. Trasamar 2002 $112,923 $60,000 -- $ 6,920 (3) President and Chief Executive Officer Lawrence H. Kruse 2002 $ 24,540 $ -- $12,000 $ 5,409 (4) former President and 2001 114,240 10,855 12,000 30,069 Chief Executive Officer 2000 114,109 1,824 11,200 27,772 Gerald D. Bastian 2002 $105,979 $11,205 $12,000 $28,483 (5) Vice President 2001 98,809 5,685 12,000 30,077 2000 98,386 1,680 11,200 27,782 James D. Moll 2002 $ 95,615 $23,925 -- $22,773 (6) Chief Financial Officer 2001 86,897 7,220 -- 20,479 2000 82,212 1,572 -- 15,541 _________________ (1) All compensation was paid by the Bank. (2) Constitutes Bank directors' fees. (3) Consists of $6,920 of health, life, and disability insurance premiums paid on behalf of Mr. Trasamar for the year ended December 31, 2002. As of December 31, 2002, Mr. Trasamar had 4,375 shares of unvested restricted stock which had a value of $91,219 (based on the closing price of $20.85 on December 31, 2002). Dividends on shares of restricted stock are held in arrears and paid upon vesting of the applicable award. (4) Lawrence H. Kruse retired as President and Chief Executive Officer of the Company and the Bank on February 28, 2002. Consists of $1,072, $6,744 and $6,110 of health, life, and disability insurance premiums paid on behalf of Mr. Kruse for two months in fiscal 2002, and for years ended December 31, 2001 and 2000, respectively. For the years ended December 31, 2002, 2001 and 2000, the amount includes an allocation of 208, 1,246 and 1,359 shares under the ESOP, valued at the closing per share market prices of $20.85, $18.72 and $15.94 on December 31, 2002, 2001 and 2000, respectively. (5) Consists of $7,300, $6,752 and $6,120 of health, life, and disability insurance premiums paid on behalf of Mr. Bastian for the years ended December 31, 2002, 2001 and 2000, respectively. For the years ended December 31, 2002, 2001 and 2000, the amount includes an allocation of 1,016, 1,246 and 1,359 shares under the ESOP, valued at the closing per share market prices of $20.85, $18.72 and $15.94 on December 31, 2002, 2001 and 2000, respectively. As of December 31, 2002, Mr. -4- Bastian had 1,443 shares of unvested restricted stock which had a value of $30,087 (based on the closing market price of $20.85 on December 31, 2002). Dividends on shares of restricted stock are held in arrears and paid upon vesting of the applicable award. (6) Consists of $1,694, $1,684 and $1,673 of health, life, and disability insurance premiums paid on behalf of Mr. Moll for the years ended December 31, 2002, 2001 and 2000, respectively. For the years ended December 31, 2002, 2001 and 2000, the amount includes an allocation of 1,011, 1,004 and 870 shares under the ESOP, valued at the closing per share prices of $20.85, $18.72 and $15.94 on December 31, 2002, 2001 and 2000, respectively. As of December 31, 2002, Mr. Moll had 1,080 shares of unvested restricted stock which had a value of $22,518 (based on the closing price of $20.85 on December 31, 2002). Dividends on shares of restricted stock are held in arrears and paid upon vesting of the applicable award.
EQUITY COMPENSATION PLAN INFORMATION (a) (b) (c) Number of securities Number of securities remaining available to be issued upon Weighted-average for future issuance exercise of exercise price of under equity compensation outstanding options, outstanding options, plans (excluding securities warrants and rights warrants and rights reflected in column (a)) ------------------- ------------------- ------------------------ Equity compensation plans approved by shareholders 1995 Stock Option Plan 81,119 $13.18 41,375(1) Management Stock Bonus Plan and Trust Agreements 18,450 -- 11,473(2) Equity compensation plans not approved by shareholders N/A N/A N/A ------ ------ ------ TOTAL............................. 99,569 $10.74 52,848 ====== ====== ====== _________________ (1) Upon stockholder approval of the 2003 Stock Option Plan (See Proposal I), the Company will amend the 1995 Stock Option Plan to eliminate these shares remaining available for issuance. (2) Upon stockholder approval of the 2003 Stock Bonus Plan (See Proposal II), the Bank will amend the Management Stock Bonus Plan and Trust to eliminate these shares from the reserve available for future issuance.
- -------------------------------------------------------------------------------- PROPOSAL I - APPROVAL OF THE OPTION PLAN - -------------------------------------------------------------------------------- GENERAL The Company's Board of Directors has adopted the Option Plan. The Option Plan is subject to approval by the Company's stockholders. Pursuant to the Option Plan, up to 120,000 shares of Common Stock (equal to 10.6% of total shares of Common Stock currently outstanding), are to be reserved under the Company's authorized but unissued shares for issuance by the Company upon exercise of stock options to be granted to officers, directors, employees, and other persons from time to time. Upon stockholder approval of this Option Plan, the Company will amend the 1995 Stock Option Plan to reduce the plan share reserve under that plan by 41,375 shares. The purpose of the Option Plan is to attract and retain qualified personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, employees and other persons to promote the success of the business of the Company and the Bank. The Option Plan, which shall become effective upon the date of stockholder approval ("Plan Effective Date"), provides for a term of ten years, after which time no awards may be made. The following summary of the -5- material features of the Option Plan is qualified in its entirety by reference to the complete provisions of the Option Plan which is attached hereto as Appendix A. The Option Plan will be administered by the Board of Directors or a committee of not less than two non-employee directors appointed by the Company's Board of Directors and serving at the pleasure of the Board (the "Option Committee"). Members of the Option Committee shall be deemed "Non-Employee Directors" within the meaning of Rule 16b-3 pursuant to the 1934 Act. The Option Committee may select the officers and employees to whom options are to be granted and the number of options to be granted based upon several factors including prior and anticipated future job duties and responsibilities, job performance, the Company's financial performance and a comparison of awards given by other financial institutions. A majority of the members of the Option Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Option Committee. Officers, directors, employees and other persons who are designated by the Option Committee will be eligible to receive, at no cost to them, options under the Option Plan (the "Optionees"). Each option granted pursuant to the Option Plan shall be evidenced by an instrument in such form as the Option Committee shall from time to time approve. It is anticipated that options granted under the Option Plan will constitute either Incentive Stock Options (options meeting the requirements under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or Non-Incentive Stock Options. Common stock utilized in full or partial payment of the exercise price must have been owned by the person exercising such Option not less than six months prior to the date of exercise. Option shares may be paid for in cash, shares of Common Stock, or a combination of both. The Company will receive no monetary consideration for the granting of stock options under the Option Plan. Further, the Company will receive no consideration other than the option exercise price per share for Common Stock issued to Optionees upon the exercise of those options. Shares issuable under the Option Plan may be from authorized but unissued shares, treasury shares or shares purchased in the open market. An option which expires, becomes unexercisable, or is forfeited for any reason prior to its exercise will again be available for issuance under the Option Plan. No option or any right or interest therein is assignable or transferable except by will or the laws of descent and distribution. The Option Plan shall continue in effect for a term of ten years from the Plan Effective Date. STOCK OPTIONS The Option Committee may grant either Incentive Stock Options or Non-Incentive Stock Options. In general, if a Optionee ceases to serve as an employee of the Company for any reason other than disability retirement or death, an exercisable Incentive Stock Option may continue to be exercisable for up to three months but in no event after the expiration date of the option, except as may otherwise be determined by the Option Committee at the time of the award. In the event of the disability of a Optionee during employment, an exercisable Incentive Stock Option will continue to be exercisable for one year, to the extent exercisable by the Optionee immediately prior to the Optionee's disability but only if, and to the extent that, the Optionee was entitled to exercise such Incentive Stock Options on the date of termination of employment. Upon the death of the Optionee, the Incentive Stock Options shall be immediately exercisable for the remaining term of such options. The terms and conditions of Non-Incentive Stock Options relating to the effect of a Optionee's termination of employment or service, disability or death shall be such terms as the Option Committee, in its sole discretion, shall determine at the time of termination of service, disability or death, unless specifically determined at the time of grant of such options. The exercise price for the purchase of Common Stock subject to an option may not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock covered by the option on the date -6- of grant of such option. If the Common Stock is listed on a national securities exchange, including the Nasdaq National Market at the time of the granting of the option, then the exercise price per share of the option shall be not less than the average of the highest and lowest selling price of the Common Stock on such exchange on the date such option is granted or, if there were no sales on said date, then the exercise price shall be not less than the mean between the last bid and ask price on such date. If an officer or employee owns Common Stock representing more than ten percent of the outstanding Common Stock at the time an Incentive Stock Option is granted, then the exercise price shall be not less than one hundred and ten percent (110%) of the Fair Market Value of the Common Stock at the time the Incentive Stock Option is granted. No more than $100,000 of Incentive Stock Options can become exercisable for the first time in any one year for any one person. The Option Committee may impose additional conditions upon the right of a Optionee to exercise any option granted hereunder which are not inconsistent with the terms of the Option Plan or the requirements for qualification as an Incentive Stock Option, if such option is intended to qualify as an Incentive Stock Option. No shares of Common Stock shall be issued upon the exercise of an option until full payment has been received by the Company, and no Optionee shall have any of the rights of a stockholder of the Company until shares of Common Stock are issued to such Optionee. Upon the exercise of an option by a Optionee (or the Optionee's personal representative), the Option Committee, in its sole and absolute discretion, may make a cash payment to the Optionee, in whole or in part, in lieu of the delivery of shares of Common Stock. Such cash payment to be paid in lieu of delivery of Common Stock shall be equal to the difference between the Fair Market Value of the Common Stock on the date of the option exercise and the exercise price per share of the option. Such cash payment shall be in exchange for the cancellation of such option. Such cash payment shall not be made in the event that such transaction would result in liability to the Optionee and the Company under Section 16(b) of the 1934 Act or any related regulations promulgated thereunder. The Option Plan provides that the Board of Directors of the Company may authorize the Option Committee to direct the execution of an instrument providing for the modification, extension or renewal of any outstanding option, provided that no such modification, extension or renewal shall confer on the Optionee any right or benefit which could not be conferred on the Optionee by the grant of a new option at such time, and shall not materially decrease the Optionee's benefits under the option without the Optionee's consent, except as otherwise provided under the Option Plan. AWARDS UNDER THE OPTION PLAN The Board or the Option Committee shall from time to time determine the officers, directors, employees and other persons who shall be granted options under the Option Plan, the number of options to be granted to any individual, and whether the options granted will be Incentive Stock Options and/or Non-Incentive Stock Options. In selecting Optionees and in determining the number of options to be granted, the Board or the Option Committee may consider the nature of the services rendered by each such individual, each individual's current and potential contribution to the Company and such other factors as may be deemed relevant. The Optionees may, if otherwise eligible, be granted additional options. In no event shall options be granted under the Option Plan to any individual exceeding 25% of the total number of available shares of Common Stock under the Option Plan. Pursuant to the terms of the Option Plan, Non-Incentive Stock Options to purchase up to 9,000 shares of Common Stock will be granted to each non-employee director of the Company, as of the Plan Effective Date, at an exercise price equal to the Fair Market Value of the Common Stock on such date of grant. Options may be granted to newly appointed or elected non-employee directors within the sole discretion of the Option Committee, and the exercise price shall be equal to the Fair Market Value of such Common Stock on the date of grant. The options granted to non-employee directors on the Plan Effective Date will be first exercisable on the date of grant. Such options granted to non-employee directors will remain exercisable for -7- up to ten years from the date of grant. All outstanding options become immediately exercisable in the event of a Change in Control (as defined in the Option Plan) of the Company or the Bank. The table below presents information related to stock option awards anticipated to be awarded upon stockholder approval of the Option Plan.
NEW PLAN BENEFIT OPTION PLAN ----------- Number of Options Name and Position Dollar Value (1) to be Granted - ----------------- ---------------- ------------------ Lonnie R. Trasamar, President, Chief Executive Officer and N/A 0(2) Director Gerald D. Bastian, Vice President and Director N/A 0(2) Randel I. Bichler, Director N/A 9,000(3) Dale E. Stallkamp, Director N/A 9,000(3) Richard Mueller, Director N/A 9,000(3) David Buesing, Director N/A 9,000(3) James D. Moll, Treasurer and Chief Financial Officer N/A 0(2) Executive Group (3 persons) N/A 0(2) Non-Executive Director Group (4 persons) N/A 36,000(3) Non-Executive Officer Employee Group N/A 0(2) ______________ (1) The exercise price of such options shall be equal to the fair market value of the Common Stock on the date of stockholder approval of the Option Plan. Accordingly, the dollar value of the options was not determinable at the time of mailing this proxy statement. On October 10, 2003, the closing market price of the Common Stock on the Nasdaq National Market was $27.20 per share. (2) No determination has been made at this time for awards to employees. (3) Options awarded to directors are fully exercisable on the date of grant and shall remain exercisable for ten years without regard to continued service as a director.
EFFECT OF MERGERS, CHANGE OF CONTROL AND OTHER ADJUSTMENTS Subject to any required action by the stockholders of the Company, within the sole discretion of the Option Committee, the aggregate number of shares of Common Stock for which options may be granted hereunder or the number of shares of Common Stock represented by each outstanding option will be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend or any other increase or decrease in the number of shares of Common Stock effected without the receipt or payment of consideration by the Company. Subject to any required action by the stockholders of the Company, in the event of any Change in Control, recapitalization, merger, consolidation, exchange of shares, spin-off, reorganization, tender offer, partial or complete liquidation or other extraordinary corporate action or event, the Option Committee, in its sole discretion, shall have the power, prior to or subsequent to such action or events, to (i) appropriately adjust the number of shares of Common Stock subject to options, the exercise price per share of such option, and the consideration to be given or received by the Company upon the exercise of any outstanding options; (ii) cancel any or all previously granted options, provided that appropriate consideration is paid to the Optionee in connection therewith; and/or (iii) make such other adjustments in connection with the Option Plan as the Option Committee, in its sole discretion, deems necessary, desirable, appropriate or advisable. However, no action may be taken by the Option Committee -8- which would cause Incentive Stock Options granted pursuant to the Option Plan to fail to meet the requirements of Section 422 of the Code without the consent of the Optionee. The Option Committee will at all times have the power to accelerate the exercise date of all options granted under the Option Plan. In the case of a Change in Control of the Company or the Bank as determined by the Option Committee, all outstanding options shall become immediately exercisable. A Change in Control is defined to include (i) the sale of all, or substantially all, of the assets of the Company or the Bank; (ii) the merger or recapitalization of the Company whereby the Company is not the surviving entity; (iii) a change in control of the Company as otherwise defined or determined by the Office of Thrift Supervision regulations; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of Section 13(d) of the 1934 Act and rules and regulations promulgated thereunder) of 25% or more of the outstanding voting securities of the Company by any person, trust, entity, or group. In the event of a Change in Control, the Option Committee and the Board of Directors will take one or more of the following actions to be effective as of the date of such Change in Control: (i) provide that such options shall be assumed, or equivalent options shall be substituted, ("Substitute Options") by the acquiring or succeeding company (or an affiliate thereof), provided that: (A) any such Substitute Options exchanged for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, and (B) the shares of stock issuable upon the exercise of such Substitute Options shall constitute securities registered in accordance with the Securities Act of 1933, as amended ("1933 Act") or such securities shall be exempt from such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act (collectively, "Registered Securities"), or in the alternative, if the securities issuable upon the exercise of such Substitute Options shall not constitute Registered Securities, then the Optionee will receive upon consummation of the Change in Control a cash payment for each option surrendered equal to the difference between (1) the Fair Market Value of the consideration to be received for each share of Common Stock in the Change in Control times the number of shares of Common Stock subject to such surrendered options, and (2) the aggregate exercise price of all such surrendered options, or (ii) in the event of a transaction under the terms of which the holders of the Common Stock of the Company will receive upon consummation thereof a cash payment (the "Merger Price") for each share of Common Stock exchanged in the Change in Control transaction, to make or to provide for a cash payment to the Optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such options held by each Optionee (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such surrendered options in exchange for such surrendered options. The power of the Option Committee to accelerate the exercise of options and the immediate exercisability of options in the case of a Change in Control of the Company could have an anti-takeover effect by making it more costly for a potential acquiror to obtain control of the Company due to the higher number of shares outstanding following such exercise of options. The power of the Option Committee to make adjustments in connection with the Option Plan, including adjusting the number of shares subject to options and canceling options, prior to or after the occurrence of an extraordinary corporate action, allows the Option Committee to adapt the Option Plan to operate in changed circumstances, to adjust the Option Plan to fit a smaller or larger institution, and to permit the issuance of options to new management following such extraordinary corporate action. However, this power of the Option Committee also has an anti-takeover effect, by allowing the Option Committee to adjust the Option Plan in a manner to allow the present management of the Company to exercise more options and hold more shares of the Company's Common Stock, and to possibly decrease the number of Options available to new management of the Company. Although the Option Plan may have an anti-takeover effect, the Company's Board of Directors did not adopt the Option Plan specifically for anti-takeover purposes. The Option Plan could render it more difficult to obtain support for stockholder proposals opposed by the Company's Board and management in that recipients of options could choose to exercise such options and thereby increase the number of shares -9- for which they hold voting power. Also, the exercise of such options could make it easier for the Board and management to block the approval of certain transactions. In addition, the exercise of such options could increase the cost of an acquisition by a potential acquiror. AMENDMENT AND TERMINATION OF THE OPTION PLAN The Board of Directors may alter, suspend or discontinue the Option Plan, except that no action of the Board shall increase the maximum number of shares of Common Stock issuable under the Option Plan, materially increase the benefits accruing to Optionees under the Option Plan or materially modify the requirements for eligibility for participation in the Option Plan unless such action of the Board shall be subject to approval by the stockholders of the Company. POSSIBLE DILUTIVE EFFECTS OF THE OPTION PLAN The Common Stock to be issued upon the exercise of options awarded under the Option Plan may either be authorized but unissued shares of Common Stock or shares purchased in the open market. Because the stockholders of the Company do not have preemptive rights, to the extent that the Company funds the Option Plan, in whole or in part, with authorized but unissued shares, the interests of current stockholders may be diluted. If upon the exercise of all of the options, the Company delivers newly issued shares of Common Stock (i.e., 120,000 shares of Common Stock), then the dilutive effect to current stockholders would be approximately 9.6%. The Company can avoid dilution resulting from awards under the Option Plan by delivering shares repurchased in the open market upon the exercise of options. FEDERAL INCOME TAX CONSEQUENCES Under present federal tax laws, awards under the Option Plan will have the following consequences: 1. The grant of an option will not by itself result in the recognition of taxable income to a Optionee nor entitle the Company to a tax deduction at the time of such grant. 2. The exercise of an option which is an "Incentive Stock Option" within the meaning of Section 422 of the Code generally will not, by itself, result in the recognition of taxable income to a Optionee nor entitle the Company to a deduction at the time of such exercise. However, the difference between the option exercise price and the Fair Market Value of the Common Stock on the date of option exercise is an item of tax preference which may, in certain situations, trigger the alternative minimum tax for an Optionee. An Optionee will recognize capital gain or loss upon resale of the shares of Common Stock received pursuant to the exercise of Incentive Stock Options, provided that such shares are held for at least one year after transfer of the shares or two years after the grant of the option, whichever is later. Generally, if the shares are not held for that period, the Optionee will recognize ordinary income upon disposition in an amount equal to the difference between the option exercise price and the Fair Market Value of the Common Stock on the date of exercise, or, if less, the sales proceeds of the shares acquired pursuant to the option. 3. The exercise of a Non-Incentive Stock Option will result in the recognition of ordinary income by the Optionee on the date of exercise in an amount equal to the difference between the exercise price and the Fair Market Value of the Common Stock acquired pursuant to the option. 4. The Company will be allowed a tax deduction for federal tax purposes equal to the amount of ordinary income recognized by an Optionee at the time the optionee recognizes such ordinary income. -10- 5. In accordance with Section 162(m) of the Code, the Company's tax deductions for compensation paid to the most highly paid executives named in the Company's Proxy Statement may be limited to no more than $1 million per year, excluding certain "performance-based" compensation. The Company intends for the award of options under the Option Plan to comply with the requirement for an exception to Section 162(m) of the Code applicable to stock option plans so that the amount of the Company's deduction for compensation related to the exercise of options would not be limited by Section 162(m) of the Code. ACCOUNTING TREATMENT The Company expects to use the "intrinsic value based method" as prescribed by APB Opinion 25. Accordingly, neither the grant nor the exercise of an option under the Option Plan currently requires any charge against earnings under generally accepted accounting principles. Common Stock issuable pursuant to outstanding options which are exercisable under the Option Plan will be considered outstanding for purposes of calculating earnings per share on a diluted basis. STOCKHOLDER APPROVAL Stockholder approval of the Option Plan is being sought to qualify the Option Plan for the granting of Incentive Stock Options in accordance with the Code, to enable Optionees to qualify for certain exempt transactions related to the short-swing profit recapture provisions of Section 16(b) of the 1934 Act, to meet the requirements under the rules of the Nasdaq National Market for continued listing of the Company's Common Stock, and to meet the requirements for the tax-deductibility of certain compensation items under Section 162(m) of the Code. An affirmative vote of the holders of a majority of the total votes cast at the Meeting in person or by proxy is required to constitute stockholder approval of this Proposal I. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE OPTION PLAN. --- - -------------------------------------------------------------------------------- PROPOSAL II - APPROVAL OF THE STOCK BONUS PLAN - -------------------------------------------------------------------------------- GENERAL The Board of Directors of the Company and the Bank have adopted the Stock Bonus Plan as a method of providing directors, officers, and employees of the Bank with a proprietary interest in the Company in a manner designed to encourage such persons to remain in the employment or service of the Bank. The Bank will contribute sufficient funds to the Stock Bonus Plan to purchase up to 50,000 shares of Common Stock, representing up to 4.4% of the aggregate number of shares presently outstanding. Upon stockholder approval of the Stock Bonus Plan, the Bank will amend the Management Stock Bonus Plan and Trust in order to reduce the plan share reserve under that plan by 11,473 shares. Alternatively, the Stock Bonus Plan may purchase authorized but unissued shares of Common Stock or treasury shares from the Company. All of the Common Stock to be purchased by the Stock Bonus Plan will be purchased at the Fair Market Value of such stock on the date of purchase. Awards under the Stock Bonus Plan will be made in recognition of expected future services to the Bank by its directors, officers and employees responsible for implementation of the policies adopted by the Bank's Board of Directors and as a means of providing a further retention incentive. The following is a summary of the material features of the Stock Bonus Plan which is qualified in its entirety by reference to the complete provisions of the Stock Bonus Plan which is attached hereto as Appendix B. -11- AWARDS UNDER THE STOCK BONUS PLAN Benefits under the Stock Bonus Plan ("Plan Share Awards") may be granted at the sole discretion of a committee comprised of not less than two directors who are not employees of the Bank or the Company (the "Stock Bonus Plan Committee") appointed by the Bank's Board of Directors. The Stock Bonus Plan is managed by trustees (the "Stock Bonus Plan Trustees") who are non-employee directors of the Bank or the Company and who have the responsibility to invest all funds contributed by the Bank to the trust created for the Stock Bonus Plan (the "Stock Bonus Plan Trust"). Unless the terms of the Stock Bonus Plan or the Stock Bonus Plan Committee specifies otherwise, awards under the Stock Bonus Plan will be earned and non- forfeitable at the rate of 25% on the one year anniversary of the date of grant and 25% annually thereafter, provided that the recipient of the award remains an employee, director or director emeritus during such period. A recipient of such Plan Share Awards will not be entitled to voting rights associated with such shares prior to the applicable date such shares are earned. Dividends paid on Plan Share Awards that are not yet earned shall be paid to the holder of an award as compensation within 30 days of the applicable dividend payment date. Any shares held by the Stock Bonus Plan Trust which are not yet earned shall be voted by the Stock Bonus Plan Trustees, as directed by the Stock Bonus Plan Committee. If a recipient of such restricted stock terminates employment or service for reasons other than death, Disability or a Change in Control (as such terms are defined in the Stock Bonus Plan) of the Company or the Bank, the recipient forfeits all rights to the awards under restriction. If the recipient's termination of employment or service is caused by death, Disability or a Change in Control of the Company or the Bank, all restrictions expire and all shares allocated shall become unrestricted. The Plan Share Awards to directors shall be immediately non- forfeitable in the event of the death or Disability of such director or a Change in Control of the Company or the Bank, and distributed as soon as practicable thereafter. The Board of Directors can terminate the Stock Bonus Plan at any time, and if it does so, any shares not allocated will revert to the Bank. The Plan Share Awards under the Stock Bonus Plan will be determined by the Stock Bonus Plan Committee. In no event shall any individual receive Plan Share Awards in excess of 25% of the aggregate Common Stock authorized under the Stock Bonus Plan ("Plan Share Reserve"). The aggregate number of Plan Shares available for issuance pursuant to the Plan Share Awards and the number of shares to which any Plan Share Award relates shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Stock Bonus Plan, resulting from any split, subdivision or consolidation of the Common Stock or other capital adjustment, change or exchange of Common Stock, or other increase or decrease in the number or kind of shares effected without receipt or payment of consideration by the Company. -12- The following table presents information related to the anticipated award of Common Stock under the Stock Bonus Plan upon stockholder approval of the Stock Bonus Plan as authorized pursuant to the terms of the Stock Bonus Plan or the anticipated actions of the Stock Bonus Plan Committee.
NEW PLAN BENEFIT STOCK BONUS PLAN ---------------- Number of Shares Name and Position Dollar Value (1)($) to be Granted - ----------------- ------------------- ----------------- Lonnie R. Trasamar, President, Chief Executive Officer and N/A 0(2) Director Gerald D. Bastian, Vice President and Director N/A 0(2) Randel I. Bichler, Director 95,200 3,500(3) Dale E. Stallkamp, Director 95,200 3,500(3) Richard Mueller, Director 95,200 3,500(3) David Buesing, Director 95,200 3,500(3) Lawrence H. Kruse, Director of the Bank 95,200 3,500(3) James D. Moll, Treasurer and Chief Financial Officer N/A 0(2) Executive Group (3 persons) N/A 0(2) Non-Executive Director Group (5 persons) 476,000 17,500(3) Non-Executive Officer Employee Group N/A 0(2) __________________ (1) These estimated values are based on the closing market price for the Common Stock as reported on the Nasdaq National Market on October 10, 2003, which was $27.20 per share. The exact dollar value of the Common Stock granted will equal the market price of the Common Stock on the date of vesting of such awards. Accordingly, the exact dollar value is not presently determinable. (2) No determination has been made at this time for employee awards. (3) The plan share awards shall be earned at the rate of 25% on the one year anniversary of the date of grant, and 25% annually thereafter unless otherwise noted. All awards shall become immediately 100% vested upon death, Disability, or termination of service following a Change in Control of the Company or the Bank. Plan Share Awards shall continue to vest during periods of service as a director or director emeritus.
AMENDMENT AND TERMINATION OF THE STOCK BONUS PLAN The Board may amend or terminate the Stock Bonus Plan at any time. POSSIBLE DILUTIVE EFFECTS OF THE STOCK BONUS PLAN It is the Company's present intention to fund the Stock Bonus Plan through open-market purchases of Common Stock, which will cause no dilutive effect. The Stock Bonus Plan provides, however, that Common Stock to be awarded may be acquired by the Stock Bonus Plan through open-market purchases or from authorized but unissued shares of Common Stock from the Company. In that stockholders do not have preemptive rights, to the extent that the Company utilizes authorized but unissued shares to fund Plan Share Awards, the interests of current stockholders may be diluted. If all Plan Share Awards are funded with newly issued shares, the dilutive effect to existing stockholders would be approximately 4.2%. -13- FEDERAL INCOME TAX CONSEQUENCES Common Stock awarded under the Stock Bonus Plan is generally taxable to the recipient at the time that such awards become earned and non-forfeitable, based upon the Fair Market Value of such stock at the time of such vesting. Alternatively, a recipient may make an election pursuant to Code Section 83(b), within 30 days of the date of the transfer of such Plan Share Award to elect to include in gross income for the current taxable year the Fair Market Value of such award. Such election must be filed with the Internal Revenue Service within 30 days of the date of the transfer of the stock award. The Bank will be allowed a tax deduction for federal tax purposes as a compensation expense equal to the amount of ordinary income recognized by a recipient of Plan Share Awards at the time the recipient recognizes taxable ordinary income. A recipient of a Plan Share Award may elect to have a portion of such award withheld by the Stock Bonus Plan Trust in order to meet any necessary tax withholding obligations. ACCOUNTING TREATMENT For accounting purposes, the Bank will recognize compensation expense in the amount of the Fair Market Value of the Common Stock subject to Plan Share Awards at the grant date pro rata over the period of years during which the Plan Share Awards are earned. STOCKHOLDER APPROVAL The Stock Bonus Plan and awards made thereunder will not be effective until receipt of stockholder approval of Proposal II. Stockholder approval of the Stock Bonus Plan is being sought to enable recipients of Plan Share Awards to qualify for certain exemptive treatment from the short-swing profit recapture provisions of Section 16(b) of the 1934 Act and to meet the rules of the Nasdaq National Market for continued listing of the Common Stock. The affirmative vote of holders of a majority of the total votes cast at the Meeting in person or by proxy is required to constitute stockholder approval of this Proposal II. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK BONUS PLAN. --- - -------------------------------------------------------------------------------- MISCELLANEOUS - -------------------------------------------------------------------------------- The cost of soliciting proxies will be borne by the Company. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Common Stock. In addition to solicitations by mail, directors, officers, and regular employees of the Company may solicit proxies personally or by telegraph or telephone without additional compensation. BY ORDER OF THE BOARD OF DIRECTORS /s/ Richard Mueller Richard Mueller Secretary Wells, Minnesota October 20, 2003 -14- APPENDIX A WELLS FINANCIAL CORP. 2003 STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. The Plan shall be known as the Wells Financial ------------------- Corp. ("Company") 2003 Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and retain qualified personnel for positions of substantial responsibility and to provide additional incentive to officers, directors, employees and other persons providing services to the Company, or any present or future parent or subsidiary of the Company to promote the success of the business. The Plan is intended to provide for the grant of "Incentive Stock Options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and Non-Incentive Stock Options, options that do not so qualify. The provisions of the Plan relating to Incentive Stock Options shall be interpreted to conform to the requirements of Section 422 of the Code. 2. DEFINITIONS. The following words and phrases when used in this Plan ----------- with an initial capital letter, unless the context clearly indicates otherwise, shall have the meaning as set forth below. Wherever appropriate, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural. "Award" means the grant by the Committee of an Incentive Stock Option or a Non-Incentive Stock Option, or any combination thereof, as provided in the Plan. "Bank" shall mean Wells Federal Bank, or any successor corporation thereto. "Board" shall mean the Board of Directors of the Company, or any successor or parent corporation thereto. "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Company; (ii) the merger or recapitalization of the Company whereby the Company is not the surviving entity; (iii) a change in control of the Company, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Company by any person, trust, entity or group. This limitation shall not apply to the purchase of shares by underwriters in connection with a public offering of Company stock, or the purchase of shares of up to 25% of any class of securities of the Company by a tax-qualified employee stock benefit plan which is exempt from the approval requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. "Code" shall mean the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. "Committee" shall mean the Board or the Stock Option Committee appointed by the Board in accordance with Section 5(a) of the Plan. A-1 "Common Stock" shall mean common stock of the Company, or any successor or parent corporation thereto. "Company" shall mean the Wells Financial Corp., the parent corporation of the Bank, or any successor or Parent thereof. "Continuous Employment" or "Continuous Status as an Employee" shall mean the absence of any interruption or termination of employment with the Company or any present or future Parent or Subsidiary of the Company. Employment shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between payroll locations, of the Company or between the Company, its Parent, its Subsidiaries or a successor. "Director" shall mean a member of the Board of the Company, or any successor or parent corporation thereto. "Director Emeritus" shall mean a person serving as a director emeritus, advisory director, consulting director or other similar position as may be appointed by the Board of Directors of the Bank or the Company from time to time. "Disability" means (a) with respect to Incentive Stock Options, the "permanent and total disability" of the Employee as such term is defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive Stock Options, any physical or mental impairment which renders the Participant incapable of continuing in the employment or service of the Bank or the Parent in his then current capacity as determined by the Committee. "Effective Date" shall mean the date specified in Section 15 hereof. "Employee" shall mean any person employed by the Company or any present or future Parent or Subsidiary of the Company. "Fair Market Value" shall mean: (i) if the Common Stock is traded otherwise than on a national securities exchange, then the Fair Market Value per Share shall be equal to the mean between the last bid and ask price of such Common Stock on such date or, if there is no bid and ask price on said date, then on the immediately prior business day on which there was a bid and ask price. If no such bid and ask price is available, then the Fair Market Value shall be determined by the Committee in good faith; or (ii) if the Common Stock is listed on a national securities exchange, including the Nasdaq National Market, then the Fair Market Value per Share shall be not less than the average of the highest and lowest selling price of such Common Stock on such exchange on such date, or if there were no sales on said date, then the Fair Market Value shall be not less than the mean between the last bid and ask price on such date. "Incentive Stock Option" or "ISO" shall mean an option to purchase Shares granted by the Committee pursuant to Section 8 hereof which is subject to the limitations and restrictions of Section 8 hereof and is intended to qualify as an incentive stock option under Section 422 of the Code. "Non-Incentive Stock Option" or "Non-ISO" shall mean an option to purchase Shares granted pursuant to Section 9 hereof, which option is not intended to qualify under Section 422 of the Code. A-2 "Option" shall mean an Incentive Stock Option or Non-Incentive Stock Option granted pursuant to this Plan providing the holder of such Option with the right to purchase Common Stock. "Optioned Stock" shall mean stock subject to an Option granted pursuant to the Plan. "Optionee" shall mean any person who receives an Option or Award pursuant to the Plan. "Parent" shall mean any present or future corporation which would be a "parent corporation" of the Bank or the Company as defined in Sections 424(e) and (g) of the Code. "Participant" means any Director, officer or employee of the Company or any Parent or Subsidiary of the Company or any other person providing a service to the Company who is selected by the Committee to receive an Award, or who by the express terms of the Plan is granted an Award. "Plan" shall mean the Wells Financial Corp. 2003 Stock Option Plan. "Share" shall mean one share of the Common Stock. "Subsidiary" shall mean any present or future corporation which constitutes a "subsidiary corporation" as defined in Sections 424(f) and (g) of the Code. 3. SHARES SUBJECT TO THE PLAN. Except as otherwise required by the --------------------------- provisions of Section 13 hereof, the aggregate number of Shares with respect to which Awards may be made pursuant to the Plan shall not exceed 120,000 Shares. Such Shares may either be from authorized but unissued shares, treasury shares or shares purchased in the market for Plan purposes. If an Award shall expire, become unexercisable, or be forfeited for any reason prior to its exercise, new Awards may be granted under the Plan with respect to the number of Shares as to which such expiration has occurred. 4. SIX MONTH HOLDING PERIOD. ------------------------ Subject to vesting requirements, if applicable, except in the event of death or disability of the Optionee, a minimum of six months must elapse between the date of the grant of an Option and the date of the sale of the the Common Stock received through the exercise of such Option. 5. ADMINISTRATION OF THE PLAN. ------------------------- (a) COMPOSITION OF THE COMMITTEE. The Plan shall be administered by the Board of Directors of the Company or a Committee which shall consist of not less than two Directors of the Company appointed by the Board and serving at the pleasure of the Board. All persons designated as members of the Committee shall meet the requirements of a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as found at 17 CFR ss.240.16b-3. (b) POWERS OF THE COMMITTEE. The Committee is authorized (but only to the extent not contrary to the express provisions of the Plan or to resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the form and content of Awards to be issued under the Plan and to make other determinations necessary or advisable for the administration of the Plan, and shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum A-3 is present shall be deemed the action of the Committee. In no event may the Committee revoke outstanding Awards without the consent of the Participant. The President of the Company and such other officers as shall be designated by the Committee are hereby authorized to execute written agreements evidencing Awards on behalf of the Company and to cause them to be delivered to the Participants. Such agreements shall set forth the Option exercise price, the number of shares of Common Stock subject to such Option, the expiration date of such Options, and such other terms and restrictions applicable to such Award as are determined in accordance with the Plan or the actions of the Committee. (c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. 6. ELIGIBILITY FOR AWARDS AND LIMITATIONS. ------------------------------------- (a) The Committee shall from time to time determine the officers, Directors, employees and other persons who shall be granted Awards under the Plan, the number of Awards to be granted to each such persons, and whether Awards granted to each such Participant under the Plan shall be Incentive and/or Non-Incentive Stock Options. In selecting Participants and in determining the number of Shares of Common Stock to be granted to each such Participant, the Committee may consider the nature of the prior and anticipated future services rendered by each such Participant, each such Participant's current and potential contribution to the Company and such other factors as the Committee may, in its sole discretion, deem relevant. Participants who have been granted an Award may, if otherwise eligible, be granted additional Awards. (b) The aggregate Fair Market Value (determined as of the date the Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by each Employee during any calendar year (under all Incentive Stock Option plans, as defined in Section 422 of the Code, of the Company or any present or future Parent or Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the prior provisions of this Section 6, the Committee may grant Options in excess of the foregoing limitations, provided said Options shall be clearly and specifically designated as not being Incentive Stock Options. (c) In no event shall Shares subject to Options granted to non-employee Directors in the aggregate under this Plan exceed more than 30% of the total number of Shares authorized for delivery under this Plan pursuant to Section 3 herein. In no event shall Shares subject to Options granted to any Employee exceed more than 25% of the total number of Shares authorized for delivery under the Plan. 7. TERM OF THE PLAN. The Plan shall continue in effect for a term of ---------------- ten (10) years from the Effective Date, unless sooner terminated pursuant to Section 18 hereof. No Option shall be granted under the Plan after ten (10) years from the Effective Date. 8. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Incentive Stock ------------------------------------------------- Options may be granted only to Participants who are Employees. Each Incentive Stock Option granted pursuant to the Plan shall be evidenced by an instrument in such form as the Committee shall from time to time approve. Each Incentive Stock Option granted pursuant to the Plan shall comply with, and be subject to, the following terms and conditions: A-4 (a) OPTION PRICE. (i) The price per Share at which each Incentive Stock Option granted by the Committee under the Plan may be exercised shall not, as to any particular Incentive Stock Option, be less than the Fair Market Value of the Common Stock on the date that such Incentive Stock Option is granted. (ii) In the case of an Employee who owns Common Stock representing more than ten percent (10%) of the outstanding Common Stock at the time the Incentive Stock Option is granted, the Incentive Stock Option exercise price shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the Common Stock on the date that the Incentive Stock Option is granted. (b) PAYMENT. Full payment for each Share of Common Stock purchased upon the exercise of any Incentive Stock Option granted under the Plan shall be made at the time of exercise of each such Incentive Stock Option and shall be paid in cash (in United States Dollars), Common Stock or a combination of cash and Common Stock. Common Stock utilized in full or partial payment of the exercise price must have been owned by the party exercising such Option for not less than six months prior to the date of exercise of such Option, and such Common Stock shall be valued at the Fair Market Value at the date of exercise. The Company shall accept full or partial payment in Common Stock only to the extent permitted by applicable law. No Shares of Common Stock shall be issued until full payment has been received by the Company, and no Optionee shall have any of the rights of a stockholder of the Company until Shares of Common Stock are issued to the Optionee. (c) TERM OF INCENTIVE STOCK OPTION. The term of exercisability of each Incentive Stock Option granted pursuant to the Plan shall be not more than ten (10) years from the date each such Incentive Stock Option is granted, provided that in the case of an Employee who owns stock representing more than ten percent (10%) of the Common Stock outstanding at the time the Incentive Stock Option is granted, the term of exercisability of the Incentive Stock Option shall not exceed five (5) years. (d) EXERCISE GENERALLY. Except as otherwise provided in Section 10 hereof, no Incentive Stock Option may be exercised unless the Optionee shall have been in the employ of the Company at all times during the period beginning with the date of grant of any such Incentive Stock Option and ending on the date three (3) months prior to the date of exercise of any such Incentive Stock Option. The Committee may impose additional conditions upon the right of an Optionee to exercise any Incentive Stock Option granted hereunder which are not inconsistent with the terms of the Plan or the requirements for qualification as an Incentive Stock Option. Except as otherwise provided by the terms of the Plan or by action of the Committee at the time of the grant of the Options, the Options will be first exercisable as of the date of grant of such Options. (e) CASHLESS EXERCISE. Subject to vesting requirements, if applicable, an Optionee who has held an Incentive Stock Option for at least six months may engage in the "cashless exercise" of the Option. Upon a cashless exercise, an Optionee gives the Company written notice of the exercise of the Option together with an order to a registered broker-dealer or equivalent third party, to sell part or all of the Optioned Stock and to deliver enough of the proceeds to the Company to pay the Option exercise price and any applicable withholding taxes. If the Optionee does not sell the Optioned Stock through a registered broker-dealer or equivalent third party, the Optionee can give the Company written notice of the exercise of the Option and the third party purchaser of the Optioned Stock shall pay the Option exercise price plus any applicable withholding taxes to the Company. Such Options shall not be deemed exercised until the Company has received full payment of the exercise price of such Options. A-5 (f) TRANSFERABILITY. An Incentive Stock Option granted pursuant to the Plan shall be exercised during an Optionee's lifetime only by the Optionee to whom it was granted and shall not be assignable or transferable otherwise than by will or by the laws of descent and distribution. 9. TERMS AND CONDITIONS OF NON-INCENTIVE STOCK OPTIONS. Each ---------------------------------------------------------- Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an instrument in such form as the Committee shall from time to time approve. Each Non-Incentive Stock Option granted pursuant to the Plan shall comply with and be subject to the following terms and conditions. (a) OPTIONS GRANTED TO DIRECTORS. Subject to the limitations of Section 6(c), Non-Incentive Stock Options to purchase 9,000 shares of Common Stock will be granted to each Director who is not an Employee as of the Effective Date, at an exercise price equal to the Fair Market Value of the Common Stock on such date of grant. The Options will be first exercisable as of the Effective Date. Such Options shall continue to be exercisable for a period of ten years following the date of grant without regard to the continued services of such Director as a Director or Director Emeritus. In the event of the Optionee's death, such Options may be exercised by the personal representative of his estate or person or persons to whom his rights under such Option shall have passed by will or by the laws of descent and distribution. All Options shall be immediately exercisable upon a Change of Control of the Company or the Bank. Options may be granted to newly appointed or elected non-employee Directors within the sole discretion of the Committee. The exercise price per Share of such Options granted shall be equal to the Fair Market Value of the Common Stock at the time such Options are granted. Unless otherwise inapplicable, or inconsistent with the provisions of this paragraph, the Options to be granted to Directors hereunder shall be subject to all other provisions of this Plan. (b) OPTION PRICE. The exercise price per Share of Common Stock for each Non-Incentive Stock Option granted pursuant to the Plan shall be at such price as the Committee may determine in its sole discretion, but in no event less than the Fair Market Value of such Common Stock on the date of grant as determined by the Committee in good faith. (c) PAYMENT. Full payment for each Share of Common Stock purchased upon the exercise of any Non-Incentive Stock Option granted under the Plan shall be made at the time of exercise of each such Non-Incentive Stock Option and shall be paid in cash (in United States Dollars), Common Stock or a combination of cash and Common Stock. Common Stock utilized in full or partial payment of the exercise price must have been owned by the party exercising such Option for not less than six months prior to the date of exercise of such Option, and such Common Stock shall be valued at the Fair Market Value at the date of exercise. The Company shall accept full or partial payment in Common Stock only to the extent permitted by applicable law. No Shares of Common Stock shall be issued until full payment has been received by the Company and no Optionee shall have any of the rights of a stockholder of the Company until the Shares of Common Stock are issued to the Optionee. (d) TERM. The term of exercisability of each Non-Incentive Stock Option granted pursuant to the Plan shall be not more than ten (10) years from the date each such Non-Incentive Stock Option is granted. (e) EXERCISE GENERALLY. The Committee may impose additional conditions upon the right of any Participant to exercise any Non-Incentive Stock Option granted hereunder which is not inconsistent with the terms of the Plan. Except as otherwise provided by the terms of the Plan or by action of the Committee at the time of the grant of the Options, the Options will be first exercisable as of the date of grant of such Options. A-6 (f) CASHLESS EXERCISE. Subject to vesting requirements, if applicable, an Optionee who has held a Non-Incentive Stock Option for at least six months may engage in the "cashless exercise" of the Option. Upon a cashless exercise, an Optionee gives the Company written notice of the exercise of the Option together with an order to a registered broker-dealer or equivalent third party, to sell part or all of the Optioned Stock and to deliver enough of the proceeds to the Company to pay the Option exercise price and any applicable withholding taxes. If the Optionee does not sell the Optioned Stock through a registered broker-dealer or equivalent third party, the Optionee can give the Company written notice of the exercise of the Option and the third party purchaser of the Optioned Stock shall pay the Option exercise price plus any applicable withholding taxes to the Company. Such Options shall not be deemed exercised until the Company has received full payment of the exercise price of such Options. (g) TRANSFERABILITY. Any Non-Incentive Stock Option granted pursuant to the Plan shall be exercised during an Optionee's lifetime only by the Optionee to whom it was granted and shall not be assignable or transferable otherwise than by will or by the laws of descent and distribution. 10. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH ON ----------------------------------------------------------------- INCENTIVE STOCK OPTIONS. ----------------------- (a) TERMINATION OF EMPLOYMENT. In the event that any Optionee's employment with the Company shall terminate for any reason, other than Disability or death, all of any such Optionee's Incentive Stock Options, and all of any such Optionee's rights to purchase or receive Shares of Common Stock pursuant thereto, shall automatically terminate on (A) the earlier of (i) or (ii): (i) the respective expiration dates of any such Incentive Stock Options, or (ii) the expiration of not more than three (3) months after the date of such termination of employment; or (B) at such later date as is determined by the Committee at the time of the grant of such Award, but only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of such termination of employment, and further that such Award shall thereafter be deemed a Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a Subsidiary of the Company, the employment of all of its employees who are not immediately thereafter employees of the Company shall be deemed to terminate upon the date such Subsidiary so ceases to be a Subsidiary of the Company. (b) DISABILITY. In the event that any Optionee's employment with the Company shall terminate as the result of the Disability of such Optionee, such Optionee may exercise any Incentive Stock Options granted to the Optionee pursuant to the Plan at any time prior to the earlier of (i) the respective expiration dates of any such Incentive Stock Options or (ii) the date which is one (1) year after the date of such termination of employment, but only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of such termination of employment. A-7 (c) DEATH. In the event of the death of an Optionee, any Incentive Stock Options granted to such Optionee may be exercised by the person or persons to whom the Optionee's rights under any such Incentive Stock Options pass by will or by the laws of descent and distribution (including the Optionee's estate during the period of administration) at any time prior to the earlier of (i) the respective expiration dates of any such Incentive Stock Options or (ii) the date specified at the time of grant of such Award, if any, but in either case only if, and to the extent that, the Optionee was entitled to exercise any such Incentive Stock Options at the date of death. For purposes of this Section 10(c), any Incentive Stock Option held by an Optionee shall be considered exercisable at the date of his death if the only unsatisfied condition precedent to the exercisability of such Incentive Stock Option at the date of death is the passage of a specified period of time. At the discretion of the Committee, upon exercise of such Options the Optionee may receive Shares or cash or a combination thereof. If cash shall be paid in lieu of Shares, such cash shall be equal to the difference between the Fair Market Value of such Shares and the exercise price of such Options on the exercise date. (d) INCENTIVE STOCK OPTIONS DEEMED EXERCISABLE. For purposes of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any Optionee shall be considered exercisable at the date of termination of employment if any such Incentive Stock Option would have been exercisable at such date of termination of employment without regard to the Disability or death of the Participant. (e) TERMINATION OF INCENTIVE STOCK OPTIONS. Except as may be specified by the Committee at the time of grant of an Option, to the extent that any Incentive Stock Option granted under the Plan to any Optionee whose employment with the Company terminates shall not have been exercised within the applicable period set forth in this Section 10, any such Incentive Stock Option, and all rights to purchase or receive Shares of Common Stock pursuant thereto, as the case may be, shall terminate on the last day of the applicable period. 11. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH ON ----------------------------------------------------------------- NON-INCENTIVE STOCK OPTIONS. The terms and conditions of Non-Incentive Stock - --------------------------- Options relating to the effect of the termination of an Optionee's employment or service, Disability of an Optionee or his death shall be such terms and conditions as the Committee shall, in its sole discretion, determine at the time of termination of service, unless specifically provided for by the terms of the Agreement at the time of grant of the award. 12. WITHHOLDING TAX. The Company shall have the right to deduct from ---------------- all amounts paid in cash with respect to the cashless exercise of Options any taxes required by law to be withheld with respect to such cash payments. Where a Participant or other person is entitled to receive Shares pursuant to the exercise of an Option, the Company shall have the right to require the Participant or such other person to pay the Company the amount of any taxes which the Company is required to withhold with respect to such Shares, or, in lieu thereof, to retain, or to sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. A-8 13. RECAPITALIZATION, MERGER, CONSOLIDATION, CHANGE IN CONTROL AND OTHER TRANSACTIONS. (a) ADJUSTMENT. Subject to any required action by the stockholders of the Company, within the sole discretion of the Committee, the aggregate number of Shares of Common Stock for which Options may be granted hereunder, the number of Shares of Common Stock covered by each outstanding Option, and the exercise price per Share of Common Stock of each such Option, shall all be proportionately adjusted for any increase or decrease in the number of issued and outstanding Shares of Common Stock resulting from a subdivision or consolidation of Shares (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise) or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such Shares of Common Stock effected without the receipt or payment of consideration by the Company (other than Shares held by dissenting stockholders). (b) CHANGE IN CONTROL. All outstanding Awards shall become immediately exercisable in the event of a Change in Control of the Company or the Bank. In the event of such a Change in Control, the Committee and the Board of Directors will take one or more of the following actions to be effective as of the date of such Change in Control: (i) provide that such Options shall be assumed, or equivalent options shall be substituted, ("Substitute Options") by the acquiring or succeeding corporation (or an affiliate thereof), provided that: (A) any such Substitute Options exchanged for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, and (B) the shares of stock issuable upon the exercise of such Substitute Options shall constitute securities registered in accordance with the Securities Act of 1933, as amended, ("1933 Act") or such securities shall be exempt from such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or in the alternative, if the securities issuable upon the exercise of such Substitute Options shall not constitute Registered Securities, then the Optionee will receive upon the exercise of the Substitute Options a cash payment for each Option surrendered equal to the difference between (1) the Fair Market Value of the consideration to be received for each share of Common Stock in the Change in Control transaction times the number of shares of Common Stock subject to such surrendered Options, and (2) the aggregate exercise price of all such surrendered Options, or (ii) in the event of a transaction under the terms of which the holders of the Common Stock of the Company will receive upon consummation thereof a cash payment (the "Merger Price") for each share of Common Stock exchanged in the Change in Control transaction, to make or to provide for a cash payment to the Optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such Options held by each Optionee (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such surrendered Options in exchange for such surrendered Options. A-9 (c) EXTRAORDINARY CORPORATE ACTION. Notwithstanding any provisions of the Plan to the contrary, subject to any required action by the stockholders of the Company, in the event of any Change in Control, recapitalization, merger, consolidation, exchange of Shares, spin-off, reorganization, tender offer, partial or complete liquidation or other extraordinary corporate action or event, the Committee, in its sole discretion, shall have the power, prior or subsequent to such action or event to: (i) appropriately adjust the number of Shares of Common Stock subject to each Option, the Option exercise price per Share of Common Stock, and the consideration to be given or received by the Company upon the exercise of any outstanding Option; (ii) cancel any or all previously granted Options, provided that appropriate consideration is paid to the Optionee in connection therewith; and/or (iii) make such other adjustments in connection with the Plan as the Committee, in its sole discretion, deems necessary, desirable, appropriate or advisable; PROVIDED, however, that no action shall be taken by the Committee which would cause Incentive Stock Options granted pursuant to the Plan to fail to meet the requirements of Section 422 of the Code without the consent of the Optionee. (d) ACCELERATION. The Committee shall at all times have the power to accelerate the exercise date of Options previously granted under the Plan. Except as expressly provided in Sections 13(a) and 13(b), no Optionee shall have any rights by reason of the occurrence of any of the events described in this Section 13. 14. TIME OF GRANTING OPTIONS. The date of grant of an Option under the ------------------------ Plan shall, for all purposes, be the date on which the Committee makes the determination of granting such Option. Notice of the grant of an Option shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant in a form determined by the Committee. 15. EFFECTIVE DATE. The Plan shall become effective upon the date of -------------- approval of the Plan by the stockholders of the Company. The Committee may make a determination related to Awards prior to the Effective Date with such Awards to be effective upon the date of stockholder approval of the Plan. 16. APPROVAL BY STOCKHOLDERS. The Plan shall be approved by --------------------------- stockholders of the Company within twelve (12) months before or after the date the Plan is approved by the Board. 17. MODIFICATION OF OPTIONS. At any time and from time to time, the ------------------------ Board may authorize the Committee to direct the execution of an instrument providing for the modification of any outstanding Option, provided no such modification, extension or renewal shall confer on the holder of said Option any right or benefit which could not be conferred on the Optionee by the grant of a new Option at such time, or shall not materially decrease the Optionee's benefits under the Option without the consent of the holder of the Option, except as otherwise permitted under Section 18 hereof. 18. AMENDMENT AND TERMINATION OF THE PLAN. ------------------------------------- (a) ACTION BY THE BOARD. The Board may alter, suspend or discontinue the Plan, except that no action of the Board may increase (other than as provided in Section 13 hereof) the maximum number of Shares permitted to be optioned under the Plan, materially increase the benefits accruing to Participants under A-10 the Plan or materially modify the requirements for eligibility for participation in the Plan unless such action of the Board shall be subject to approval by the stockholders of the Company. (b) CHANGE IN APPLICABLE LAW. Notwithstanding any other provision contained in the Plan, in the event of a change in any federal or state law, rule, regulation or policy which would make the exercise of all or part of any previously granted Option unlawful or subject the Company to any penalty, the Committee may restrict any such exercise without the consent of the Optionee or other holder thereof in order to comply with any such law, rule or regulation or to avoid any such penalty. 19. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATIONS ON OPTION ----------------------------------------------------------------- EXERCISE; CANCELLATION OF OPTION RIGHTS. --------------------------------------- (a) Shares shall not be issued with respect to any Option granted under the Plan unless the issuance and delivery of such Shares shall comply with all relevant provisions of applicable law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed. (b) The inability of the Company to obtain any necessary authorizations, approvals or letters of non-objection from any regulatory body or authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares issuable hereunder shall relieve the Company of any liability with respect to the non-issuance or sale of such Shares. (c) As a condition to the exercise of an Option, the Company may require the person exercising the Option to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. (d) Notwithstanding anything herein to the contrary, upon the termination of employment or service of an Optionee by the Company or its Subsidiaries for "cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by the Board of Directors, all Options held by such Participant shall cease to be exercisable as of the date of such termination of employment or service. (e) Upon the exercise of an Option by an Optionee (or the Optionee's personal representative), the Committee, in its sole and absolute discretion, may make a cash payment to the Optionee, in whole or in part, in lieu of the delivery of shares of Common Stock. Such cash payment to be paid in lieu of delivery of Common Stock shall be equal to the difference between the Fair Market Value of the Common Stock on the date of the Option exercise and the exercise price per share of the Option. Such cash payment shall be in exchange for the cancellation of such Option. Such cash payment shall not be made in the event that such transaction would result in liability to the Optionee or the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended, and regulations promulgated thereunder. 20. RESERVATION OF SHARES. During the term of the Plan, the Company ---------------------- will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan. 21. UNSECURED OBLIGATION. No Participant under the Plan shall have any -------------------- interest in any fund or special asset of the Company by reason of the Plan or the grant of any Option under the Plan. No trust fund shall be created in connection with the Plan or any grant of any Option hereunder and there shall be no required funding of amounts which may become payable to any Participant. A-11 22. NO EMPLOYMENT RIGHTS. No Director, Employee or other person shall -------------------- have a right to be selected as a Participant under the Plan. Neither the Plan nor any action taken by the Committee in administration of the Plan shall be construed as giving any person any rights of employment or retention as an Employee, Director or in any other capacity with the Company, the Bank or other Subsidiaries. 23. GOVERNING LAW. The Plan shall be governed by and construed in -------------- accordance with the laws of the State of Minnesota, except to the extent that federal law shall be deemed to apply. A-12 APPENDIX B WELLS FEDERAL BANK 2003 STOCK BONUS PLAN AND TRUST AGREEMENT ARTICLE I --------- ESTABLISHMENT OF THE PLAN AND TRUST 1.01 Wells Federal Bank ("Bank") hereby establishes the 2003 Stock Bonus Plan (the "Plan") and Trust (the "Trust") upon the terms and conditions hereinafter stated in this Stock Bonus Plan and Trust Agreement (the "Agreement"). 1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust assets existing on the date of this Agreement and all additions and accretions thereto upon the terms and conditions hereinafter stated. ARTICLE II ---------- PURPOSE OF THE PLAN 2.01 The purpose of the Plan is to reward and to retain personnel of experience and ability in key positions of responsibility with the Bank and its subsidiaries, by providing such personnel of the Bank and its subsidiaries with an increased equity interest in the parent corporation of the Bank, Wells Financial Corp. ("Parent"), as compensation for their future professional contributions and service to the Bank and its subsidiaries. ARTICLE III DEFINITIONS The following words and phrases when used in this Plan with an initial capital letter, unless the context clearly indicates otherwise, shall have the meaning as set forth below. Wherever appropriate, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural. "Bank" means Wells Federal Bank, and any successor corporation thereto. "Beneficiary" means the person or persons designated by the 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 by the Participant and addressed to the Bank or the Committee on forms provided for this purpose by the Committee and delivered to the Bank and may be changed from time to time by similar written notice to the Committee. A Participant's last will and testament or any codicil thereto shall not constitute written designation of a Beneficiary. In the absence of such written designation, the Beneficiary shall be the Participant's surviving spouse, if any, or if none, the Participant's estate. "Board" means the Board of Directors of the Bank, or any successor corporation thereto. B-1 "Cause" means the personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profits, intentional failure to perform stated duties, willful violation of a material provision of any law, rule or regulation (other than traffic violations and similar offense), or a material violation of a final cease-and-desist order or any other action which results in a substantial financial loss to the Parent, Bank or its Subsidiaries. "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Parent or Bank; (ii) the merger or recapitalization of the Parent or the Bank whereby the Parent or Bank is not the surviving entity; (iii) a change in control of the Parent or Bank, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Parent or Bank by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Parent or Bank by a tax-qualified employee stock benefit plan which is exempt from the approval requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. "Committee" means the Board of Directors of the Bank or the Stock Bonus Plan Committee appointed by the Board of Directors of the Bank pursuant to Article IV hereof. "Common Stock" means shares of the common stock of the Parent, or any successor corporation or parent thereto. "Director" means a member of the Board of the Bank. "Director Emeritus" means a person serving as a director emeritus, advisory director, consulting director, or other similar position as may be appointed by the Board of Directors of the Bank, a Subsidiary or the Parent from time to time. "Disability" means any physical or mental impairment which renders the Participant incapable of continuing in the employment or service of the Bank or the Parent in his current capacity as determined by the Committee. "Effective Date" shall mean the date of ratification of the Plan by the stockholders of Parent. "Eligible Participant" means an Employee, Director or director of a Subsidiary who may receive a Plan Share Award under the Plan. "Employee" means any person who is employed by the Bank or a Subsidiary. "Parent" shall mean Wells Financial Corp., the parent corporation of the Bank. "Participant" means an Employee, Director, Director Emeritus or director of a Subsidiary who previously received a Plan Share Award under the Plan. B-2 "Plan Shares" means shares of Common Stock held in the Trust which are awarded or issuable to a Participant pursuant to the Plan. "Plan Share Award" or "Award" means a right granted to a Participant under this Plan to earn or to receive Plan Shares. "Plan Share Reserve" means the shares of Common Stock held by the Trust pursuant to Sections 5.03 and 5.04. "Subsidiary" means those subsidiaries of the Bank which, with the consent of the Board, agree to participate in this Plan. "Trustee" or "Trustee Committee" means that person(s) or entity nominated by the Committee and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets for the purposes set forth herein. ARTICLE IV ---------- ADMINISTRATION OF THE PLAN 4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and interpreted by the Board of Directors of the Bank or a Committee appointed by said Board, which shall consist of not less than two non-employee members of the Board, which shall have all of the powers allocated to it in this and other sections of the Plan. All persons designated as members of the Committee shall be "Non-Employee Directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"). The interpretation and construction by the Committee of any provisions of the Plan or of any Plan Share Award granted hereunder shall be final and binding. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules, regulations and procedures as it deems appropriate for the conduct of its affairs. The Committee shall report its actions and decisions with respect to the Plan to the Board at appropriate times, but in no event less than one time per calendar year. The Committee shall recommend to the Board one or more persons or entity to act as Trustee in accordance with the provision of this Plan and Trust and the terms of Article VIII hereof. 4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee shall be appointed or approved by, and will serve at the pleasure of the Board. The Board may in its discretion from time to time remove members from, or add members to, the Committee, and may remove, replace or add Trustees. The Board shall have all of the powers allocated to it in this and other sections of the Plan, may take any action under or with respect to the Plan which the Committee is authorized to take, and may reverse or override any action taken or decision made by the Committee under or with respect to the Plan, provided, however, that the Board may not revoke any Plan Share Award already made except as provided in Section 7.01(b) herein. B-3 4.03 LIMITATION ON LIABILITY. No member of the Board, the Committee or the Trustee shall be liable for any determination made in good faith with respect to the Plan or any Plan Share Awards granted. If a member of the Board, Committee or any Trustee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by any reason of anything done or not done by him in such capacity under or with respect to the Plan, the Parent and the Bank shall indemnify such member against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Parent, the Bank and its Subsidiaries and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Notwithstanding anything herein to the contrary, in no event shall the Bank take any actions with respect to this Section 4.03 which is not in compliance with the limitations or requirements set forth at 12 C.F.R. 545.121, as may be amended from time to time. ARTICLE V --------- CONTRIBUTIONS; PLAN SHARE RESERVE 5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board of Directors of the Bank shall determine the number of shares of Common Stock or the amount of cash to be contributed by the Bank to the Trust established under this Plan. Such contributions to the Trust shall be delivered to the Trustee at the time of such contribution. No contributions to the Trust by Participants shall be permitted except with respect to amounts necessary to meet tax withholding obligations. 5.02 INITIAL INVESTMENT. Any funds held by the Trust prior to investment in the Common Stock shall be invested by the Trustee in such interest-bearing account or accounts at the Bank as the Trustee shall determine to be appropriate. 5.03 MAXIMUM PLAN SHARE RESERVE; INVESTMENT OF TRUST ASSETS. The Trust shall purchase Common Stock in an amount not greater than 100% of the Trust's cash assets, after providing for any required withholding as needed for tax purposes, provided, however, that the Trust shall not distribute more than 50,000 shares of Common Stock in the aggregate pursuant to Awards under the Plan. The Trustee may accept the transfer of Common Stock held by the Bank in other trust accounts, purchase shares of Common Stock in the open market or, in the alternative, may purchase authorized but unissued shares of the Common Stock or treasury shares from the Parent sufficient to fund the Plan Share Reserve. 5.04 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE RESERVES. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.05, or the decision of the Committee to return Plan Shares to the Parent, the Plan Share Reserve shall be reduced by the number of Shares subject to the Awards so allocated or returned. Any Shares subject to an Award which are not earned because of forfeiture by the Participant pursuant to Section 7.01 shall be added to the Plan Share Reserve. B-4 ARTICLE VI ---------- ELIGIBILITY; ALLOCATIONS 6.01 ELIGIBILITY. Eligible Participants may receive Plan Share Awards within the sole discretion of the Committee. Directors who are not otherwise Employees shall receive Plan Share Awards pursuant to Section 6.05. 6.02 ALLOCATIONS. The Committee will determine which Eligible Participants will be granted Plan Share Awards and the number of Shares covered by each Award, provided, however, that in no event shall any Awards be made which will violate the Charter or Bylaws of the Bank or its Parent or Subsidiaries or any applicable federal or state law or regulation. In the event Shares are forfeited for any reason or additional Shares are purchased by the Trustee, the Committee may, from time to time, determine which of the Eligible Participants will be granted Plan Share Awards to be awarded from forfeited Shares. In selecting those Eligible Participants to whom Plan Share Awards will be granted and the number of shares covered by such Awards, the Committee shall consider the prior and anticipated future position, duties and responsibilities such individuals, the value of their prior and anticipated future services to the Bank and its Subsidiaries, and any other factors the Committee may deem relevant. All actions by the Committee shall be deemed final, except to the extent that such actions are revoked by the Board. Notwithstanding anything herein to the contrary, in no event shall any Participant receive Plan Share Awards in excess of 25% of the aggregate Plan Shares authorized under the Plan. 6.03 FORM OF ALLOCATION. As promptly as practicable after a determination is made pursuant to Section 6.02 or Section 6.05 that a Plan Share Award is to be made, the Committee shall notify the Participant in writing of the grant of the Award, the number of Plan Shares covered by the Award, and the terms upon which the Plan Shares subject to the award may be earned. The date on which the Committee makes its award determination or the date the Committee so notifies the Participant shall be considered the date of grant of the Plan Share Awards as determined by the Committee. The Committee shall maintain records as to all grants of Plan Share Awards under the Plan. 6.04 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary at Sections 6.01, 6.02 or 6.05, no Eligible Participant shall have any right or entitlement to receive a Plan Share Award hereunder, such Awards being at the sole discretion of the Committee and the Board, nor shall the Eligible Participants as a group have such a right. The Committee may, with the approval of the Board (or, if so directed by the Board) return all Common Stock in the Plan Share Reserve to the Bank at any time, and cease issuing Plan Share Awards. 6.05 AWARDS TO DIRECTORS. Notwithstanding anything herein to the contrary, as of the Effective Date, a Plan Share Award consisting of 3,500 Plan Shares shall be awarded to each Director of the Bank that is not otherwise an Employee. Such Plan Share Award shall be earned and non-forfeitable at the rate of one-fourth as of the one year anniversary of the Effective Date and an additional one-fourth following each of the next three successive years during such periods of continued service as a Director or Director Emeritus. Further, such Plan Share Award shall be immediately 100% earned and non-forfeitable in the event of the death or Disability of such Director or Director Emeritus, or upon a Change in Control of the Bank or Parent. Subsequent to the Effective Date, Plan Share Awards may be awarded to newly elected or appointed Directors of the Bank by the Committee, provided that total Plan Share Awards granted to non-employee Directors of the Bank shall not exceed 25,000 Plan Share Awards in the aggregate under the Plan. B-5 ARTICLE VII ----------- EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS 7.01 EARNINGS PLAN SHARES; FORFEITURES. (a) GENERAL RULES. Unless the Committee shall specifically state to the contrary at the time a Plan Share Award is granted, Plan Shares subject to an Award shall be earned and non-forfeitable by a Participant at the rate of one-fourth of such Award following one year after the granting of such Award, and an additional one-fourth following each of the next three successive years; provided that such Participant remains an Employee, Director, Director Emeritus or Subsidiary director during such period. (b) REVOCATION FOR MISCONDUCT. Notwithstanding anything herein to the contrary, the Board shall, by resolution, immediately revoke, rescind and terminate any Plan Share Award, or portion thereof, previously awarded under this Plan, to the extent Plan Shares have not been delivered thereunder to the Participant, whether or not yet earned, in the case of a Participant who is discharged from the employ or service of the Parent, Bank or a Subsidiary for Cause, or who is discovered after termination of employment or service to have engaged in conduct that would have justified termination for Cause. A determination of Cause shall be made by the Board within its sole discretion. (c) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY. Notwithstanding the general rule contained in Section 7.01(a) above, all Plan Shares subject to a Plan Share Award held by a Participant whose employment or service with the Parent, Bank or a Subsidiary terminates due to death or Disability, shall be deemed earned and nonforfeitable as of the Participant's last date of employment or service with the Parent, Bank or Subsidiary and shall be distributed as soon as practicable thereafter. (d) EXCEPTION FOR TERMINATION AFTER A CHANGE IN CONTROL. Notwithstanding the general rule contained in Section 7.01 above, all Plan Shares subject to a Plan Share Award held by a Participant shall be deemed to be immediately 100% earned and non-forfeitable in the event of a Change in Control of the Parent or Bank and shall be distributed as soon as practicable thereafter. 7.02 PAYMENT OF DIVIDENDS ON PLAN SHARE AWARDS. A holder of a Plan Share Award, whether or not earned, shall also be entitled to receive an amount equal to any cash dividends declared and paid with respect to shares of Common Stock represented by such Plan Share Award between the date the relevant Plan Share Award was granted to such Participant and the date the Plan Shares are distributed. Such cash amounts shall be paid as compensation to the Participant by the Trust or the Bank within 30 days of the applicable dividend payment date, less applicable tax withholding, if applicable. 7.03 DISTRIBUTION OF PLAN SHARES. (a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as provided in Subsections (d) and (e) below, Plan Shares shall be distributed to the Participant or his Beneficiary, as the case may be, as soon as practicable after they have been earned. No fractional shares shall be distributed. Notwithstanding anything herein to the contrary, at the discretion of the Committee, Plan Shares may be distributed prior to such Shares being 100% earned, provided that such Plan Shares shall contain a restrictive legend detailing the applicable limitations of such shares with respect to transfer and forfeiture. B-6 (b) FORM OF DISTRIBUTION. All Plan Shares, together with any shares representing stock dividends, shall be distributed in the form of Common Stock. One share of Common Stock shall be given for each Plan Share earned. Payments representing cash dividends (and earnings thereon) shall be made in cash. Notwithstanding anything within the Plan to the contrary, upon a Change in Control whereby substantially all of the Common Stock of the Parent shall be acquired for cash, all Plan Shares associated with Plan Share Awards, together with any shares representing stock dividends associated with Plan Share Awards, shall be, at the sole discretion of the Committee, distributed as of the effective date of such Change in Control, or as soon as administratively feasible thereafter, in the form of cash equal to the consideration received in exchange for such Common Stock represented by such Plan Shares. (c) WITHHOLDING. The Trustee may withhold from any payment or distribution made under this Plan sufficient amounts of cash or shares of Common Stock necessary to cover any applicable withholding and employment taxes, and if the amount of such payment or distribution is not sufficient, the Trustee may require the Participant or Beneficiary to pay to the Trustee the amount required to be withheld in taxes as a condition of delivering the Plan Shares. The Trustee shall pay over to the Parent, Bank or Subsidiary which employs or employed such Participant any such amount withheld from or paid by the Participant or Beneficiary. (d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS. Notwithstanding Subsection (a) above, no Plan Shares may be distributed to the extent the Participant or Beneficiary, as the case may be, would after receipt of such Shares own in excess of ten percent (10%) of the issued and outstanding shares of Common Stock, unless such action is approved in advance by a majority vote of disinterested directors of the Board of the Parent. (e) REGULATORY EXCEPTIONS. No Plan Shares shall be distributed, however, unless and until all of the requirements of all applicable law and regulation shall have been fully complied with as determined by the Board upon advice of legal counsel. 7.04 VOTING OF PLAN SHARES. After a Plan Share Award has become earned and non-forfeitable, the Participant shall be entitled to direct the Trustee as to the voting of the Plan Shares which are associated with the Plan Share Award and which have not yet been distributed pursuant to Section 7.03, subject to rules and procedures adopted by the Committee for this purpose. All shares of Common Stock held by the Trust as to which Participants are not entitled to direct, or have not directed, the voting of such Shares, shall be voted by the Trustee as directed by the Committee. ARTICLE VIII ------------ TRUST 8.01 TRUST. The Trustee shall receive, hold, administer, invest and make distributions and disbursements from the Trust in accordance with the provisions of the Plan and Trust and the applicable directions, rules, regulations, procedures and policies established by the Committee pursuant to the Plan. 8.02 MANAGEMENT OF TRUST. It is the intention of this Plan and Trust that the Trustee shall have complete authority and discretion with respect to the management, control and investment of the Trust, and that the Trustee shall invest all assets of the Trust, except those attributable to cash dividends paid with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock to the fullest extent practicable, except to the extent that the Trustee determines that the holding of monies in cash or cash equivalents is necessary to B-7 meet the obligations of the Trust. In performing their duties, the Trustees shall have the power to do all things and execute such instruments as may be deemed necessary or proper, including the following powers: (a) To invest up to one hundred percent (100%) of all Trust assets in the Common Stock without regard to any law now or hereafter in force limiting investments for Trustees or other fiduciaries. The investment authorized herein may constitute the only investment of the Trust, and in making such investment, the Trustee is authorized to purchase Common Stock from the Parent or from any other source, and such Common Stock so purchased may be outstanding, newly issued, or treasury shares. (b) To invest any Trust assets not otherwise invested in accordance with (a) above in such deposit accounts, and certificates of deposit (including those issued by the Bank), obligations of the United States government or its agencies or such other investments as shall be considered the equivalent of cash. (c) To sell, exchange or otherwise dispose of any property at any time held or acquired by the Trust. (d) To cause stocks, bonds or other securities to be registered in the name of a nominee, without the addition of words indicating that such security is an asset of the Trust (but accurate records shall be maintained showing that such security is an asset of the Trust). (e) To hold cash without interest in such amounts as may be in the opinion of the Trustee reasonable for the proper operation of the Plan and Trust. (f) To employ brokers, agents, custodians, consultants and accountants. (g) To hire counsel to render advice with respect to their rights, duties and obligations hereunder, and such other legal services or representation as they may deem desirable. (h) To hold funds and securities representing the amounts to be distributed to a Participant or his Beneficiary as a consequence of a dispute as to the disposition thereof, whether in a segregated account or held in common with other assets. (i) As may be directed by the Committee or the Board from time to time, the Trustee shall pay to the Bank earnings of the Trust attributable to the Plan Share Reserve. Notwithstanding anything herein contained to the contrary, the Trustee shall not be required to make any inventory, appraisal or settlement or report to any court, or to secure any order of a court for the exercise of any power herein contained, or to maintain bond. 8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and detailed records and accounts of all transactions of the Trust, which shall be available at all reasonable times for inspection by any legally entitled person or entity to the extent required by applicable law, or any other person determined by the Committee. 8.04 EARNINGS. All earnings, gains and losses with respect to Trust assets shall be allocated in accordance with a reasonable procedure adopted by the Committee, to bookkeeping accounts for Participants or to the general account of the Trust, depending on the nature and allocation of the assets generating such B-8 earnings, gains and losses. In particular, any earnings on cash dividends received with respect to shares of Common Stock shall be allocated to accounts for Participants, except to the extent that such cash dividends are distributed to Participants, if such shares are the subject of outstanding Plan Share Awards, or, otherwise to the Plan Share Reserve. 8.05 EXPENSES. All costs and expenses incurred in the operation and administration of this Plan, including those incurred by the Trustee, shall be paid by the Bank. 8.06 INDEMNIFICATION. Subject to the requirements and limitations of applicable laws and regulations, the Parent and the Bank shall indemnify, defend and hold the Trustee harmless against all claims, expenses and liabilities arising out of or related to the exercise of the Trustee's powers and the discharge of their duties hereunder, unless the same shall be due to their gross negligence or willful misconduct. ARTICLE IX ---------- MISCELLANEOUS 9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan Shares available for issuance pursuant to the Plan Share Awards and the number of Shares to which any Plan Share Award relates shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of the Plan resulting from any split, subdivision or consolidation of the Common Stock or other capital adjustment, change or exchange of the Common Stock, or other increase or decrease in the number or kind of shares effected without receipt or payment of consideration by the Parent. 9.02 AMENDMENT AND TERMINATION OF THE PLAN. The Board may, by resolution, at any time, amend or terminate the Plan. The power to amend or terminate the Plan shall include the power to direct the Trustee to return to the Parent all or any part of the assets of the Trust, including shares of Common Stock held in the Plan Share Reserve, as well as shares of Common Stock and other assets subject to Plan Share Awards which have not yet been earned by the Participants to whom they have been awarded. However, the termination of the Trust shall not affect a Participant's right to earn Plan Share Awards and to the distribution of Common Stock relating thereto, including earnings thereon, in accordance with the terms of this Plan and the grant by the Committee or the Board. 9.03 NONTRANSFERABLE. Plan Share Awards and rights to Plan Shares shall not be transferable by a Participant, and during the lifetime of the Participant, Plan Shares may only be earned by and paid to the Participant who was notified in writing of the Award by the Committee pursuant to Section 6.03. No Participant or Beneficiary shall have any right in or claim to any assets of the Plan or Trust, nor shall the Parent, Bank, or any Subsidiary be subject to any claim for benefits hereunder. 9.04 NO EMPLOYMENT RIGHTS. Neither the Plan nor any grant of a Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee, the Committee or the Board in connection with the Plan shall create any right, either express or implied, on the part of any Participant to continue in the employ or service of the Parent, Bank, or a Subsidiary thereof. 9.05 VOTING AND DIVIDEND RIGHTS. No Participant shall have any voting or dividend rights of a stockholder with respect to any Plan Shares covered by a Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above, prior to the time said Plan Shares are actually distributed to such Participant. B-9 9.06 GOVERNING LAW. The Plan and Trust shall be governed by and construed under the laws of the State of Minnesota, except to the extent that Federal Law shall be deemed applicable. 9.07 EFFECTIVE DATE. The Plan shall be effective as of the date of approval of the Plan by the stockholders of Parent. 9.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of (i) termination by the Board, (ii) the distribution of all assets of the Trust, or (iii) 21 years from the Effective Date. Termination of the Plan shall not effect any Plan Share Awards previously granted, and such Plan Share Awards shall remain valid and in effect until they have been earned and paid, or by their terms expire or are forfeited. 9.09 TAX STATUS OF TRUST. It is intended that the Trust established hereby shall be treated as a grantor trust of the Bank under the provisions of Section 671 et seq. of the Internal Revenue Code of 1986, as amended, as the same may be amended from time to time. B-10 - -------------------------------------------------------------------------------- WELLS FINANCIAL CORP. 53 FIRST STREET, S.W. WELLS, MINNESOTA 56097 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18, 2003 - -------------------------------------------------------------------------------- The undersigned hereby appoints the Board of Directors of Wells Financial Corp. (the "Company"), or its designee, with full powers of substitution, to act as attorneys and proxies for the undersigned, to vote all shares of common stock of the Company which the undersigned is entitled to vote at the Special Meeting of Stockholders (the "Meeting"), to be held at the corporate office located at 53 First Street, S.W., Wells, Minnesota on November 18, 2003, at 3:00 p.m., local time and at any and all adjournments thereof, as follows: FOR AGAINST ABSTAIN --- ------- ------- 1. The approval of the Wells Financial Corp. 2003 Stock Option Plan |_| |_| |_| 2. The approval of the Wells Federal Bank 2003 Stock Bonus Plan |_| |_| |_| THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS. --- - -------------------------------------------------------------------------------- THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS SIGNED PROXY WILL BE VOTED "FOR" THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. - -------------------------------------------------------------------------------- THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned acknowledges receipt from the Company, prior to the execution of this proxy, of Notice of the Meeting and a Proxy Statement dated October 20, 2003. |_| Please check here if you plan to attend the Meeting. Dated: ____________________________________, 2003 ________________________________________ _________________________________ PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER ________________________________________ _________________________________ SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER Please sign exactly as your name appears on this Proxy. When signing as attorney, executor, administrator, trustee, or guardian, please give your full title. If shares are held jointly, each holder should sign. - -------------------------------------------------------------------------------- PLEASE COMPLETE, SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----