UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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HMN Financial, Inc.
(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):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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.
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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1016 Civic Center Drive N.W.
Rochester, Minnesota
55901-6057
(507) 535-1200
March 20, 2009
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders to be held at the corporate headquarters, located
at 1016 Civic Center Drive N.W., Rochester, Minnesota, on
Tuesday, April 28, 2009 at 10:00 a.m., local time.
The corporate secretarys notice of annual meeting and the
proxy statement that follow describe the matters to come before
the meeting. During the meeting, we also will review the
activities of the past year and items of general interest about
our company.
We hope that you will be able to attend the meeting in person
and we look forward to seeing you. Please vote your proxy by
telephone, through the Internet, or mark, date and sign the
enclosed proxy card and return it in the accompanying
postage-paid reply envelope as quickly as possible, even if you
plan to attend the annual meeting. If you later desire to revoke
the proxy, you may do so at any time before it is exercised.
Sincerely,
Timothy R. Geisler
Chairman of the Board of Directors
TABLE OF CONTENTS
VOTING
METHODS
The accompanying proxy statement describes important issues
affecting HMN Financial, Inc. If you are a stockholder of
record, you have the right to vote your shares through the
Internet, by telephone or by mail. You also may revoke your
proxy any time before the annual meeting. Please help us save
time and administrative costs by voting through the Internet or
by telephone. Each method is generally available 24 hours a
day and will ensure that your vote is confirmed and posted
immediately. To vote:
1.
BY TELEPHONE
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a.
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On a touch-tone telephone, call toll-free
1-800-560-1965,
24 hours a day, seven days a week, until 12:00 p.m.
(noon) central time on April 27, 2009.
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b.
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Please have your proxy card and the last four digits of your
social security number or tax identification number.
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c.
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Follow the simple instructions provided.
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2.
BY INTERNET
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a.
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Go to the web site at
http://www.eproxy.com/hmnf,
24 hours a day, seven days a week, until 12:00 p.m.
(noon) central time on April 27, 2009.
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b.
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Please have your proxy card and the last four digits of your
social security number or tax identification number and create
an electronic ballot.
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c. Follow the simple instructions provided.
3.
BY MAIL (if you vote by telephone or Internet,
please do not mail your proxy card)
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a.
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Mark, sign and date your proxy card.
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b.
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Return it in the enclosed postage-paid envelope.
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If your shares are held in the name of a bank, broker or other
holder of record, you will receive instructions from the holder
of record that you must follow in order for your shares to be
voted.
Important
Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting
to Be Held on April 28, 2009:
The Proxy
Statement and Annual Report to Stockholders are available at
http://www.proxydocs.com/hmnf
Your vote
is important. Thank you for voting.
HMN
FINANCIAL, INC.
Notice of Annual Meeting of Stockholders
to be held on April 28,
2009
Notice is hereby given that the annual meeting of stockholders
of HMN Financial, Inc. will be held at our corporate
headquarters, located at 1016 Civic Center Drive N.W.,
Rochester, Minnesota, at 10:00 a.m., local time, on
April 28, 2009.
A proxy card and a proxy statement for the meeting are enclosed.
The meeting is for the purpose of considering and acting upon:
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1.
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the election of two directors;
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2.
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the approval of the HMN Financial, Inc. 2009 Equity Incentive
Plan;
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3.
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the approval, in an advisory (non-binding) vote, of the
compensation of executives, as disclosed in this proxy
statement; and
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4.
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the ratification of the appointment of KPMG LLP as our
independent registered public accounting firm for 2009; and
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such other matters as may properly come before the meeting, or
any adjournments or postponements thereof. As of the date of
this notice, the board of directors is not aware of any other
business to come before the meeting.
Any action may be taken on the foregoing proposals at the
meeting on the date specified above, or on any date or dates to
which the meeting may be adjourned or postponed. Stockholders of
record at the close of business on March 3, 2009 are the
stockholders entitled to receive notice of, and to vote at, the
meeting and any adjournments or postponements thereof.
A complete list of stockholders entitled to vote at the meeting
will be available for examination by any stockholder, for any
purpose germane to the meeting, between 9:00 a.m. and
5:00 p.m. central time, at HMN Financial, Inc., 1016 Civic
Center Drive N.W., Rochester, Minnesota for a period of ten days
prior to the meeting.
Your proxy is important to ensure a quorum at the meeting.
Even if you own only a few shares, and whether or not you expect
to be present at the meeting, please vote your proxy by
telephone or through the Internet, in accordance with the voting
instructions set forth on the enclosed proxy card, or mark, date
and sign the enclosed proxy card and return it in the
accompanying postage-paid reply envelope as quickly as possible.
You may revoke your proxy at any time prior to its exercise, and
returning your proxy or voting your proxy by telephone or
through the Internet will not affect your right to vote in
person if you attend the meeting and revoke the proxy.
HMN FINANCIAL, INC.
By Order of the Board of Directors
Cindy K. Hamlin
Secretary
Rochester, Minnesota
March 20, 2009
PROXY
STATEMENT
ABOUT THE
ANNUAL MEETING
This proxy statement is furnished in connection with the
solicitation on behalf of the board of directors of HMN
Financial, Inc. of proxies to be used at the annual meeting of
stockholders, which will be held at our corporate headquarters,
located at 1016 Civic Center Drive N.W., Rochester, Minnesota,
on April 28, 2009 at 10:00 a.m., local time, and any
adjournments or postponements of the meeting. The accompanying
notice of annual meeting and this proxy statement are first
being mailed to stockholders on or about March 20, 2009.
Certain information provided herein relates to Home Federal
Savings Bank, a wholly owned subsidiary of our company referred
to as the bank.
The board of directors requests that you vote on the proposals
described in this proxy statement. You are invited to attend the
meeting, but you do not need to attend the meeting to cast your
vote.
What is
the purpose of the annual meeting?
At the annual meeting we will ask our stockholders to vote on
four matters:
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to elect two members of our board of directors, to serve until
the conclusion of the third succeeding annual meeting of
stockholders or until their successors have been duly elected
and qualified;
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2.
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to approve the HMN Financial, Inc. 2009 Equity Incentive Plan;
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3.
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to approve, in an advisory (non-binding) vote, the compensation
of executives, as disclosed in this proxy statement; and
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4.
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to ratify the appointment of KPMG LLP as our independent
registered public accounting firm for 2009;
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as well as to transact other business that may properly be
brought before the meeting. Following the formal portion of the
meeting, our management will report on our performance and
answer questions from our stockholders.
Who is
entitled to vote at the meeting?
Common stock is our only authorized and outstanding security
entitled to vote at the annual meeting. Holders of record of our
common stock as of the close of business on March 3, 2009
will be entitled to one vote for each share of common stock then
held. As of March 3, 2009, we had 4,162,896 shares of
common stock issued and outstanding. The number of issued and
outstanding shares excludes shares held in our treasury.
Who is
entitled to attend the meeting?
Subject to space availability, all stockholders as of the record
date, or their duly appointed proxies, may attend the meeting.
Since seating is limited, admission to the meeting will be on a
first-come, first-served basis. Registration will begin at
9:30 a.m. If you plan to attend the meeting, please
note that you will be asked to present valid picture
identification, such as a drivers license or passport.
Cameras, recording devices and other electronic devices are not
permitted at the meeting.
Please also note that if you hold your shares in street
name (that is, through a broker or other nominee), you
will need to bring a copy of a brokerage statement reflecting
your stock ownership as of the record date.
What
constitutes a quorum?
One third of the outstanding shares of common stock entitled to
vote constitutes a quorum for purposes of the meeting.
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How do I
vote?
If you are a registered stockholder, proxies in the accompanying
form that are properly signed and duly returned to us, voted by
telephone or through the Internet in accordance with the voting
instructions set forth below, and not revoked, will be voted in
the manner specified. We encourage you to vote by telephone or
on the Internet, if possible, to reduce the costs of tabulating
the vote.
To vote by Internet:
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Go to the web site at
http://www.eproxy.com/hmnf.
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b.
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Please have your proxy card and the last four digits of your
social security number or tax identification number and create
an electronic ballot.
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c.
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Follow the simple instructions provided.
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To vote by telephone:
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a.
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Call toll-free
1-800-560-1965.
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b.
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Please have your proxy card and the last four digits of your
social security number or tax identification number.
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c.
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Follow the simple instructions provided.
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To vote by mail:
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a.
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Mark, sign and date your proxy card.
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b.
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Return it in the enclosed postage-paid envelope.
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If you are a registered stockholder and attend the annual
meeting, you may deliver your proxy in person.
If you hold your shares in street name, meaning you hold them
through an account with a bank or broker, your ability to vote
over the Internet or by telephone depends on your banks or
brokers voting procedures. Please follow the directions
that your bank or broker provides.
All shares of our common stock represented at the meeting by
properly executed proxies, duly delivered to our corporate
secretary prior to or at the meeting, and not revoked, will be
voted at the meeting in accordance with the instructions
specified on the proxies.
What
happens if no instructions are indicated on my proxy?
If no instructions are indicated, properly executed proxies will
be voted
for
the nominees for director listed
below,
for
the adoption of the HMN Financial, Inc.
2009 Equity Incentive Plan,
for
the approval of
the compensation of executives, as disclosed in this proxy
statement, and
for
the ratification of the
appointment of our independent registered public accounting
firm. As of the date of this proxy statement, the board does not
know of any matters, other than those described in the notice of
annual meeting and this proxy statement, that are to come before
the meeting. If any other matters are properly presented at the
meeting for action, the persons named in the enclosed form of
proxy and acting thereunder will have, to the extent permitted
by law, the discretion to vote on these matters in accordance
with their best judgment.
May I
revoke my proxy or change my vote?
A proxy given pursuant to this solicitation may be revoked at
any time before it is voted. Proxies may be revoked by filing
with our corporate secretary, at or before the meeting, a
written notice of revocation bearing a later date than the date
on the proxy. A vote may be changed by duly executing a proxy
dated a later date than the earlier proxy and relating to the
same shares and delivering it to our corporate secretary at or
before the meeting. Attendance at the meeting will not by itself
revoke a previously granted proxy.
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What is
the recommendation of the board of directors on voting my
shares?
Our board of directors recommends a vote
for
the
election of the two nominated directors,
for
the
approval of the HMN Financial, Inc. 2009 Equity Incentive Plan,
for
the approval of the compensation of
executives, as disclosed in this proxy statement, and
for
the ratification of KPMG LLP as our independent
registered public accounting firm. If any other matters come up
for a vote at the meeting, the proxy holders will vote in line
with the recommendations of the board of directors or, if there
is no recommendation, at their own discretion.
What vote
is required to approve each item?
Election of Directors.
Directors are elected
by a plurality of the voting power of the shares of common stock
entitled to vote and present in person or represented by proxy
at the meeting. For this purpose, a properly executed proxy
marked
withheld
with respect to the election of
director nominees will be counted for purposes of determining
whether there is a quorum, but will have no effect on the
outcome of the vote on the election of directors.
Other Items.
For all other items that properly
come before the meeting, the affirmative vote of a majority of
the outstanding shares of common stock entitled to vote and
present in person or represented by proxy at the meeting is
required for approval. A properly executed proxy marked
abstain
with respect to any matter will be counted
for purposes of determining whether there is a quorum and will
be considered present in person or by proxy and entitled to vote.
What is
the effect of abstentions and broker non-votes?
If stockholders indicate on their proxy that they wish to
abstain from voting on a particular proposal, including brokers
holding their customers shares of record who cause
abstentions to be recorded, these shares are considered present
and entitled to vote at the meeting. These shares will count
toward determining whether or not a quorum is present. However,
these shares will not be considered cast with respect to the
proposal for which they abstain from voting and will not be
taken into account in determining the outcome of any of those
proposals.
If a stockholder does not give a broker holding the
stockholders shares instructions as to how to vote the
shares, the broker has authority under New York Stock Exchange
rules to vote those shares for or against routine
matters, such as the election of directors, the approval of the
compensation of executives, as disclosed in this proxy
statement, and the ratification of KPMG LLP as our independent
registered public accounting firm. Brokers cannot vote on their
customers behalf on non-routine proposals,
such as the adoption of the HMN Financial, Inc. 2009 Equity
Incentive Plan. These rules apply to us notwithstanding the fact
that shares of our common stock are traded on The Nasdaq Global
Market. If a broker votes shares that are unvoted by its
customers for or against a routine proposal, these
shares are counted for the purpose of establishing a quorum and
also will be counted for the purpose of determining the outcome
of the routine proposals on which they are cast.
Shares held by a broker on behalf of a stockholder will not be
considered cast with respect to any non-routine
proposals and will not be taken into account in determining the
outcome of any of non-routine proposals.
May the
meeting be adjourned?
If a quorum is not present at the meeting, the chairman of the
meeting, or the stockholders present, by vote of a majority of
the votes cast by stockholders present in person or represented
by proxy and entitled to vote, may adjourn the meeting. At any
adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as
originally called.
Who pays
the expenses incurred in connection with the solicitation of
proxies?
We will bear the cost of solicitation of proxies. We 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 solicitation by mail, our directors, officers and
regular employees, as well as employees of the bank, may solicit
proxies personally or by telephone without additional
compensation.
3
How may I
obtain additional copies of the annual report?
Our 2008 annual report, including financial statements, is
enclosed. The annual report is also available online at
www.hmnf.com or www.proxydocs.com/hmnf. For additional printed
copies, which are available without charge, please request
copies in writing to 1016 Civic Center Drive N.W., Rochester,
Minnesota
55901-6057,
Attention: Corporate Secretary.
What is
the deadline for submitting a stockholder proposal for the 2010
annual meeting?
We must receive stockholder proposals intended to be presented
at the 2010 annual meeting of stockholders that are requested to
be included in the proxy statement for that meeting at our
principal executive office no later than November 20, 2009.
The inclusion of any stockholder proposals in the proxy
materials will be subject to the requirements of the proxy rules
adopted under the Securities Exchange Act of 1934, including
Rule 14a-8.
We must receive any other stockholder proposals intended to be
presented at the 2010 annual meeting of stockholders in writing
at our principal executive office no later than 90 days in
advance of the meeting (or if we do not publicly announce our
annual meeting date 100 days in advance of the meeting
date, by the close of business on the 10th day following
the day on which notice of the meeting is mailed to stockholders
or publicly made). We currently anticipate that our 2010 annual
meeting of stockholders will be held on or about April 27,
2010; therefore, we must receive notice of any business to be
brought before that meeting by January 27, 2010. Written
copies of all stockholder proposals should be sent to our
principal executive offices at 1016 Civic Center Drive N.W.,
Rochester, Minnesota
55901-6057,
Attention: Corporate Secretary.
What does
it mean if I receive more than one proxy card or instruction
form?
This means that your shares are registered differently and are
held in more than one account. To ensure that all shares are
voted, please either vote each account over the Internet or by
telephone, or sign and return by mail all proxy cards. We
encourage you to register all of your shares in the same name
and address by contacting our transfer agent, Wells Fargo
Shareowner Services, at
1-800-401-1957.
If you hold your shares through an account with a bank or
broker, you should contact your bank or broker and request
consolidation.
I share
an address with another stockholder, how can I change the number
of copies of the proxy statement that we receive?
Generally, we are sending only one copy of the proxy material to
eligible stockholders who share a single address unless we
received instructions to the contrary from any stockholder at
that address. This practice, known as householding, is designed
to reduce our printing and postage costs. We will promptly
deliver a separate copy of proxy materials to any stockholder
who requests one by contacting our corporate secretary by
telephone at
(507) 535-1205,
or by mail to our principal executive offices at 1016 Civic
Center Drive N.W., Rochester, Minnesota
55901-6057,
Attention: Corporate Secretary. If you are a registered
stockholder residing at an address with another registered
stockholder and you wish to receive separate proxy in the
future, or if the registered stockholders at that address
currently are receiving multiple copies of the proxy materials
and you wish to receive a single copy, you may contact our
corporate secretary at the telephone number or address set forth
above. If you are a stockholder whose shares are held by a bank,
broker or other nominee, you can request information about
householding from your bank, broker or other nominee.
4
PROPOSAL I
ELECTION OF DIRECTORS
Background
Our certificate of incorporation provides that the board of
directors shall fix the number of directors from time to time.
On January 28, 2004, the size of the board was fixed as up
to nine members. The board is divided into three classes. The
term of two members of the board will expire at the conclusion
of the meeting. Duane D. Benson, a member of the board whose
term will expire at the conclusion of the meeting, has served on
the board for twelve years and is not eligible for re-election
under our By-laws. In addition, Michael McNeil, a former board
member and our former President and Chief Executive, whose term
would have expired at the conclusion of the meeting, resigned
from the board and all other positions he held with us on
January 28, 2009. The board has nominated Mahlon C.
Schneider, a current member of the board of directors, whose
current term will expire at the conclusion of the meeting, and
Hugh C. Smith for election as directors to serve a term to
expire at the conclusion of the third succeeding annual meeting
of stockholders after their election, with each to hold office
until his or her successor has been duly elected and qualified.
Dr. Smith was recommended for nomination as a director by
Allan R. DeBoer, one of our non-management directors. One
position on our board will remain open immediately following the
meeting, but may be filled by our board of directors at any time.
It is intended that the proxies solicited on behalf of the board
(other than proxies in which the vote is withheld as to one or
more nominees) will be voted at the meeting for the election of
the nominees identified in the preceding paragraph. If any
nominee is unable to serve, the shares of common stock
represented by all of these proxies will be voted for the
election of a substitute as the board may recommend. At this
time, the board knows of no reason why any of the nominees, if
elected, might be unable to serve. Except as described herein,
there are no arrangements or understandings between any director
or nominee and any other person pursuant to which the director
or nominee was selected.
Board of
Directors
The following table sets forth certain information regarding
each director or director nominee:
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Name
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Age
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Position
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Director Since
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Nominated for Election:
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Mahlon C. Schneider
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69
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Director and Director Nominee
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2000
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Hugh C. Smith
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69
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Director Nominee
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Term expiring in 2010:
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Michael J. Fogarty
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70
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Director
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2002
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Susan K. Kolling
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57
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Senior Vice President and Director of the Company and the Bank
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2001
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Malcolm W. McDonald
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72
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Director
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2004
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Term expiring in 2011:
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Allan R. DeBoer
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66
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Director
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1999
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Timothy R. Geisler
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57
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Chairman of the Board of Directors
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1996
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Karen L. Himle
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53
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Director
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2005
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Allan R. DeBoer
, from 1988 until his retirement in 2001,
was the Chief Executive Officer of RCS of Rochester, Inc., which
does business as Rochester Cheese/Valley Cheese, a cheese
processing company. Since 2002, Mr. DeBoer has practiced
law and served as an independent business consultant.
Michael J. Fogarty
has been an insurance agent with C.O.
Brown Agency, Inc., an insurance agency located in Rochester,
Minnesota, for over 20 years. He currently serves as
Chairman of the Board for C.O. Brown Agency, Inc.
Timothy R. Geisler
is currently Unit Manager Financial
Accounting and Controls, for Mayo Clinic and had previously been
Corporate Tax Unit Manager for Mayo Clinic from 1986 to 2000.
Mr. Geisler has been a certified public accountant since
1976 and has eight years of public accounting experience with a
major public accounting firm.
5
Karen L. Himle
currently serves as the Vice President of
University Relations for the University of Minnesota, a position
she began in January 2007. From 2004 to January 2006 she served
as the Executive Vice President of Childrens Hospitals and
Clinics of Minnesota, an independent,
not-for-profit
health care system, and President of Childrens Hospitals
and Clinics Foundation, the fundraising arm of Childrens
Hospitals and Clinics of Minnesota. From 2002 to 2004,
Ms. Himle served as an independent consultant. From 1985 to
2002, she held various positions, including Senior Vice
President Corporate and Government Affairs, at The St. Paul
Companies, Inc., a worldwide provider of commercial
property-liability insurance and reinsurance products and
services. Ms. Himle currently serves as a Minnesota Supreme
Court appointee to the Commission on Judicial Selection.
Susan K. Kolling
served as a Vice President of the bank
from 1992 to 1994 and has served as a Senior Vice President of
the bank since 1995. In addition, from 1997 to 2003,
Ms. Kolling was an owner of Kolling Family Corp. which is
doing business as Valley Home Improvement, a retail lumber yard.
Ms. Kolling became a director of Kolling Family Corp. in
2004.
Malcolm W. McDonald
served as a member of the Board of
Directors and Senior Vice President of Space Center, Inc., an
industrial real estate firm located in St. Paul, Minnesota, from
1977 until his retirement in 2002. He also served as Vice
President of First National Bank of St. Paul from 1960 to 1977.
Mr. McDonald is a member of the Board of Directors of
Scherer Brothers Lumber Company, a privately held full-service
lumber yard, and a director or trustee of several nonprofit
organizations.
Mahlon C. Schneider,
from 1999 until his retirement in
2004, was Senior Vice President External Affairs and General
Counsel of Hormel Foods Corporation, a multinational
manufacturer and marketer of consumer-branded meat and food
products. From 1990 to 1999, Mr. Schneider was the Vice
President and General Counsel of Hormel Foods Corporation. Since
2003, he has been a director of the Hormel Foundation, a
charitable trust.
Hugh C. Smith,
since 1972, has served as Professor of
Medicine, Mayo Clinic College of Medicine, a medical school, and
Consultant in the Cardiovascular Division at Mayo Clinic, a
full-service,
not-for-profit
medical practice. Dr. Smith also served as Chief Executive
Officer, Mayo Clinic-Rochester, from 1999 through 2006; Vice
President, Mayo Foundation, 2002 to 2005; and Chair, Rochester
Board of Governors, Mayo Clinic, 1999 to 2005. Dr. Smith is
a member of the Board of Directors of Dartmouth Hitchcock
Medical Center, Blue Cross Blue Shield Minnesota and Hormel
Foods Corporation.
The board recommends that stockholders vote
for
the
election of the two candidates nominated for election as
indicated above.
6
PROPOSAL II
APPROVAL OF THE HMN FINANCIAL, INC. 2009 EQUITY INCENTIVE
PLAN
Introduction
In June 1995, we adopted the HMN Financial, Inc. Stock Option
and Incentive Plan. As of March 3, 2009, there were 105,500
vested and unexercised stock options outstanding under the 1995
Plan. No additional awards may be granted under the 1995 Plan.
In March 2001, we adopted the HMN Financial, Inc. 2001 Omnibus
Stock Plan. 400,000 shares of our common stock were
originally available for awards under the 2001 Plan. As of
March 3, 2009, 160,087 shares remain available for the
issuance of new awards under the 2001 Plan and
141,088 shares remain subject to unexercised stock options
under the 2001 Plan. If the proposed HMN Financial, Inc. 2009
Equity Incentive Plan, or the 2009 Plan, is approved by our
stockholders, we will not make any additional award grants under
the 2001 Plan. However, to the extent that any stock option or
restricted stock award is forfeited or terminates without
vesting, or any stock option terminates, expires or lapses
without being exercised, under the 2001 Plan, the shares subject
to such stock option or restricted stock award will be available
for awards under the 2009 Plan.
As noted in the Compensation Discussion and Analysis section of
this proxy statement, the compensation committee of the board of
directors has used equity incentive compensation awards as
important elements of our compensation system, and anticipates
continuing to do so in the future. However, under legislation
related to our participation in the United States
Treasurys Capital Purchase Program (CPP) under its
Troubled Asset Relief Program, we currently are limited in the
type and extent of incentive awards that we may grant to our
five mostly highly compensated employees. Current law restricts
incentive compensation payable to these persons to long-term
restricted stock awards that have a value not greater than
one-third of such persons annual compensation and cannot
fully vest so long as the Treasury holds our securities.
Accordingly, cash incentive compensation, one of our customary
means of performance based incentive compensation, is not
available to us as a compensation tool for some of our executive
officers. Equity awards are our sole means of incentive
compensation for our five mostly highly compensated employees.
Future legislation and regulations related to the CPP may
further limit our ability to use incentive compensation. Taking
into consideration the existing and potential CPP limitations on
incentive compensation, the compensation committee feels that
there are not a sufficient number of shares available under our
2001 Plan for future equity incentive awards.
On March 5, 2009, the compensation committee recommended
that the board of directors approve the 2009 Plan making
350,000 shares of our common stock available for equity
incentive awards and providing for performance-based
compensation within the meaning of Section 162(m) of the
Internal Revenue Code. The board of directors approved the 2009
Plan the same day and directed that it be submitted for approval
by our stockholders at our 2009 Annual Meeting of Stockholders.
Because the vesting and payout of awards under the 2009 Plan may
be conditioned upon the satisfaction of performance measures
specified in the 2009 Plan, such awards are intended to meet the
requirements of Section 162(m) of the Internal Revenue Code
regarding the deductibility of executive compensation that is
performance-based. We are therefore seeking approval
from stockholders of the performance measures set forth in the
2009 Plan.
The full text of the 2009 Plan is set forth in Exhibit A to
this proxy statement and the following summary description is
qualified in its entirety by reference to the full text of the
2009 Plan.
Purpose
The purpose of the 2009 Plan is to provide our key personnel and
advisors with an opportunity to acquire a proprietary interest
in our company. The opportunity to acquire a proprietary
interest in our company will aid in attracting, motivating and
retaining key personnel and advisors, including non-employee
directors, and will align their interests with those of our
stockholders.
7
Administration
The 2009 Plan will be administered by a committee of two or more
non-employee members of our board of directors. The committee
has the authority to determine to whom awards will be granted,
the timing, type and amount of any award and other terms and
conditions of awards. Subject to certain requirements, the
committee may cancel or suspend an award, accelerate vesting or
extend the exercise period of an award, or otherwise amend the
terms and conditions of any outstanding award. The committee may
establish, amend or rescind rules in order to administer the
2009 Plan. The committee may delegate its authority under the
2009 Plan to one or more of our non-employee directors or
executive officers with respect to the determination and
administration of awards for participants who are not considered
officers, directors or 10% stockholders under applicable federal
securities laws.
The regulations under Section 162(m) of the Internal
Revenue Code require that the directors who serve as members of
the committee must be outside directors. The 2009
Plan provides that members of the committee must be outside
directors for purposes of Section 162(m), as well as
independent directors within the meaning of the
rules and regulations of The NASDAQ Stock Market, and
non-employee directors within the meaning of
Exchange Act
Rule 16b-3.
Eligibility
Any employee, non-employee director, consultant or advisor who
is a natural person and who provides services to our company, or
to a parent or subsidiary corporation of our company, is
eligible to participate in the 2009 Plan. Individuals who our
company desires to induce to become employees, non-employee
directors, consultants or advisors are also eligible to
participate, as long as the grant is contingent upon the
individual becoming an employee, non-employee director,
consultant or advisor. Only employees are eligible for grants of
incentive stock options.
Number of
Shares Available for Issuance
Shares Available.
A total of
350,000 shares of our common stock are authorized for grant
under the 2009 Plan, subject to adjustment in the event of
certain changes in capitalization. All of the shares authorized
for grant may be granted as incentive stock options. The
aggregate number of shares subject to options
and/or
stock
appreciation rights that may be granted during any calendar year
to any one participant cannot exceed 150,000. Any shares of
common stock subject to an award under the 2009 Plan that are
forfeited or expire may be used again for an award under the
2009 Plan. In addition, to the extent that any stock option or
restricted stock award is forfeited or terminates without
vesting, or any stock option terminates, expires or lapses
without being exercised, under the 2001 Plan, the shares subject
to such stock option or restricted stock award will be available
for awards under the 2009 Plan. Shares that become available for
award again under the 2009 Plan due to forfeiture or expiration
will increase the limit in the same manner the shares subject to
the original award counted against the limit. Shares tendered or
withheld to pay the exercise price of an option or to pay tax
withholding may not be used again for an award under the 2009
Plan.
Calculation of Shares Used in Award
Grants.
For the purposes of computing the
total number of shares granted under the 2009 Plan, the
following rules will apply:
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each share that is subject to an award of options or stock
appreciation rights will be counted against the shares available
under the 2009 Plan as one share;
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each share, or security that is convertible into, or equivalent
to, a share that is subject to any award other than options or
stock appreciation rights shall be counted against the shares
available under the 2009 Plan as one and two tenth (1.2) shares;
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if the number of shares subject to the award is variable at the
grant date, the maximum number of shares that could be received
will be counted against the shares available under the 2009 Plan
until the settlement of the award and determination of actual
number of shares covered by the award;
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if two or more types of awards are granted in tandem such that
the exercise of one type cancels at least an equal number of
shares of the other, the maximum number of shares that could be
received will be counted
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8
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against the shares available under the 2009 Plan until the
settlement of the award and determination of actual number of
shares covered by the award; and
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for performance units denominated in dollars, the number of
shares counted against the shares available under the 2009 Plan
shall be equal to the result of dividing the dollar amount for
which the performance unit is denominated by the fair market
value of one share on the date the performance unit is granted.
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General
Terms of Awards
Award Agreements.
Except for awards
that involve only the immediate issuance of unrestricted and
fully vested shares, each award will be evidenced by an
agreement setting forth the number of shares subject to the
award, along with other terms and conditions as determined by
the committee.
Vesting and Term.
Each agreement will
set forth the period until the award is scheduled to expire and
the performance period. The committee may determine the vesting
conditions of awards; however, subject to certain exceptions, an
award that is not subject to the satisfaction of performance
measures may not fully vest or become fully exercisable earlier
than three years from the grant date, and the performance period
for an award subject to performance measures may not be shorter
than one year.
Transferability.
Awards may not be
sold, assigned, transferred, exchanged or encumbered, other than
by will or the laws of descent and distribution. The committee
may provide that an award is transferable by gift to certain
family members. Each participant may designate a beneficiary to
exercise any award or receive payment under any award payable on
or after the participants death.
Termination of Service.
Upon
termination of service for cause, all unexercised options and
stock appreciation rights and all unvested portions of any other
outstanding awards will immediately be forfeited without
consideration. Upon termination of service for any other reason,
all unvested and unexercisable portions of any outstanding
awards will be immediately forfeited without consideration. Upon
termination of service for any reason other than cause, death or
disability, the currently vested and exercisable portions of
awards may be exercised within three months of the date of
termination. Upon termination of service due to death or
disability, the currently vested and exercisable portions of
awards may be exercised within six months of termination. All of
the foregoing provisions may be changed if expressly provided
for in an individual award agreement.
Types of
Awards
The types of awards that may be granted under the 2009 Plan
include restricted stock awards, restricted stock unit awards,
stock option awards, stock appreciation rights and performance
units. The committee also has the discretion to grant other
types of awards, as long as they are consistent with the terms
and purposes of the 2009 Plan. In addition to the general terms
of all the awards, as described above, the basic characteristics
of the awards that may be granted under the 2009 Plan are as
follows:
Restricted Stock Awards.
Restricted
stock awards are subject to vesting conditions and other
restrictions as determined by the committee. Unvested shares of
restricted stock are subject to transfer restrictions, and book
entries or stock certificates evidencing the shares will bear a
restrictive legend to that effect until such shares have vested.
Participants who receive restricted stock awards are entitled to
all the other rights of a stockholder, including the right to
receive dividends and the right to vote the shares of restricted
stock.
Restricted Stock Units.
Restricted
stock unit awards are subject to vesting conditions and other
restrictions as determined by the committee. After a restricted
stock unit award vests, payment will be made to the participant
in the form of cash, shares or a combination of cash and shares
as determined by the committee, and within the time period after
vesting as will qualify the payment for the short-term
deferral exemption from Section 409A of the Internal
Revenue Code.
Stock Option Awards.
The agreement
pursuant to which a stock option is granted will specify whether
it is an incentive stock option or a non-statutory stock option.
Non-statutory stock options are all stock option awards that do
not meet the requirements of incentive stock options. The
exercise price will be determined by the committee and may not
be less than the fair market value of a share of common stock on
the grant date. The exercise price is
9
payable in full at the time of exercise and may be paid in cash
and/or, if permitted by the committee, by withholding shares
issuable upon exercise or delivery of shares already owned by
the participant. Each option is exercisable in whole or in part
on the terms provided in the agreement, but in no event will an
option be exercisable after its scheduled expiration, which will
not be more than seven years after the grant date.
An option will be considered an Incentive Stock Option only if:
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the participant receiving the award is an employee;
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the award is designated as an incentive stock option in the
agreement; and
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the aggregate fair market value of the shares subject to
incentive stock options held by the participant which first
become exercisable in any calendar year does not exceed $100,000.
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In addition, a participant may not receive an incentive stock
option under the 2009 Plan if, immediately after the grant of
the award, the participant would own shares with more than 10%
of the total combined voting power of all classes of stock of
the company or a parent or subsidiary corporation of the
company, subject to certain exceptions.
Stock Appreciation Rights.
An award of
a stock appreciation right entitles the participant to receive,
upon exercise of the award, all or a portion of the excess of
the fair market value of a specified number of shares as of the
date of exercise over a specified exercise price that will not
be less than 100% of the fair market value of the shares on the
grant date. Each stock appreciation right is exercisable in
whole or in part on the terms provided in the agreement, but in
no event will a stock appreciation right be exercisable after
its scheduled expiration, which will not be more than seven
years after the grant date. Upon exercise, payment may be made
to the participant in the form of cash, shares or a combination
of cash and shares, as determined by the committee. The
agreement may provide for a limitation upon the amount or
percentage of total appreciation on which payment may be made
upon exercise.
Performance Units.
An award of
performance units entitles the participant to future payments of
cash, shares or a combination of cash and shares, as specified
by the committee in the agreement, based upon the achievement of
a specified level of one or more performance measures over the
course of a performance period. The agreement will specify the
nature and requisite level of achievement for each performance
measure, the length of the performance period, and may provide
that a portion of the award will be paid for performance that
exceeds the minimum target but falls below the maximum target
applicable to the award. Payment of any performance unit award
will be made within the time period after vesting that will
qualify the payment for the short term deferral
exemption from Section 409A of the Internal Revenue Code.
The agreement may permit the acceleration of the performance
period and an adjustment of performance measures and payments
with respect to some or all of the performance units upon the
occurrence of certain events. The agreement may also provide for
a limitation on the value of an award of performance units that
a participant may receive.
For recipients who are covered employees under
Section 162(m) of the Internal Revenue Code, the
performance measures are set by the committee at the start of
each performance period and are based on one or a combination of
two or more of the following performance criteria:
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interest income;
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net interest income;
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income before income tax expense;
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net income;
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net income available to common stockholders;
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earnings per common share (basic or diluted);
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profitability as measured by return ratios (including, but not
limited to, return on average assets, return on average equity)
or by the degree to which any of the foregoing earnings measures
exceed a percentage of interest income;
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cash flow;
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10
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market share;
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net interest margin;
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stock price;
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total stockholders equity;
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asset quality;
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non-performing assets;
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interest income growth;
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operating income;
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cash flow per share; or
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improvement in, or attainment of, non-interest expense levels or
cost savings.
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Any performance measure utilized may be expressed in absolute
amounts, on a per share basis, as a growth rate or change from
preceding periods, or as a comparison to the performance of
specified companies or other external measures, and may relate
to one or any combination of corporate, group, unit, division,
affiliate or individual performance.
Corporate
Transactions
In the event of certain corporate transactions, as defined under
the 2009 Plan, the committee may, but is not required to:
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protect outstanding awards with substitution of awards in the
surviving corporation;
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provide written notice prior to the occurrence of the
transaction that each outstanding stock option or stock
appreciation right will immediately become exercisable in full
and will be cancelled at the time of, or immediately prior to
the occurrence of, the corporate transaction in exchange for
payment promptly after the transaction;
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provide that each outstanding stock option or stock appreciation
right that is or becomes exercisable prior to the occurrence of
the corporate transaction will be cancelled at the time of, or
immediately prior to, the occurrence of the corporate
transaction in exchange for payment promptly after the
transaction, and that each outstanding stock option or stock
appreciation right that does not become exercisable prior to the
occurrence of the corporate transaction will be cancelled at the
time of, or immediately prior to, the occurrence of the
corporate transaction without payment or any other consideration;
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provide written notice prior to the occurrence of the
transaction that each outstanding stock option or stock
appreciation right, irrespective of whether it is exercisable,
will be cancelled at the time of, or immediately prior to the
occurrence of, the corporate transaction without payment or any
other consideration;
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provide written notice prior to the occurrence of the
transaction that each outstanding stock option or stock
appreciation right will immediately become exercisable in full
and will be cancelled at the time of, or immediately prior to
the occurrence of, the corporate transaction without payment or
any other consideration;
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provide, upon the occurrence of the corporate transaction, for
the vesting and corresponding waiver of forfeiture conditions
and other restrictions on restricted stock awards or restricted
stock unit awards that are outstanding as of the occurrence of
the corporate transaction; or
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provide that, upon the occurrence of the corporate transaction,
any portions of any restricted stock awards or restricted stock
unit awards that are subject to vesting conditions, forfeiture
conditions or other restrictions as of the occurrence of the
corporate transaction shall be canceled without payment or any
other consideration.
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11
Performance-Based
Compensation
If the committee determines that an award, other than an option
or stock appreciation right award, is granted to a participant
who is an executive officer and is, or is likely to be, a
covered employee for purposes of Section 162(m)
of the Internal Revenue Code, then the lapsing of restrictions
on the award and the distribution of cash, shares or other
property pursuant to the award will be subject to the
achievement of one or more performance measures, as defined
under the 2009 Plan. When establishing performance measures for
a performance period, the committee may exclude amounts or
charges relating to an event or occurrence that the committee
determines, consistent with the requirements of
Section 162(m), should appropriately be excluded. The
committee may also adjust performance measures for a performance
period to the extent permitted by Section 162(m) to prevent
the dilution or enlargement of a participants rights with
respect to performance-based compensation. The committee will
determine any amount payable in connection with such an award
consistent with the requirements of Section 162(m), and may
adjust downward, but not upward, any amount determined to be
otherwise payable in connection with such an award. Subject to
adjustment in the event of certain changes in capitalization, no
participant may be granted performance-based compensation in any
calendar year with respect to more than 75,000 shares, for
awards denominated in shares, and the maximum dollar value
payable to any participant in any 12 month period with
respect to performance-based compensation denominated in cash is
$500,000.
Compliance
with CPP Requirements
The 2009 Plan, and all awards and payments made under it, are
intended to comply with all laws, including regulations, related
to our participation in the CPP. We may amend the 2009 Plan or
any award made under it, without the consent of the affected
participant, to comply with such laws.
Duration,
Amendment and Termination
The 2009 Plan will remain in effect until all shares subject to
it are distributed, all awards have expired or terminated, the
2009 Plan is terminated, or the tenth anniversary of the date of
stockholder approval of the plan, whichever occurs first. The
board of directors may at any time terminate, suspend or amend
the 2009 Plan. We will submit any amendment of the 2009 Plan to
our stockholders for approval if the rules of the principal
securities exchange on which the shares are then listed or other
applicable laws or regulations require stockholder approval of
such an amendment. No termination, suspension or amendment of
the 2009 Plan or any agreement under the 2009 Plan may
materially or adversely affect any right acquired by any
participant under an award granted before the date of
termination, suspension or amendment, unless otherwise agreed to
by the participant in the agreement or otherwise, or required by
law.
Federal
Tax Considerations
The following summary sets forth the tax events generally
expected for United States citizens under current United States
federal income tax laws in connection with awards under the 2009
Plan.
Incentive Stock Options.
A recipient
will realize no taxable income, and we will not be entitled to
any related deduction, at the time an incentive stock option is
granted under the 2009 Plan. If certain statutory employment and
holding period conditions are satisfied before the recipient
disposes of shares acquired pursuant to the exercise of such an
option, then no taxable income will result upon the exercise of
such option, and we will not be entitled to any deduction in
connection with such exercise. Upon disposition of the shares
after expiration of the statutory holding periods, any gain or
loss realized by a recipient will be a long-term capital gain or
loss. We will not be entitled to a deduction with respect to a
disposition of the shares by a recipient after the expiration of
the statutory holding periods.
Except in the event of death, if shares acquired by a recipient
upon the exercise of an incentive stock option are disposed of
by such recipient before the expiration of the statutory holding
periods, referred to as a disqualifying disposition, such
recipient will be considered to have realized as compensation,
taxable as ordinary income in the year of disposition, an
amount, not exceeding the gain realized on such disposition,
equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise of the
option. We will be entitled to a deduction at the same time and
in the same amount as the recipient is deemed to have realized
ordinary income. Any
12
gain realized on the disposition in excess of the amount treated
as compensation or any loss realized on the disposition will
constitute capital gain or loss, respectively. Such capital gain
or loss will be long-term or short-term based upon how long the
shares were held. If the recipient pays the option price with
shares that were originally acquired pursuant to the exercise of
an incentive stock option and the statutory holding periods for
such shares have not been met, the recipient will be treated as
having made a disqualifying disposition of such shares, and the
tax consequence of such disqualifying disposition will be as
described above.
The foregoing discussion applies only for regular tax purposes.
For alternative minimum tax purposes, an incentive stock option
will be treated as if it were a non-qualified stock option, the
tax consequences of which are discussed below.
Non-Qualified Stock Options.
A
recipient will realize no taxable income, and we will not be
entitled to any related deduction, at the time a non-qualified
stock option is granted under the 2009 Plan. At the time of
exercise of a non-qualified stock option, the recipient will
realize ordinary income, and we will be entitled to a deduction,
equal to the excess of the fair market value of the stock on the
date of exercise over the option price. Upon disposition of the
shares, any additional gain or loss realized by the recipient
will be taxed as a capital gain or loss, long-term or
short-term, based upon how long the shares are held.
Stock Appreciation Rights and Performance
Units.
Generally, the recipient will not
realize income upon the grant of a stock appreciation right or
performance unit award. The recipient will realize ordinary
income, and we will be entitled to a corresponding deduction, in
the year cash or shares of common stock are delivered to the
recipient upon exercise of a stock appreciation right or in
payment of the performance unit award. The amount of such
ordinary income and deduction will be the amount of cash
received plus the fair market value of the shares of common
stock received on the date of issuance. The federal income tax
consequences of a disposition of unrestricted shares received by
the recipient upon exercise of a stock appreciation right or in
payment of a performance unit award are the same as described
below with respect to a disposition of unrestricted shares.
Restricted and Unrestricted Stock; Restricted Stock
Units.
Unless the recipient files an election
to be taxed under Section 83(b) of the Internal Revenue
Code, the recipient will not realize income upon the grant of
restricted stock, the recipient will realize ordinary income,
and we will be entitled to a corresponding deduction, when the
restrictions have been removed or expire, and the amount of such
ordinary income and deduction will be the fair market value of
the restricted stock on the date the restrictions are removed or
expire. If the recipient files an election to be taxed under
Section 83(b), the tax consequences to the recipient will
be determined as of the date of the grant of the restricted
stock rather than as of the date of the removal or expiration of
the restrictions.
For unrestricted stock, the recipient will realize ordinary
income, and we will be entitled to a corresponding deduction
upon the grant of the unrestricted stock, and the amount of such
ordinary income and deduction will be the fair market value of
such unrestricted stock on the date of grant.
When the recipient disposes of restricted or unrestricted stock,
the difference between the amount received upon such disposition
and the fair market value of such shares on the date the
recipient realizes ordinary income will be treated as a capital
gain or loss, long-term or short-term, based upon how long the
shares are held.
A recipient will not realize income upon the grant of restricted
stock units, but will realize ordinary income, and we will be
entitled to a corresponding deduction, when the restricted stock
units have vested and been settled in cash
and/or
shares of our common stock. The amount of such ordinary income
and deduction will be the amount of cash received plus the fair
market value of the shares of our common stock received on the
date of issuance.
Withholding.
The 2009 Plan permits us
to withhold from awards an amount sufficient to cover any
required withholding taxes. In lieu of cash, the compensation
committee may permit a participant to cover withholding
obligations through a reduction in the number of shares to be
delivered to such participant or by delivery of shares already
owned by the participant.
The board recommends that the stockholders vote
for
the approval of the HMN Financial, Inc. 2009 equity
incentive plan.
13
OTHER
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31,
2008 for compensation plans under which equity securities may be
issued.
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(c)
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Number of Securities
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(a)
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Remaining Available
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Number of
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for Future Issuance
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Securities to be
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(b)
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Under Equity
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Issued upon
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Weighted-Average
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Compensation
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Exercise of
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Exercise Price of
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Plans (Excluding
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Outstanding Options,
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Outstanding Options,
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Securities Reflected in
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Plan Category
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warrants and Rights
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Warrants and Rights
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Column (a))(1)
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Equity compensation plans approved by stockholders
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289,648
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$16.77
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155,353
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Equity compensation plans not approved by stockholders
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0
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0
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0
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Total
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289,648
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$16.77
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155,353
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(1)
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Includes securities available for future issuance under
stockholder approved compensation plans other than upon the
exercise of an option, warrant or right, as follows:
155,353 shares under the Companys 2001 Omnibus Stock
Plan.
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14
PROPOSAL III
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
In December 2008, we participated in the Capital Purchase
Program under the Troubled Asset Relief Program of the United
States Treasury. The American Recovery and Reinvestment Act of
2009, signed into law on February 17, 2009, includes a
provision requiring CPP participants, during the period in which
any obligation arising from assistance provided under the CPP
remains outstanding, to permit a separate stockholder vote to
approve the compensation of executives, as disclosed pursuant to
the compensation disclosure rules of the Securities and Exchange
Commission. This requirement applies to any proxy, consent, or
authorization for an annual meeting of the participants
stockholders for which proxies will be solicited for the
election of directors or a special meeting in lieu of such an
annual meeting. Under this legislation, the stockholder vote is
not binding on the board of directors of the CPP participant,
and may not be construed as overruling any decision by the
participants board of directors.
In accordance with the American Recovery and Reinvestment Act of
2009, stockholders are being given the opportunity to vote to
approve the compensation of our executives, as disclosed in this
proxy statement, including the information presented under
Compensation Discussion and Analysis and in the
compensation tables and related material under the heading
2008 Executive Compensation.
This is an advisory vote only, and neither the company nor our
board of directors will be bound to take action based upon the
outcome. The compensation committee will consider the vote of
the stockholders when considering future executive compensation
arrangements.
The board recommends that stockholders vote
for
the
approval of the compensation of executives, as disclosed in this
proxy statement.
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Upon the recommendation of the audit committee, the board of
directors has appointed KPMG LLP, an independent registered
public accounting firm, to be our independent registered public
accounting firm for 2009, subject to ratification by the
stockholders. KPMG LLP has audited the financial statements of
our company or the bank since 1966. Representatives of KPMG LLP
are expected to attend the meeting to respond to appropriate
questions and to make a statement, if they so desire.
In connection with the engagement of KPMG LLP, we entered into
an engagement agreement with KPMG LLP that sets forth the terms
pursuant to which KPMG LLP will perform its audit services. That
agreement is subject to alternative dispute resolution
procedures and an exclusion of punitive damages.
While it is not required to do so, the audit committee is
submitting the appointment of that firm for ratification in
order to ascertain the view of the stockholders. If the
stockholders do not ratify the appointment, the audit committee
will review the appointment.
The board recommends that stockholders vote
for
the
ratification of the appointment of KPMG LLP as our 2009
independent registered public accounting firm.
15
CORPORATE
GOVERNANCE
Committees
of the Board of Directors
The board of directors has standing audit, compensation,
executive and governance and nominating committees. The
directors committee memberships are indicated in the table
below:
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Nominating and
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Compensation
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Executive
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Governance
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Director
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Audit Committee
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Committee
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Committee
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Committee
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Allan R. DeBoer
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Member
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Chair
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Alternate
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Michael J. Fogarty
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Member
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Alternate
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Timothy R. Geisler
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Chair
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Member
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Karen L. Himle
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Member
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Member
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Susan K. Kolling
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Member
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Malcolm W. McDonald
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Member
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Member
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Mahlon C. Schneider
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Member
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Alternate
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Chair
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The board of directors anticipates that upon his election,
Dr. Smith will be appointed to the nominating and
governance committee of the board of directors.
Audit Committee.
The audit committee oversees
our financial reporting process by, among other things,
recommending and taking action to oversee the independence of
the independent registered public accounting firm and selecting
and appointing the independent registered public accounting
firm. The board has determined that all members of the audit
committee are independent as that term is defined in the
applicable Nasdaq listing standards and regulations of the
Securities and Exchange Commission and all members are
financially literate as required by the applicable Nasdaq
listing standards. In addition, the board has determined that
Mr. Geisler has the financial experience required by the
applicable Nasdaq listing standards and is an audit committee
financial expert as defined by applicable regulations of the
Securities and Exchange Commission. The responsibilities of the
audit committee are set forth in the audit committee charter,
which was amended and readopted on February 24, 2009 and is
available on our website at www.hmnf.com. The audit committee
reviews and reassesses its charter annually.
Compensation Committee.
The compensation
committee reviews and reports to the board on matters concerning
compensation plans and the compensation of certain executives,
as well as administering our 2001 Omnibus Stock Plan and our
2009 Equity Incentive Plan, if it is approved by stockholders.
The board has determined that all members of the compensation
committee are independent as that term is defined in the
applicable Nasdaq listing standards. The responsibilities of the
compensation committee are set forth in the compensation
committee charter, which was readopted by the board on
February 24, 2009. The compensation committee charter is
available on our website at www.hmnf.com. The compensation
committee reviews and reassesses its charter annually.
Executive Committee.
The executive committee
acts on issues arising between regular board meetings. The
executive committee possesses the powers of the full board
between meetings of the board.
Governance and Nominating Committee.
The
governance and nominating committee selects candidates as
nominees for election as directors and advises and makes
recommendations to the board on other matters concerning
directorship and corporate governance practices, including
succession plans for our executive officers. The board has
determined that all members of the governance and nominating
committee are independent as that term is defined in the
applicable Nasdaq listing standards. The responsibilities of the
governance and nominating committee are set forth in the
governance and nominating committee charter, which was readopted
by the board on February 24, 2009 and is available on our
website at www.hmnf.com. The governance and nominating committee
reviews and reassesses their charter annually.
Board and
Committee Meetings
The board held eleven meetings during 2008. The audit committee
held six meetings during 2008. The compensation committee held
eight meetings during 2008. The executive committee held one
meeting during 2008. The governance and nominating committee
held five meetings during 2008. Each of our directors attended
at least 75% of the meetings of the board and all committees on
which the director served.
16
Director
Independence
The board has determined that none of our directors except
Ms. Kolling who is an employee of the bank, have a material
relationship with our company other than service as a director
(either directly or as a partner, stockholder or officer of an
organization that has a material relationship with our company).
Therefore, all of our directors except Ms. Kolling are
independent within the meaning of applicable Nasdaq listing
standards. In addition, the board has determined that
Dr. Smith, who has been nominated to become a member of our
board of directors, is independent within the meaning of
applicable Nasdaq listing standards.
Code of
Business Conduct and Ethics
We adopted a Code of Business Conduct and Ethics applicable to
all of our directors and employees, including our senior
management and financial reporting employees. This code is
available on our website at www.hmnf.com.
Stockholder
Communication with the Board
The board of directors provides a process for stockholders to
send communications to the board or any of the directors.
Stockholders may send written communications to the board or any
of the directors
c/o Chief
Financial Officer, HMN Financial, Inc., 1016 Civic Center Drive
N.W., Rochester, Minnesota
55901-6057.
All communications will be compiled by the Chief Financial
Officer and submitted to the board or the individual directors
on a periodic basis. Communications directed to the board in
general will be forwarded to the appropriate director(s) to
address the matter.
Director
Attendance at Annual Meetings
Directors are expected to attend the annual meeting of
stockholders. In 2008, eight directors attended the annual
meeting of stockholders.
Procedures
Regarding Director Candidates Recommended by
Stockholders
The governance and nominating committee will consider director
candidates recommended by stockholders if the recommended
director candidate would be eligible to serve as a director
under our by-laws. Our by-laws require that directors have their
primary domicile in a county where the bank has a full service
branch. This requirement may be waived by a majority of the
board so long as a majority of the directors currently serving
on the board have their primary residence in a county where the
bank has a full service branch.
In order to be considered by the governance and nominating
committee, a stockholder recommendation of a director candidate
must set forth all information relating to the candidate that is
required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise
required, pursuant to Regulation 14A under the Exchange Act
and
Rule 14a-11
thereunder (including the potential directors written
consent to being named in the proxy statement as a nominee and
to serving as a director if elected).
The governance and nominating committee will consider director
candidates recommended by stockholders in the same manner that
it considers all director candidates. This consideration will
include an assessment of each candidates experience,
integrity, competence, diversity, skills and dedication in the
context of the needs of the board. Each candidate will be
evaluated in the context of the board as a whole, with the
objective of recommending a group of nominees that can best
perpetuate the success of the business and represent stockholder
interest through the exercise of sound judgment based on a
diversity of experience.
Rather than recommending director candidates to the governance
and nominating committee, stockholders may directly nominate a
person for election to the board by complying with the
procedures set forth in our by-laws, any applicable rules and
regulations of the Securities and Exchange Commission and any
applicable laws. For more information regarding the submission
of stockholder nominations of director candidates, please refer
to the section entitled Stockholder Proposals, as
well as the Q&A appearing at the beginning of this proxy
statement.
17
Stockholder
Proposals
Under our by-laws, certain procedures are provided that a
stockholder must follow to introduce an item of business at an
annual meeting of stockholders or to nominate persons for
election as directors. These procedures provide, generally, that
stockholders desiring to bring a proper subject of business
before the meeting, or to make nominations for directors, must
do so by a written notice received not later than 90 days
in advance of the meeting (or if we do not publicly announce our
annual meeting date 100 days in advance of the meeting
date, by the close of business on the 10th day following
the day on which notice of the meeting is mailed to stockholders
or publicly made) by our corporate secretary containing the name
and address of the stockholder as they appear on our books and
the class and number of shares owned by the stockholder. If the
notice relates to an item of business it also must include a
representation that the stockholder intends to appear in person
or by proxy at the meeting. Notice of an item of business shall
include a brief description of the proposed business and a
description of all arrangements or understandings between the
stockholder and any other person or persons (including their
names) in connection with the proposal of business by the
stockholder and any material interest of the stockholder in the
business. If the notice relates to a nomination for director, it
must set forth the name and address of any nominee(s), any other
information regarding each nominee as would have been required
to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee
been nominated by the board, and the consent of each nominee to
be named in the proxy statement and to serve.
The chairman of the meeting may refuse to allow the transaction
of any business not presented, or to acknowledge the nomination
of any person not made, in compliance with the foregoing
procedures. Copies of our by-laws are available from our
corporate secretary.
Compensation
Committee Interlocks and Insider Participation
During 2008, the compensation committee was comprised of
Messrs. Benson, Fogarty and DeBoer and Ms. Himle. None
of the members is an executive officer, employee or former
employee of our company, and no interlocking relationship exists
between the board or compensation committee and the board of
directors or compensation committee of any other company.
Related
Person Transaction Approval Policy
In February 2009, our board of directors readopted a written
policy for related person transactions, which sets forth our
policies and procedures for the review, approval or ratification
of transactions subject to the policy with related persons who
are subject to the policy. Our policy applies to any
transaction, arrangement or relationship or any series of
similar transactions, arrangements or relationships that has a
financial aspect and in which we are a participant and a related
person has a direct or indirect interest. Our policy, however,
exempts the following:
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our payment of compensation to a related person for that
persons service to us in the capacities that give rise to
the persons status as a related person;
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transactions available to all of our employees or all of our
stockholders on the same terms;
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any extension of credit by our banking subsidiary in which a
related person has a direct or indirect interest and which
complies with the requirements of Regulation O under
Title 12 of the Code of Federal Regulations and has been
approved by either the board of directors of our banking
subsidiary or its loan committee; and
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transactions, which when aggregated with the amount of all other
transactions between the related person and our company, involve
less than $120,000 in a fiscal year.
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We consider the following people to be related persons under the
policy:
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all of our officers and directors;
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any nominee for director;
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any immediate family member of any of our directors, nominees
for director or executive officers; and
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any holder of more than 5% of our common stock, or an immediate
family member of the holder.
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18
The audit committee of our board of directors must approve any
related person transaction subject to this policy before
commencement of the related party transaction. The committee
will analyze the following factors, in addition to any other
factors the committee deems appropriate, in determining whether
to approve a related party transaction:
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whether the terms are fair to our company;
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whether the transaction is material to our company;
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the role the related person has played in arranging the related
person transaction;
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the structure of the related person transaction; and
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the interests of all related persons in the related person
transaction.
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The committee may, in its sole discretion, approve or deny any
related person transaction. Approval of a related party
transaction may be conditioned upon our company and the related
person taking any actions that the committees deems appropriate.
If one of our executive officers becomes aware of a related
person transaction that has not previously been approved under
the policy:
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if the transaction is pending or ongoing, it will be submitted
to the audit committee promptly and the committee will consider
the transaction in light of the standards of approval listed
above. Based on this evaluation, the committee will consider all
options, including approval, ratification, amendment, denial or
termination of the related person transaction; and
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if the transaction is completed, the committee will evaluate the
transaction in accordance with the same standards to determine
whether rescission of the transaction is appropriate and
feasible.
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There were no related person transactions in 2008 required to be
reported in this proxy statement.
Certain
Transactions
The bank follows a policy of granting loans to eligible
directors, officers, employees and members of their immediate
families for the financing of their personal residences and for
consumer purposes. The rate charged on mortgage loans is
generally equal to the then-current rate offered to the general
public, although certain fees are reduced or waived. The
employee rate charged on consumer loans is generally 1% below
the then-current rate offered to the general public. From time
to time, the bank also makes commercial loans to entities that
may be affiliates of our officers or directors. Such commercial
loans are made on standard terms and conditions and are made at
prevailing interest rates. At December 31, 2008, the
aggregate amount of the banks loans to directors,
executive officers, affiliates of directors or executive
officers, and employees was approximately $4.1 million or
3.68% of our stockholders equity. All of these loans were
current at December 31, 2008. All of the loans to
directors, executive officers and their affiliates (a) were
made in the ordinary course of business, (b) were made on
substantially the same terms, including collateral, as those
prevailing at the time for comparable transactions with other
persons, except for the employee interest rate, fee reduction or
fee waiver and (c) did not involve more than the normal
risk of collectibility or other unfavorable features.
Independent
Registered Public Accounting Firm Fees
The following table presents fees for professional audit
services rendered by KPMG LLP for the audit of our annual
financial statements for 2008 and 2007, and fees for other
services rendered by KPMG LLP relating to these fiscal years.
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Description of Fees
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2008
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2007
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Audit Fees(1)
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$
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199,000
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$
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189,500
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Audit-Related Fees(2)
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13,650
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13,000
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Total Audit and Audit-Related Fees
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$
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212,650
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$
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202,500
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(1)
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Audit fees in 2008 and 2007 consisted of the annual audit and
quarterly reviews of our consolidated financial statements,
statutory audit, audit of internal controls over financial
reporting and assistance with and review of documents filed with
the Securities and Exchange Commission.
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(2)
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Audit-related fees in 2008 and 2007 consisted of employee
benefit plan audits.
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19
Approval
of Independent Registered Public Accounting Firm Services and
Fees
The audit committee pre-approved 100% of the services provided
by KPMG LLP, our independent registered public accounting firm.
KPMG provided no other services to the company other than those
noted above.
The audit committees current practice on pre-approval of
services performed by the independent registered public
accounting firm is to approve annually all audit services and,
on a
case-by-case
basis, recurring permissible non-audit services to be provided
by the independent registered public accounting firm during the
fiscal year. The audit committee reviews each non-audit service
to be provided and assesses the impact of the service on the
registered public accounting firms independence. In
addition, the audit committee may pre-approve other non-audit
services during the year on a
case-by-case
basis. Pursuant to a policy adopted by the audit committee,
Mr. Geisler, the chair of the audit committee, is
authorized to pre-approve certain limited non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act.
Mr. Geisler did not pre-approve any non-audit services
pursuant to this authority in 2008.
Report of
the Audit Committee
The audit committee has (i) reviewed and discussed our
audited financial statements for 2008 with our management;
(ii) discussed with our independent registered public
accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended , and as
adopted by the Public Company Accounting Oversight Board in
Rule 3200T, as currently in effect; (iii) received the
written disclosures and the letter from our independent
registered public accounting firm required by the applicable
requirements of the PCAOB regarding the independent
accountants communications with the audit committees
concerning independence; and (iv) has discussed with our
independent registered public accounting firm its independence.
Based on the review and discussions with management and our
independent registered public accounting firm referred to above,
the audit committee recommended to the board that the audited
financial statements be included in our annual report on
Form 10-K
for the fiscal year ended December 31, 2008 and filed with
the Securities and Exchange Commission.
The Audit
Committee
Allan R. DeBoer
Timothy R. Geisler
Malcolm W. McDonald
Mahlon C. Schneider
Director
Emeritus
In 1996, the board of directors established a director emeritus
program. Any retiring director who served as a director of our
company or the bank for 12 or more years could have been invited
by the board to be a director emeritus. Current directors that
retire or leave the board will not be offered the opportunity to
participate in the emeritus program, and it will cease to exist
after the remaining term of the current director emeritus
expires. A director emeritus may attend and participate in
regular meetings of the board, but may not vote. Directors
emeritus may not serve for more than five years. In
consideration for serving as a director emeritus, the individual
is paid a fee equal to the fee received by non-employee
directors during the individuals last year of service to
our company or the bank (excluding any fees paid for serving on
any committee of the board of our company or the bank). Roger P.
Weise is the only director emeritus and has served in that
capacity since 2004.
20
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 3, 2009, the
beneficial ownership of: (i) each stockholder known by
management to beneficially own more than five percent of the
outstanding common stock, (ii) each of the executive
officers listed in our summary compensation table,
(iii) each director, and (iv) all directors and
executive officers as a group. Unless otherwise indicated, the
listed beneficial owner has sole voting power and investment
power with respect to the shares of common stock and maintains
an address at 1016 Civic Center Drive N.W., Rochester, Minnesota
55901-6057.
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Amount and
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Nature of
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Percentage of
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Beneficial
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Outstanding
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Name and Address (if required) of Beneficial Owner
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Ownership
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Shares
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United States Department of the Treasury(1)
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833,333
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16.68
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%
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1500 Pennsylvania Ave., NW
Washington, D.C. 20220
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HMN Financial, Inc. Employee Stock Ownership Plan(2)
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795,340
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19.11
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%
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Jeffrey L. Gendell
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421,729
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10.01
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%
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Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
Tontine Overseas Associates, L.L.C.
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55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830(3)
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Dimensional Fund Advisors, LP (4)
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352,676
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8.47
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%
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Palisades West, Building One
6300 Bee Cave Road
Austin, TX 78746
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Directors and executive officers:
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Duane D. Benson(5)
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8,107
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*
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Allan R. DeBoer(6)
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19,700
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*
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Jon J. Eberle(7)
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20,931
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*
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Michael J. Fogarty(8)
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17,500
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*
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Timothy R. Geisler(9)
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12,301
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*
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Karen L. Himle(10)
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9,200
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*
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Dwain C. Jorgensen(11)
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65,128
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1.56
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%
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Susan K. Kolling(12)
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66,362
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1.59
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%
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Bradley C. Krehbiel(13)
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17,572
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*
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Malcolm W. McDonald(14)
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15,575
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*
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Mahlon C. Schneider(15)
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16,200
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*
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Hugh C. Smith
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All directors, director nominees and executive officers of the
Company as a group (12 persons) (16)
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268,576
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6.31
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%
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*
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Less than 1% Owned
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(1)
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Represents shares of common stock covered by a warrant that is
currently exercisable. The United States Department of the
Treasury has agreed not to exercise any voting rights with
respect to shares of our common stock issued under the warrant.
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(2)
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As reported on a Schedule 13G/A dated January 30, 2009
and filed on January 30, 2009. The amount reported
represents shares of common stock held by the HMN Financial,
Inc. Employee Stock Ownership Plan, known as the ESOP. As
reported on a Form 5 dated January 30, 2009 and filed
January 30, 2009, 320,937 of the 795,340 shares of
common stock beneficially owned by the ESOP have been allocated
to accounts of participants. First Bankers Trust Services, Inc.,
Quincy, Illinois, the trustee of the ESOP, may be deemed to
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21
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beneficially own the shares of common stock held by the ESOP.
First Bankers Trust expressly disclaims beneficial ownership of
these shares. Participants in the ESOP are entitled to instruct
the trustee as to the voting of shares of common stock allocated
to their accounts under the ESOP. Unallocated shares or
allocated shares for which no voting instructions are received
are voted by the trustee in the same proportion as allocated
shares for which instructions have been received from
participants. The ESOP has sole voting power for 474,403 of the
shares it holds, and shared voting power for 320,937 of the
shares it holds. The ESOP has sole dispositive power for 474,403
of the shares it holds, and shared dispositive power for 320,937
of the shares it holds.
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(3)
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As reported on a Schedule 13D/A dated May 28, 2003 and
filed on May 30, 2003. Tontine Financial Partners, L.P.
(TFP) holds shares of common stock directly, and
Tontine Management, L.L.C. (TM) is the general
partner to TFP. Tontine Overseas Associates, L.L.C.
(TOA) is the investment manager to TFP Overseas
Fund, Ltd., which holds shares of common stock directly.
Mr. Gendell serves as the managing member of TM and TOA.
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(4)
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As reported on a Schedule 13G/A dated February 9,
2009. Dimensional Fund Advisors, LP is an investment adviser.
The amount reported represents shares of common stock held in
various advisory accounts. No account has an interest relating
to more than 5% of the outstanding shares of common stock.
Dimensional Fund Advisors, LP exercises sole dispositive
power with respect to all the shares and sole voting power with
respect to 351,776 of the shares. In its role as investment
advisor, Dimensional Fund Advisors, LP may be deemed to be
the beneficial owner of the shares held by it. Dimensional
Fund Advisors, LP expressly disclaims beneficial ownership
of these shares.
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(5)
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Includes 3,857 shares of common stock held directly, and
4,250 shares of common stock held by Mr. Bensons
spouse.
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(6)
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Includes 4,700 shares of common stock held directly and
15,000 shares of common stock covered by options that are
currently exercisable or exercisable within 60 days of
March 3, 2009.
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(7)
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Includes 6,398 shares of common stock held directly,
1,043 shares of common stock held under the banks
401(k)
plan,
9,850 shares of common stock allocated to
Mr. Eberles account under our employee stock
ownership plan and 3,640 shares of common stock covered by
options that are currently exercisable or exercisable within
60 days of March 3, 2009.
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(8)
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Includes 1,500 shares of common stock held in a fiduciary
capacity, 1,000 shares of common stock held in a fiduciary
capacity jointly with his spouse and 15,000 shares of
common stock covered by options that are currently exercisable
or exercisable within 60 days of March 3, 2009.
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(9)
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Includes 365 shares of common stock held jointly with his
spouse, 1,293 shares of common stock held by
Mr. Geislers IRA account, 143 shares of common
stock held in Mr. Geislers spouses IRA account
and 10,500 shares of common stock covered by options that
are currently exercisable or exercisable within 60 days of
March 3, 2009.
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(10)
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Includes 200 shares of common stock held directly and
9,000 shares of common stock covered by options that are
currently exercisable or exercisable within 60 days of
March 3, 2009.
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(11)
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Includes 37,047 shares of common stock held directly,
2,150 shares of common stock held by the IRA account of
Mr. Jorgensens spouse, 5,200 shares of common
stock under the banks 401(k) plan, 17,151 shares of
common stock allocated to Mr. Jorgensens account
under our employee stock ownership plan and 3,580 shares of
common stock covered by options that are currently exercisable
or exercisable within 60 days of March 3, 2009.
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(12)
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Includes 40,721 shares of common stock held directly,
14,671 shares of common stock allocated to
Ms. Kollings account under our employee stock
ownership plan, 7,190 shares of common stock held under the
banks 401(k) plan and 3,780 shares of common stock
covered by options that are currently exercisable or exercisable
within 60 days of March 3, 2009.
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(13)
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Includes 6,433 shares of common stock held directly,
6,599 shares of common stock allocated to
Mr. Krehbiels account under our employee stock
ownership plan and 4,540 shares of common stock covered by
options that are currently exercisable or exercisable within
60 days of March 3, 2009.
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(14)
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Includes 2,675 shares of common stock held directly, of
which 2,675 are pledged as security, 900 shares held in
Mr. McDonaldss IRA, and 12,000 shares of common
stock covered by options that are currently exercisable or
exercisable within 60 days of March 3, 2009.
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22
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(15)
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Includes 1,200 shares of common stock held directly and
15,000 shares of common stock covered by options that are
currently exercisable or exercisable within 60 days of
March 3, 2009.
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(16)
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|
Includes shares of common stock held directly, as well as shares
of common stock held jointly with family members (if these
shares are deemed to be beneficially owned by the director or
officer), shares of common stock held in retirement accounts,
shares of common stock held by these individuals in their
accounts under the banks 401(k) plan, shares of common
stock allocated to the ESOP accounts of the group members,
shares of common stock held in a fiduciary capacity or by
certain family members and shares covered by options that are
currently exercisable or exercisable within 60 days of
March 3, 2009, with respect to which shares the persons
included may be deemed to have sole or shared voting and/or
investment power.
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2008
DIRECTOR COMPENSATION
All of our directors also serve as directors of our banking
subsidiary. During 2008, non-employee members of our board of
directors were paid the following combined cash fees for their
services to us and our banking subsidiary:
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Description of Fees
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Chairman of
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Non-employee
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Chairman of the
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Other Committee
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the Board
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Directors
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Audit Committee
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Chairs
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Monthly fee
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$3,333
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|
|
|
$1,250
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|
|
|
|
|
|
|
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Board meeting attendance fee
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|
$1,000
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|
|
|
$500
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|
|
|
|
|
|
|
|
|
Audit Committee attendance fee
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|
|
|
|
|
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$500
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|
|
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$1,500
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|
|
|
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Other board committee attendance fees
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|
|
|
|
|
$300
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|
|
|
|
|
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$900
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Due to the fee schedule set forth above, our non-employee
directors received the following total compensation for 2008 for
their service on our board of directors:
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Fees Earned
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Option
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or Paid in
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Awards
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Non-Employee Director
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Cash ($)(1)
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($)(2)
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Total ($)
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Duane D. Benson
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$
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23,700
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$
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|
|
$
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23,700
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Allan R. DeBoer
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|
|
29,700
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|
|
|
|
|
|
|
29,700
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Michael J. Fogarty
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|
|
29,650
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|
|
|
|
|
|
|
29,650
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Timothy R. Geisler
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|
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61,600
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|
|
|
|
|
|
|
61,600
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Karen L. Himle
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|
|
23,700
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|
|
|
6,261
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|
|
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29,961
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Malcolm W. McDonald
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33,400
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|
|
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3,963
|
|
|
|
37,363
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Mahlon C. Schneider
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26,500
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|
|
|
|
|
|
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26,500
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(1)
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We allow directors to defer receipt of their fees until January
30 of the calendar year immediately following the date in which
they cease to be a member of the board. We pay deferred fees
over a yearly period of ten years or less. Deferred fees earn
interest at a rate equal to our bank subsidiarys cost of
funds on November 30 of each year in which the fees are
deferred. A director who is one of our employees receives no
separate compensation for services as a director. At
December 31, 2008, Mr. DeBoer had a deferred fee
balance of $200,259 and Mr. Schneider had a deferred fee
balance of $126,631.
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(2)
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The amount reported is the compensation expense recognized in
our financial statements for 2008 pursuant to
SFAS No. 123(R). In accordance with
SFAS No. 123(R), we determine the fair value of
options awards at the date of grant and recognize the expense of
the options for financial reporting purposes over the vesting
period. For options awarded in 2005, the most recent year in
which we granted stock options, the fair values of option grants
were estimated on the date of grant using a Black Scholes option
valuation model based on the following assumptions: 4.03%
risk-free interest rate; 9 year expected life; 8.75%
expected volatility; and 2.9% expected dividends. We granted
15,000 options to each director when they became a member of the
board. Options outstanding at December 31, 2008 totaled 0
for Mr. Benson, 10,500 for Mr. Geisler and 15,000 for
each of the other directors. The exercise prices of the
outstanding options range from $11.25 to $30.00. No director
received any option grants in 2008.
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23
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
We have not paid any compensation to our executive officers
since our formation. We do not anticipate paying any
compensation to these officers until we become actively involved
in the operation or acquisition of businesses other than our
banking subsidiary. The following discusses the compensation
paid or accrued by our banking subsidiary for services rendered
by our principal executive officer, principal financial officer
and our three most highly compensated other executive officers
for 2008. We sometimes refer to the executive officers as the
named executive officers.
The compensation committee of our board of directors establishes
and administers the compensation and benefits program for
executive officers and directors. The compensation committee has
designed our executive compensation program to achieve the
following primary goals:
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to attract and retain a highly qualified and coordinated
workforce of executives who have the skills, experience and work
ethic required to effectively achieve our goals and
objectives; and
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to align executives interests with the creation and
maintenance of long-term stockholder value.
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Two recent developments have impacted our compensation programs
and procedures. First, on December 23, 2008, we issued
securities to the United States Treasury under the CPP. Under
the CPP, we and our senior executive officers must comply with
certain limitations on executive compensation pay and practices
throughout the time the Treasury holds our securities that it
purchased under the CPP. The compensation provisions of the
legislation under which the CPP is authorized were amended
significantly effective February 17, 2009, and implementing
regulations have not yet been issued. See Impact of the
Capital Purchase Program on Compensation Matters on the
following pages. Second, on January 28, 2009, Michael
McNeil, our former President and Chief Executive Officer
resigned from all positions with our company and the bank, and
Bradley C. Krehbiel was appointed President of the bank. Through
that appointment, Mr. Krehbiel became our principal
executive officer. The following discussion and analysis
generally applies to our compensation programs and procedures as
they were in effect for 2008, and to the extent permitted by the
limitations under the CPP, as they currently would remain.
However, based on the recent developments discussed above, we
anticipate that modifications to our compensation programs and
procedures will be required in 2009. The regulatory environment
related to the CPP continues to evolve, and extent of the
modifications that we will be required to make to our
compensation programs and procedures remains pending.
The committee seeks to achieve the goals of our executive
compensation program by providing for a competitive base salary,
short-term cash incentives and intermediate and long-term equity
awards. Base salaries generally represent one-half to two-thirds
of our executives total annual potential compensation
(which consists of base salary, cash bonus potential and the
grant date value of equity compensation awards granted in a
particular year). The committees philosophy is that base
salaries are a significant retention element of compensation,
and that our base salaries should be competitive with those of
similar sized financial institutions that have operating results
similar to ours. The remainder of our executives annual
potential compensation is divided between cash incentives and
equity awards. Cash incentives are a discretionary element of
compensation that the committee uses to reward executives for
performance, including contributions to company performance,
that is consistent with the creation and maintenance of
intermediate and long-term stockholder value. Equity awards are
designed to promote the retention of executives and to align
their interests with the creation and maintenance of
intermediate and long-term stockholder value. The compensation
committee seeks to blend the elements of the compensation
program so that base salaries provide competitive compensation
for short-term retention purposes, incentive elements of
compensation (incentive bonuses and the appreciation potential
of equity awards) provide sufficient incentives to motivate
executives to achieve business objectives that will lead to the
creation and maintenance of intermediate and long-term
stockholder value and time-based elements of compensation
(time-based vesting of equity awards) provide sufficient
incentives for long-term executive retention and encourage
executives to have a long-term perspective in creating and
maintaining stockholder value.
In designing our compensation programs, we consider, as
ancillary matters, the accounting treatment in our financial
statements and the tax impact on us of various potential
elements of compensation. We also consider, as
24
ancillary matters, the tax impact, including the timing of
taxation, on our executives of various potential elements of
compensation. In the past, we have modified the mix of our
compensation elements based on changes in financial accounting
treatment (such as changing the nature of equity compensation
awards partially in response to changes in accounting for equity
compensation) and included compensation elements with favorable
tax treatment for our employees (such as employer 401(k)
contributions), and we may do so again in the future. However,
we do not consider accounting and tax matters as primary factors
in managing our compensation program. Our chief financial
officer and his staff, together with outside professionals,
assist the compensation committee in evaluating the financial
accounting and tax treatment of existing and potential elements
of our executive compensation program.
The compensation committee consists exclusively of independent
non-employee directors. The committee has the authority to
retain compensation consultants to assist in the evaluation of
executive officer compensation. In 2008, the committee did not
engage an independent compensation consultant.
The committee directs our chief financial officer and his staff
to perform an annual survey of executive compensation at similar
sized financial institutions with similar operating results
based on public filings to assist it in determining executive
compensation. The survey includes base salaries, bonuses,
restricted stock awards, option awards, other compensation and
total compensation, all as reported in public filings. The
committee reviews executive compensation information from
financial institutions that are similar to ours as the
information helps the committee members assess whether elements
of our executive compensation program are competitive and
understand the elements, mix of elements and range in
compensation amounts attributable to various elements of
compensation paid by similar financial institutions. In
determining the 2008 compensation amounts, the committee
considered publicly available compensation data for banks and
thrifts with assets between $750 million and
$1.5 billion with return on asset ratios of .75%-1.25% and
return on equity ratios of 7.5%-12.5%. In 2007, the year for
which financial results were available when we identified
comparable companies, we had assets of $1.0 billion, a
return on assets ratio of 1.0% and a return on equity ratio of
10.93% based on an average of the three most recent years. In an
attempt to focus the survey on the midrange of the competitive
market and reduce wide variances, we eliminated from each
executive officers survey the five financial institutions
with the highest total compensation amounts and the five
financial institutions with the lowest compensation amounts. The
financial institutions included in the annual survey were
Atlantic Southern Financial Group, Inc., Bar Harbor Bankshares,
Centrue Financial Corporation, Citizens & Northern
Corporation, Community Capital Corporation, Crescent Banking
Company, Eagle Bancorp, Inc., Eastern Virginia Bankshares, Inc.,
Enterprise Bancorp, Inc., First National Lincoln Corporation,
First Security Group, Inc., German American Bancorp, Inc.,
MetroCorp Bancshares, Inc., Northrim BanCorp, Inc., PAB
Bankshares, Inc., Peapack-Gladstone Financial Corporation,
Peoples Financial Corporation, Porter Bancorp, Inc., Pulaski
Financial Corp., Severn Bancorp, Inc., Wilber Corporation and
WGNB Corporation. The survey included data from these companies
on base salaries, bonuses, restricted stock awards, option
grants and other compensation.
For 2008, the committee established the annual compensation
program for the chief executive officer after evaluating his
performance prior to the beginning of the year. The chairman of
our compensation committee developed a preliminary compensation
package for the chief executive officer prior to the beginning
of 2008. The chairman reviewed the preliminary compensation
package with the other committee members before presenting it to
the chief executive officer. After incorporating input from the
committee, the chairman reviewed the proposed compensation
package with the chief executive officer, and they engaged in a
dialogue regarding the elements and magnitude of the plan. This
dialogue took place over the period of several weeks. Throughout
the dialogue, the chairman consulted with other members of the
committee as he deemed necessary. Once the chairman had
considered the input of the chief executive officer, and made
any revisions to the proposed compensation package that he
considered appropriate, the chairman presented the proposed
compensation package to the full compensation committee for
approval. The chief executive officer proposed the 2008 annual
compensation programs for each of our other executive officers,
and the committee evaluated and approved or modified those
compensation programs.
Our annual financial performance against our budget is one of
the factors the compensation committee considers when evaluating
executive compensation. Our budget generally is historically
based and is driven extensively by our interest rate model. Our
annual budget is prepared by our chief financial officer and his
staff. Versions of the budget are reviewed with, and adjustments
are proposed by, our senior management, including our
25
principal executive officer, in an iterative process. Management
attempts to develop a budget that is appropriate and attainable.
After our senior management approves the annual budget, it is
presented to, and approved by, the full board of directors.
In acting on the compensation programs for executive officers,
the committee considers many factors, including the results of
the annual survey of executive compensation, our overall
performance compared to expected results and the contributions
of the executive to achieving our strategic goals. Although we
do not have formal stock ownership guidelines, the committee
does consider the value and vesting timetable of outstanding
equity awards held by executive officers in determining the
timing and amount of new equity awards. While the committee may
from time to time establish specific objectives for the receipt
of incentive compensation, our compensation program is
essentially a discretionary system in which the committee uses
annual compensation survey data and draws upon the business
experience, business judgment and general knowledge of its
members to evaluate compensation matters collaboratively and
subjectively.
Elements
of Compensation
Executive compensation includes the following elements:
Base Salary.
The base salary amount is
the fixed portion of each executives annual compensation
and typically represents 50%-70% of an executives total
annual potential compensation. Salary levels are based primarily
on the executives responsibilities and experience and the
market compensation paid by similar sized financial institutions
for similar positions, as indicated in the annual compensation
survey prepared for the committee. Base salaries are reviewed
annually, and adjusted from time to time to realign salaries
with market levels after taking into account individual
responsibilities, performance and experience. While we intend
for our overall compensation packages, including the base salary
element, to be competitive, our base salaries generally are
below the mid-point of the range of base salaries for comparable
positions reflected in the annual compensation survey prepared
for the committee. Lower base salaries allow us to weight
compensation more to discretionary elements of compensation so
that we can vary compensation based on performance, including
company performance.
Chief Executive Officer 2008 Non-Equity Incentive
Plan.
The committee established a non-equity
incentive plan as a short-term incentive for our chief executive
officer for 2008. The plan was based on the achievement of
annual financial and non-financial objectives, which were
established by the committee, after consultations with our chief
executive officer, at the beginning of 2008. The allocation of
incentives between financial and non-financial objectives for
the 2008 plan was split 25% for attainment of budgeted net
income (which would have represented an increase of net income
in 2008 of 5.1% from 2007 net income adjusted by
approximately $3.6 million for items considered
nonrecurring and expected changes in net interest income) and
75% for attainment of strategic objectives. Strategic objectives
included reducing our required provision for loan losses below
the budgeted amount (which would have represented a decrease of
more than 30% from the 2007 provision), increasing deposits
other than certificates of deposit by more than 3.5% from their
2007 levels, meeting or exceeding the budget amount of
non-interest income (which was essentially equivalent to 2007
non-interest income excluding approximately $1.0 million of
non-interest income considered nonrecurring) and meeting
performance objectives for specified market segments and bank
branch offices.
Under the 2008 plan, our chief executive officer was eligible to
receive a bonus of $50,000 for attaining budgeted net income.
Our chief executive was also eligible to receive a bonus up to
$150,000 for attaining certain strategic objectives. Our chief
executive officer received no payments under the non-equity
incentive plan for 2008.
Chief Executive Officer Discretionary Annual
Bonus.
Our chief executive officer was
eligible to receive a discretionary bonus. In evaluating whether
to award our chief executive officer a discretionary bonus, and
the amount of that bonus, the committee considered payment, if
any, under his non-equity incentive plan, trends in our
financial performance over multi-year time horizons, the
importance of continuity and stability in the chief executive
officer position to developing and implementing sound long-term
strategic plans, and the chief executive officers
contributions to non-financial aspects of our business such as
enhancing our reputation and maintaining a favorable corporate
culture. Any bonus amount was to be paid in cash in an amount
reviewed and approved by the
26
committee in a single installment during the first quarter of
the year after the bonus was earned. Our chief executive officer
received no discretionary bonus for 2008
Non-Chief Executive Officer Discretionary Annual
Bonus.
The committee has the authority to
award discretionary annual bonuses to our non-chief executive
officers. These bonuses are intended to compensate executive
officers based on our financial and operating performance, and
are determined after considering the individual performance of
the executive officers for the prior year. No discretionary
bonuses were awarded to our non-chief executive officers for
2008.
Any non-chief executive bonus amounts are paid in cash in an
amount reviewed and approved by the committee in a single
installment during the first quarter of the year after the bonus
is earned. The amount of the executive officers bonus
potential is generally based on a percentage of the
executives base salary. The amount of each executive
officers bonus potential is communicated to him or her at
the beginning of each year, but no firm bonus criteria are
established. Also, the committee retains the authority to have
bonuses paid in excess of the pre-established percentage of the
executives base salary. The bonus amounts are fully
discretionary, but the committee generally exercises that
discretion based on our financial performance relative to
budgeted net income, general market and economic conditions, as
well as an evaluation of the executives personal
performance.
Restricted Stock Grants.
The issuance
of restricted stock is designed to provide an intermediate-term
retention incentive for executives, align executives
interests with the creation and maintenance of long-term
stockholder value and reward executives for managing our
performance to increase stockholder value. Restricted stock
grants are intermediate-term retention incentives because they
generally vest over a three-year period and require continued
employment by the executive during the vesting period.
Restricted stock provides a stronger retention incentive than
stock options, which also vest over time, because executives are
assured of realizing value as restricted stock vests over time,
although that value will vary based on the trading price of the
stock at the time of vesting. With stock options, executives
only realize value over time if the price of the stock increases
from the option exercise price. The committees philosophy
is that restricted stock grants also may encourage executives to
balance the risks of losses in stockholder value against the
potential for gains in stockholder values when evaluating
business decisions. If executives receive only stock options as
equity incentive awards, they may adopt higher-risk business
strategies in an attempt to increase their companys stock
price because the only loss they suffer if the strategies fail
and their companys stock price declines is the loss of the
potential for value from the option. When executives hold
restricted stock, they share in the loss of value realized if
the stock price declines. As a result, the executives may adopt
strategies that strike a better balance between the potential
for stock price appreciation and the risk that a failed strategy
will lead to a stock price decline. The committee recommended
adoption of the HMN Financial, Inc. 2009 Equity Incentive Plan
to the board of directors in part to permit the continued use of
restricted stock grants as an element of compensation.
The committee began using restricted stock grants as an element
of fulfilling the equity ownership objective of the overall
compensation program in 2004, when the accounting requirements
for expensing stock options changed and the difference in the
financial statement impact between granting awards of restricted
stock and granting option awards was reduced. The committee also
determined that the long-term vesting requirements of
outstanding stock options adequately fulfilled the long-term
incentive portion of the compensation plan and that
intermediate-term incentives were needed to complement the other
types of compensation issued to executive officers.
Stock Options.
The committees
philosophy is that part of the financial rewards and incentives
for executive officers should come from increases in the value
of our common stock. The issuance of stock options is designed
to reward executives for favorable long-term performance of our
stock. Stock options are a long-term incentive as they generally
vest over a three to ten-year period and are exercisable up to
ten years from the grant date. Because they are a long-term
incentive, stock options encourage the long-term employment of
executives which is important to ensure the continuity of our
business operations. Beginning in 2004, the committee began
issuing restricted stock grants as an equity incentive instead
of stock options due, in part, to the relatively long remaining
vesting and exercise periods of the then outstanding stock
options. No stock options have been issued to executive officers
in the past four years. It is anticipated that, subject to CPP
limitations, we will continue to use stock options as a
long-term incentive for executives and that the committee in its
discretion will grant new stock options as the remaining vesting
and exercise periods for outstanding options decreases. The
committee historically made stock option grants
27
in the first quarter of the year, after our fiscal results were
released, but prior to our first quarter results being known.
The committee may make option grants at other times based on
individual circumstances, but will not time option grants based
on favorable or unfavorable information about our operations or
prospects. The committee recommended adoption of the HMN
Financial, Inc. 2009 Equity Incentive Plan to the board of
directors in part to permit the continued use of stock options
as an element of compensation.
Employee Stock Ownership Plan
(ESOP).
Our executive officers participate on
a nondiscriminatory basis in our ESOP. All of our employees are
eligible to participate in the ESOP after they complete one year
of service as defined by the plan. The ESOP holds shares that
secure a loan for the funds that were used to acquire the ESOP
shares. Each year the security interest is released from a fixed
number of shares as a fixed amount of the loan is amortized. The
shares that are released from the security interest are
allocated to eligible participant accounts based on the
percentage of the participants compensation (subject to
limits) to the entire compensation of all plan participants. The
value of the ESOP contributions generally has represented
between 6%-12% of each executives base salary amount. In
2008, the value of the ESOP contributions decreased
significantly due to the decline in our share price. The
committee considers the value of the ESOP contributions when it
establishes annual compensation amounts and when it considers
the mix between cash and equity compensation. The committee also
considers the value of the ESOP contributions when evaluating
the total compensation of our executives relative to the
compensation of other executives at similar companies.
Other In-Service
Compensation.
Executive officers participate
on an equal, nondiscriminatory basis with all other employees in
our medical insurance plan, medical reimbursement plan,
childcare plan, long-term disability plan and group life
insurance plan. Historically, we have awarded nominal cash
bonuses annually to all employees, including our executives,
based upon years of service. In the past, we also provided
Mr. Krehbiel and Ms. Kolling with use of a company car
as their jobs require extensive travel, however we have
discontinued this practice. The committee considers all of the
benefits granted to executives when determining executive
compensation amounts and comparing compensation amounts to other
executives at similar companies.
Post-Service Compensation.
The
committees philosophy is that post-service compensation
contributes to executive retention. We therefore allow all
employees and executives to participate, on a nondiscriminatory
basis, in a 401(k) plan with a 25% match on employee
contributions up to 8% of the employees salary. Upon
retirement from our company, all employees, including executive
officers, are eligible to withdraw their balance from the 401(k)
plan and ESOP in accordance with the plans, and to receive any
benefit payments to which they are eligible from our defined
benefit pension plan. If an executive retires after
15 years of service, we will continue to pay the employer
portion of his or her health insurance coverage until he or she
reaches the age of 65. The committee considers post-service
compensation when determining executive compensation amounts,
but our compensation programs are designed primarily on
in-service compensation.
We also have entered into
change-in-control
agreements with our executive officers that, subject to CPP
requirement, may provide post-service compensation to executive
officers if their employment is terminated following a change in
control of our company. The committees philosophy is that
change-in-control
agreements are appropriate to induce executives to remain with
our company in the event of a proposed or anticipated change in
control or through a change in control to facilitate an orderly
transition to new ownership. The
change-in-control
agreements also assist us in recruiting and retaining executives
by providing executives with appropriate economic security,
given the relatively limited number of alternative employers in
our industry and geographic area, against loss of employment
following a change in control.
Recovery
of Performance-Based Compensation
The Sarbanes-Oxley Act requires recovery of certain incentive
and equity compensation from our principal executive officer and
principal financial officer in the event of restatement of
financial results due to misconduct. The audit committee is
responsible for determining if bonus or stock compensation paid
to the principal executive officer or principal financial
officer should be recovered in the event of a restatement.
28
Impact of
the Capital Purchase Program on Compensation Matters
Restrictions on Compensation.
On
December 23, 2008, we issued securities to the United
States Treasury under the CPP. Under the CPP, we and our senior
executive officers must comply with certain limitations on
executive compensation pay and practices throughout the time the
Treasury holds our securities. These include the following
requirements:
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our compensation committee must review within 90 days of
the Treasurys purchase of our securities incentive
compensation arrangements for our named executive officers with
our senior risk officers to assess and limit arrangements which
encourage unnecessary or excessive risks that could
threaten the value of our company; the compensation committee
also must meet annually with the senior risk officer to discuss
and review the relationship between our companys risk
management policies and practices and the named executive
officers incentive compensation arrangements; and the
compensation committee must certify to the foregoing in our
proxy statement;
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any named executive officer bonus or incentive compensation paid
must be subject to recovery by the company if the payments were
based on materially inaccurate financial statements or any other
materially inaccurate performance metric;
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we may not make any compensation payment to a named executive
officer on account of an involuntary severance from employment
or in the event of our receivership to the extent the aggregate
present value of such payments equals or exceeds three times
that persons annual compensation computed in accordance
with Section 280G(e) of the Internal Revenue Code; and
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we may not claim a deduction in an applicable tax year for
federal income tax purposes from remuneration in excess of
$500,000, as calculated in accordance with
Section 162(m)(5) of the Internal Revenue Code.
|
In addition, on February 17, 2009, the American Recovery
and Reinvestment Act of 2009, or ARRA, was signed into law. The
ARRA provides that the Secretary of Treasury will require each
CPP participant to meet appropriate standards for executive
compensation and corporate governance. Those appropriate
standards must include:
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limits on compensation that exclude incentives for senior
executive officers of CPP participants to take unnecessary
or excessive risks that could threaten the value of the
CPP participant;
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a provision for the recovery by CPP participants of any bonus,
retention award, or incentive compensation paid to a senior
executive officer and any of the next 20 most highly compensated
employees of the CPP participant based on statements of
earnings, revenues, gains or other criteria that are later found
to be materially inaccurate;
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a prohibition on CPP participants making any payment (except
payments for services performed or benefits accrued) to a senior
executive officer or any of the five most highly compensated
employees of the CPP participant for departure from the CPP
participant for any reason;
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a prohibition against a CPP participant paying or accruing any
bonus, retention award, or incentive compensation, except for
long-term restricted stock with a value not greater than
one-third of annual compensation that does not fully vest during
the period in which any obligation arising from the financial
assistance provided to the CPP participant remains outstanding,
for (at our level of participation in the CPP) the five most
highly compensated employees of the CPP participant; and
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a prohibition on any compensation plan that would encourage
manipulation of the reported earnings of the CPP participant to
enhance the compensation of any of its employees.
|
Each of the requirements listed above will impact the design of
our compensation programs and arrangements for our executive
officers so long as the Treasury holds our securities and
potentially beyond that period. However, the Treasury has not
issued implementing regulations governing these new required
standards, which vary in certain material respects from
previously existing requirements. The extent and nature of the
impact of these new requirements on our compensation programs
and arrangements remains under consideration as the regulatory
environment related to the CPP continues to evolve. Our
compensation programs and procedures for 2009 will be determined
following publication of additional regulatory guidance.
29
Recovery of Incentive
Compensation.
Pursuant to existing Treasury
regulations, all bonuses and other incentive compensation
arrangements with our senior executive officers have been
amended to provide that during the time the Treasury holds a
position in our shares, we may recover any payments that were
based on materially inaccurate financial statements or any other
materially inaccurate performance metrics used to award bonuses
or incentive compensation. The right to recover these payments
is not dependant upon the occurrence of a restatement of our
financial results or of any misconduct.
Restriction on Payment of Golden
Parachutes.
Also pursuant to existing
Treasury regulations, arrangements with our senior executive
officers have been amended to prohibit, while the Treasury
maintains its investment in our securities, any compensation
payment to a named executive officer on account of an
involuntary severance from employment or in the event of our
receivership to the extent that the aggregate present value of
such payments equals or exceeds three times that persons
annual compensation computed in accordance with
Section 280G(e) of the Internal Revenue Code.
Safeguards Against Unnecessary or Excessive
Risk.
As noted above, under requirements
related to the CPP, the compensation committee must review
senior executive officer incentive compensation with our senior
risk officer to assess whether those arrangements encourage
unnecessary or excessive risks to our company. The
risk assessment must be done no later than 90 days after
the Treasurys purchase of our shares. Additionally, the
compensation committee also must meet annually with the senior
risk officer to discuss and review the relationship between our
companys risk management policies and practices and the
named executive officers incentive compensation
arrangements. The term senior executive officer is
defined as the chief executive officer, chief financial officer,
and the three other most highly compensated executive officers.
These senior executive officers are our named executive
officers, as defined above.
Our compensation committee has met with our senior risk officer
to undertake the foregoing discussions and reviews relating to
incentive compensation for our named executive officers. Based
on, among other factors, its assessment of the principal risks
to which our company is subject, its evaluation of the existing
compensation arrangements for our named executive officers, the
relatively significant portion of total compensation represented
by base salary as opposed to variable forms of compensation, the
discretion to award incentive compensation exercisable by the
company, the customary use of non-financial objectives in
determining a significant portion of any bonus compensation, the
use of restricted stock as a significant component of equity
incentive compensation and the sole component in recent years,
the required vesting periods included in equity awards and the
clawback requirements to which incentive compensation is now
subject, the compensation committee concluded that our incentive
compensation for our named executive officers does not encourage
unnecessary or excessive risk that would threaten the value of
our company.
COMPENSATION
COMMITTEE REPORT
The compensation committee certifies that it has reviewed with
senior risk officers the named executive officer incentive
compensation arrangements and has made reasonable efforts to
ensure that such arrangements do not encourage named executive
officers to take unnecessary and excessive risks that threaten
the value of our company; and met to discuss and review the
relationship between our risk management policies and practices
and the incentive compensation arrangements for our named
executive officers.
The compensation committee has discussed and reviewed the
compensation discussion and analysis with management. Based upon
this review and discussion, the compensation committee
recommended to the board of directors that the compensation
discussion and analysis be included in this proxy statement.
Members of the Compensation Committee
Duane D. Benson
Allan R. DeBoer
Michael J. Fogarty
Karen L. Himle
30
2008
EXECUTIVE COMPENSATION
Summary
Compensation Table
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Non-Equity
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Stock
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Option
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All Other
|
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Salary
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Bonus
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Incentive
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Awards
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Awards
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Compensation
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Name and Principal Position
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Year
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($)
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($)(3)
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Plan($)
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($)(4)
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($)(4)
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($)(5)
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Total ($)
|
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Michael McNeil(1)
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2008
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338,000
|
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|
150
|
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0
|
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|
105,829
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4,592
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22,733
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471,304
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President and Chief
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2007
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325,000
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45,150
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120,000
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88,433
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5,297
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34,089
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617,969
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Executive Officer
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2006
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310,000
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50,150
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0
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51,452
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5,574
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36,141
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453,317
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Jon J. Eberle
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2008
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142,000
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150
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0
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44,310
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1,713
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7,713
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195,886
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Senior Vice President,
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2007
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136,500
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33,593
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0
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35,452
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1,872
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17,489
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224,906
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Chief Financial Officer
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2006
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130,000
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24,525
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0
|
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18,473
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2,960
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20,893
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196,851
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and Treasurer
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|
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Dwain C. Jorgensen
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2008
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112,300
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|
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150
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0
|
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35,548
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2,170
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6,505
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156,673
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Senior Vice President,
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2007
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109,000
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26,855
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0
|
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|
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29,997
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|
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2,314
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|
|
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14,194
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182,360
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Technology, Facilities and
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2006
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105,825
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19,992
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0
|
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16,389
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3,298
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17,840
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163,344
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Compliance Services
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Susan K. Kolling
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2008
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119,300
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150
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0
|
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37,441
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1,599
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12,469
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170,959
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Senior Vice President,
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2007
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114,738
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28,261
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0
|
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31,398
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1,770
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19,391
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195,558
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Business Development
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2006
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110,325
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|
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20,863
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|
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0
|
|
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16,789
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2,929
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|
|
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18,838
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169,717
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Bradley C. Krehbiel(2)
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2008
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160,700
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150
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0
|
|
|
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50,502
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2,059
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15,291
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228,702
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Executive Vice President,
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2007
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154,500
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38,003
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0
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41,693
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2,260
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|
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24,464
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260,920
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Business Banking
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2006
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150,000
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20,150
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0
|
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22,415
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3,629
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|
|
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28,397
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224,591
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(1)
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Mr. McNeil resigned from all positions with our company on
January 28, 2009.
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(2)
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Mr. Krehbiel was appointed President of our banking
subsidiary on January 28, 2009. He served as Executive Vice
President, Business Banking of our banking subsidiary for the
periods presented.
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(3)
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We generally pay bonuses for a fiscal year in the first quarter
of the following fiscal year. The bonus amounts include a
customary $150 annual holiday bonus.
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(4)
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The amount reported is the compensation expense recognized in
our financial statements pursuant to SFAS No. 123(R).
In accordance with SFAS No. 123(R), we determine the
fair value of options awards or restricted stock awards at the
date of grant and recognize the expense for financial reporting
purposes over the vesting period. For options awarded in 2005,
the most recent year in which we granted stock options, the fair
values of option grants were estimated on the date of grant
using a Black Scholes option valuation model based on the
following assumptions: 4.03% risk-free interest rate;
9 year expected life; 8.75% expected volatility; and 2.9%
expected dividends. For restricted stock awards we use the
average grant date stock price.
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(5)
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All other compensation consists of the following:
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31
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|
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|
|
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Dividends Received
|
|
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|
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|
|
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Employer 401(k)
|
|
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Value of Common
|
|
|
Employer Paid Life
|
|
|
on Vested
|
|
|
Perquisites and
|
|
|
|
|
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Contribution
|
|
|
Stock Allocated to
|
|
|
Insurance Premiums
|
|
|
Restricted Stock
|
|
|
Other Personal
|
|
|
|
|
Name
|
|
($)
|
|
|
ESOP ($)
|
|
|
($)
|
|
|
($)
|
|
|
Benefits ($)(a)
|
|
|
Total ($)
|
|
|
Michael McNeil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
4,600
|
|
|
|
2,755
|
|
|
|
664
|
|
|
|
5,069
|
|
|
|
9,645
|
|
|
|
22,733
|
|
2007
|
|
|
4,500
|
|
|
|
18,756
|
|
|
|
619
|
|
|
|
2,293
|
|
|
|
7,921
|
|
|
|
34,089
|
|
2006
|
|
|
4,500
|
|
|
|
23,745
|
|
|
|
562
|
|
|
|
702
|
|
|
|
6,632
|
|
|
|
36,141
|
|
Jon J. Eberle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
3,543
|
|
|
|
2,122
|
|
|
|
74
|
|
|
|
1,974
|
|
|
|
0
|
|
|
|
7,713
|
|
2007
|
|
|
3,262
|
|
|
|
13,262
|
|
|
|
104
|
|
|
|
861
|
|
|
|
0
|
|
|
|
17,489
|
|
2006
|
|
|
2,983
|
|
|
|
17,492
|
|
|
|
173
|
|
|
|
245
|
|
|
|
0
|
|
|
|
20,893
|
|
Dwain C. Jorgensen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2,779
|
|
|
|
1,664
|
|
|
|
335
|
|
|
|
1,727
|
|
|
|
0
|
|
|
|
6,505
|
|
2007
|
|
|
2,581
|
|
|
|
10,525
|
|
|
|
304
|
|
|
|
784
|
|
|
|
0
|
|
|
|
14,194
|
|
2006
|
|
|
3,269
|
|
|
|
14,210
|
|
|
|
121
|
|
|
|
240
|
|
|
|
0
|
|
|
|
17,840
|
|
Susan K. Kolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2,975
|
|
|
|
1,782
|
|
|
|
241
|
|
|
|
1,803
|
|
|
|
5,668
|
|
|
|
12,469
|
|
2007
|
|
|
2,738
|
|
|
|
11,113
|
|
|
|
335
|
|
|
|
819
|
|
|
|
4,386
|
|
|
|
19,391
|
|
2006
|
|
|
2,752
|
|
|
|
14,814
|
|
|
|
130
|
|
|
|
250
|
|
|
|
892
|
|
|
|
18,838
|
|
Bradley C. Krehbiel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
3,875
|
|
|
|
2,396
|
|
|
|
134
|
|
|
|
2,369
|
|
|
|
6,517
|
|
|
|
15,291
|
|
2007
|
|
|
3,629
|
|
|
|
14,375
|
|
|
|
189
|
|
|
|
1,061
|
|
|
|
5,210
|
|
|
|
24,464
|
|
2006
|
|
|
2,517
|
|
|
|
20,178
|
|
|
|
216
|
|
|
|
316
|
|
|
|
5,170
|
|
|
|
28,397
|
|
|
|
|
(a)
|
|
Perquisites and other personal benefits include cash payments
for country club dues and the use of company cars.
|
Employment
Agreement
We entered into an employment agreement with Mr. McNeil on
May 27, 2008. The agreement provided for an initial base
salary of $338,000 but was subject to a potential annual upward
adjustment based on a review of Mr. McNeils
performance by the compensation committee of our board.
Mr. McNeils annual base salary prior to his
resignation was $338,000. The agreement had an initial term of
three years. On April 30 of each year, the term was to
automatically extend for a period of twelve months in addition
to the then-remaining term of employment, unless any party to
the agreement gives contrary written notice or under certain
other circumstances. At the time of Mr. McNeils
resignation, the term of the agreement extended through
December 31, 2010. Under the circumstances of his
resignation, but subject to any current or future applicable
limitations under the CPP, Mr. McNeil will continue to
receive his salary and a reimbursement for the cost of premiums
to maintain the same level of health insurance coverage as he
was receiving before the date of termination through the
remaining term of the agreement.
Change-In-Control
Agreements
Our banking subsidiary entered into a
change-in-control
agreement with Mr. McNeil as of May 27, 2008, which
remained effective until his resignation. The circumstances of
Mr. McNeils resignation did not entitle him to any
payment under his
change-in-control
agreement. Each of Messrs. Eberle, Krehbiel and Jorgensen
and Ms. Kolling entered into a
change-in-control
agreement with our banking subsidiary as of May 27, 2008.
These agreements expire on May 30, 2010, but they provide
for an automatic extension for one year and from year to year
thereafter unless either applicable party gives contrary written
notice 180 days prior to the expiration date each year. The
current term of the agreements extends through May 30,
2010. These agreements are designed to assist us in maintaining
a stable and competent management team. The agreements provide
for a cash payment equal to a percentage of the employees
prior year base salary and bonus prior to termination in the
event that their employment is terminated in connection with a
change of control. A change of control has occurred under the
32
agreements if any person other than the executive, us, or one
of our benefit plans acquires or becomes beneficial owner of 35%
or more of our outstanding stock entitled to vote in a general
election of directors; a majority of the members of our board
are replaced as a result of an actual or threatened election
contest, a reorganization, merger or consolidation of us is
consummated that changes our ownership by 35% or more; our
stockholders approve a complete liquidation or dissolution of us
or disposition of substantially all of our assets. The employee
will also be eligible for the cash payment if they voluntarily
terminate employment within one year after a change in control
has occurred if their duties, responsibilities, base salary, or
benefits are reduced or if their principal place of employment
is relocated more than 35 miles from its current location.
Messrs. Eberle, Jorgensen and Krehbiel and Ms. Kolling
are entitled to receive a cash payment equal to 200% of the sum
of their respective base salary and actual bonus for the taxable
year prior to the change of control. These agreements also
provide that the employees may participate in the health,
disability and life insurance plans and programs that the
employees were entitled to immediately prior to termination for
one year after termination. The amounts payable pursuant to
these agreements will be reduced by the amount of any severance
pay that the employees receive from the bank, its subsidiaries
or its successors. Based on their prior year base salary and
bonus amounts, if their employment had been terminated as of
December 31, 2008 under circumstances giving rise to the
salary payment described above, Mr. Eberle would have been
entitled to receive approximately $340,186, Mr. Jorgensen
would have been entitled to receive approximately $271,710,
Mr. Krehbiel would have been entitled to receive
approximately $385,006 and Ms. Kolling would have been
entitled to receive approximately $285,998. The agreements
provide that if the cash payments under the agreements together
with any other compensation payments triggered by the change in
control would constitute a parachute payment under
Section 280G of the internal revenue code, the cash
payments under the agreements would be reduced to the largest
amount as would result in no portion of the payment being
subject to an excise tax under the code. The continued
effectiveness of the
change-in-control
agreements is subject to any current or future applicable
limitations under the CPP.
In addition to the change in control agreements, our restricted
stock agreements provide that if there is a merger, dissolution,
liquidation of us or sale of substantially all of our assets,
the restrictions on the restricted shares shall lapse. Based on
the closing price of our common stock on December 31, 2008,
the last trading day before year end, and the number of shares
of stock subject to restrictions held by them, shares with a
value of approximately $14,989 held by Mr. Eberle, shares
with a value of approximately $11,921 held by
Mr. Jorgensen, shares with a value of approximately $17,001
held by Mr. Krehbiel and shares with a value of
approximately $12,611 held by Ms. Kolling, would have been
freed from restrictions if the restrictions on the shares would
have lapsed on December 31, 2008.
Grants of
Plan-Based Awards in 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
Awards: Number of
|
|
|
Fair Market Value
|
|
|
|
|
|
Shares of Stock or
|
|
|
of Restricted Stock
|
|
Name
|
|
Grant Date
|
|
Units (#)
|
|
|
Awards ($)(1)
|
|
|
Michael McNeil
|
|
January 25, 2008
|
|
|
5,377
|
|
|
|
126,790
|
|
Jon J. Eberle
|
|
January 25, 2008
|
|
|
2,259
|
|
|
|
53,267
|
|
Dwain C. Jorgensen
|
|
January 25, 2008
|
|
|
1,787
|
|
|
|
42,137
|
|
Susan K. Kolling
|
|
January 25, 2008
|
|
|
1,898
|
|
|
|
44,755
|
|
Bradley C. Krehbiel
|
|
January 25, 2008
|
|
|
2,557
|
|
|
|
60,294
|
|
|
|
|
(1)
|
|
Based on a market value of $23.58 on January 25, 2008.
|
33
Outstanding
Equity Awards
The following tables summarize the outstanding option grants and
stock awards at December 31, 2008 of the named executive
officers and the value of the restricted stock that vested in
2008.
Outstanding
Equity Awards at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market Value
|
|
|
|
Securities
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
of Shares or
|
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
|
Stock That
|
|
|
Stock That
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable(1)
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)(2)
|
|
|
Vested ($)(3)
|
|
|
Michael McNeil
|
|
|
50,000
|
|
|
|
0
|
|
|
|
11.50
|
|
|
|
04/28/2009
|
|
|
|
8,536
|
|
|
|
35,680
|
|
|
|
|
1,520
|
|
|
|
24,796
|
|
|
|
16.13
|
|
|
|
04/28/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
27.64
|
|
|
|
04/28/2009
|
|
|
|
|
|
|
|
|
|
Jon J. Eberle
|
|
|
0
|
|
|
|
9,853
|
|
|
|
16.13
|
|
|
|
04/15/2012
|
|
|
|
3,586
|
|
|
|
14,989
|
|
|
|
|
3,640
|
|
|
|
0
|
|
|
|
27.66
|
|
|
|
03/02/2014
|
|
|
|
|
|
|
|
|
|
Dwain C. Jorgensen
|
|
|
0
|
|
|
|
12,500
|
|
|
|
16.13
|
|
|
|
04/15/2012
|
|
|
|
2,852
|
|
|
|
11,921
|
|
|
|
|
3,580
|
|
|
|
0
|
|
|
|
27.66
|
|
|
|
03/02/2014
|
|
|
|
|
|
|
|
|
|
Susan K. Kolling
|
|
|
0
|
|
|
|
9,189
|
|
|
|
16.13
|
|
|
|
04/15/2012
|
|
|
|
3,017
|
|
|
|
12,611
|
|
|
|
|
3,780
|
|
|
|
0
|
|
|
|
27.66
|
|
|
|
03/02/2014
|
|
|
|
|
|
|
|
|
|
Bradley C. Krehbiel
|
|
|
0
|
|
|
|
11,842
|
|
|
|
16.13
|
|
|
|
04/15/2012
|
|
|
|
4,067
|
|
|
|
17,001
|
|
|
|
|
4,540
|
|
|
|
0
|
|
|
|
27.66
|
|
|
|
03/02/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. McNeil received a grant of options on February 13,
2004, of which 1,250 vested on February 13, 2008.
Mr. McNeil also received a grant of options on
April 16, 2002, of which 1,520 options vested on
April 16, 2008, and 6,199 options will vest on the
anniversary date in each of 2009, 2010, 2011 and 2012.
Mr. Eberle received a grant of options on April 16,
2002, of which 3,654 options will vest on April 16, 2011,
and 6,199 options will vest on January 1, 2012.
Mr. Jorgensen received a grant of options on April 16,
2002, of which 102 options will vest on April 16, 2010, and
6,199 options will vest on each of April 16, 2011 and
January 1, 2012. Ms. Kolling received a grant of
options on April 16, 2002, of which 2,990 options will vest
on April 16, 2011, and 6,199 options will vest on
January 1, 2012. Mr. Krehbiel received a grant of
options on April 16, 2002, of which 5,643 options will vest
on April 16, 2011 and 6,199 options will vest on
January 1, 2012.
|
|
(2)
|
|
All of Mr. McNeils unvested stock awards were
forfeited on January 28, 2009 upon his resignation. Of
Mr. Eberles unvested stock awards, 361 shares
vested January 24, 2009, 483 shares vested on
January 25, 2009 and 483 shares will vest on
January 25, 2010 and 753 shares vested on
January 25, 2009 and 753 shares will vest on each
January 25, 2010 and 2011. Of Mr. Jorgensens
unvested stock awards, 294 shares vested on
January 24, 2009, 385 shares vested on
January 25, 2009 and 385 shares will vest on
January 25, 2010, and 595 shares vested on
January 25, 2009 and 596 shares will vest on each
January 25, 2010 and 2011. Of Ms. Kollings
unvested stock awards, 307 shares vested on
January 24, 2009, and 385 shares vested on
January 25, 2009 and 386 shares will vest on
January 25, 2010, and 632 shares vested on
January 25, 2009 and 633 shares will vest on each
January 25, 2010 and 2011. Of Mr. Krehbiels
unvested stock awards, 417 shares vested on
January 24, 2009, 546 shares vested on
January 25, 2009, and 547 shares will vest on
January 25, 2010, and 753 shares vested on
January 25, 2009, 852 shares will vest on
January 25, 2010, and 853 shares will vest on
January 25, 2011.
|
|
(3)
|
|
Represents market value of underlying securities at year end of
$4.18, which is the closing price of the common stock on the
last trading day of 2008.
|
34
2008
Restricted Stock Vesting
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
Name
|
|
Acquired on Vesting (#)
|
|
|
Vesting ($)(1)
|
|
|
Michael McNeil
|
|
|
2,774
|
|
|
|
65,411
|
|
Jon J. Eberle
|
|
|
1,111
|
|
|
|
26,692
|
|
Dwain C. Jorgensen
|
|
|
941
|
|
|
|
22,592
|
|
Susan K. Kolling
|
|
|
984
|
|
|
|
23,622
|
|
Bradley C. Krehbiel
|
|
|
1,307
|
|
|
|
31,390
|
|
|
|
|
(1)
|
|
Based on market value of $24.95 on January 24, 2008 and
$23.58 on January 25 and 26, 2008.
|
Our employees are included in the Financial Institutions
Retirement Fund (FIRF), a multi-employer comprehensive pension
plan. This non-contributory defined benefit retirement plan
covers all employees who have met minimum service requirements.
Employees become 100% vested in the pension plan after five
years of eligible service. Our policy is to fund the minimum
amounts required by the plan, and in 2008, we made a
contribution of $94,165 to the plan. On September 1, 2002,
benefits for all of our existing participants under the plan
were frozen, and as a result, no additional benefits have been
earned and no new employees have been enrolled in the plan after
that date. At age 65, Mr. McNeil will be entitled to
annual payments of $5,667, Mr. Eberle will be entitled to
annual payments of $4,141, Mr. Jorgensen will be entitled
to annual payments of $28,247, Mr. Krehbiel will be
entitled to annual payments of $2,567 and Ms. Kolling will
be entitled to annual payments of $23,779. The annual benefit
amount is calculated based on the employees base salary
for the five years prior to the plan being frozen.
2008
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years
|
|
|
Present Value of
|
|
|
Payments During
|
|
|
|
|
|
|
Credited Service
|
|
|
Accumulated Benefit
|
|
|
Last Fiscal Year
|
|
Name
|
|
Plan Name
|
|
|
(#)
|
|
|
($)
|
|
|
($)
|
|
|
Michael McNeil
|
|
|
FIRF
|
|
|
|
3 years, 5 months
|
|
|
|
46,696
|
|
|
|
0
|
|
Jon J. Eberle
|
|
|
FIRF
|
|
|
|
6 years, 11 months
|
|
|
|
11,388
|
|
|
|
0
|
|
Dwain C. Jorgensen
|
|
|
FIRF
|
|
|
|
27 years, 1 month
|
|
|
|
221,456
|
|
|
|
0
|
|
Susan K. Kolling
|
|
|
FIRF
|
|
|
|
28 years, 9 months
|
|
|
|
164,788
|
|
|
|
0
|
|
Bradley C. Krehbiel
|
|
|
FIRF
|
|
|
|
3 years, 2 months
|
|
|
|
10,781
|
|
|
|
0
|
|
35
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors
and executive officers to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange
Commission. Directors and executive officers are required by
Securities and Exchange Commission regulations to furnish us
with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of the forms furnished to us
and written representations from our directors and executive
officers, all Section 16(a) filing requirements were met
for 2008.
ADDITIONAL
INFORMATION
We are furnishing our annual report, including financial
statements, for the year ended December 31, 2008 to each
stockholder with this proxy statement.
Stockholders who wish
to obtain an additional copy of our annual report, or a copy of
our Current Report on
Form 10-K
filed with the Securities and Exchange Commission, for the year
ended December 31, 2008 may do so without charge by
writing to Chief Financial Officer, 1016 Civic Center Drive
N.W., Rochester, Minnesota
55901-6057.
The annual report is also available online at www.hmnf.com or
www.proxydocs.com/hmnf.
HMN FINANCIAL, INC.
By Order of the Board of Directors
Cindy K. Hamlin
Secretary
Dated: March 20, 2009
36
EXHIBIT A
HMN
FINANCIAL, INC.
2009 EQUITY INCENTIVE PLAN
1.
Purpose
.
The purpose of the HMN
Financial, Inc. 2009 Equity Incentive Plan (the
Plan
) is to promote the interests of the
Company and its stockholders by providing key personnel of, and
advisors to, the Company and its Affiliates with an opportunity
to acquire a proprietary interest in the Company. The
opportunity to acquire a proprietary interest in the Company
will aid in attracting, motivating and retaining key personnel
and advisors, including Non-Employee directors, and will align
their interests with those of the Companys stockholders.
2.
Definitions
.
The capitalized
terms used in the Plan have the meanings set forth below.
(a)
Affiliate
means a corporation
or other entity controlled by, controlling or under common
control with the Company.
(b)
Agreement
means any written
or electronic agreement, instrument or document evidencing the
grant of an Award in a form approved by the Committee, including
all amendments thereto.
(c)
Award
means a grant made
under the Plan in the form of Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance
Units or Other Stock-Based Award.
(d)
Bank
means Home Federal
Savings Bank, a federally chartered savings bank and a wholly
owned subsidiary of Company.
(e)
Board
means the Board of
Directors of the Company.
(f)
Cause
means the
Participants (i) incompetence or failure or refusal
to perform satisfactorily any duties reasonably required of the
Participant by the Company; (ii) violation of any law, rule
or regulation (other than traffic violations, misdemeanors or
similar offenses) or
cease-and-desist
order, court order, judgment, regulatory directive or agreement;
(iii) commission or omission of, or engaging in, any act or
practice that constitutes a material breach of the
Participants fiduciary duty to the Company, involves
personal dishonesty on the part of the Participant or
demonstrates a willful or continuing disregard for the best
interests of Company; (iv) engaging in dishonorable or
disruptive behavior, practices or acts which would be reasonably
expected to harm or bring disrepute to Company, its business or
any of its customers, employees or vendors; (v) any failure
of the Participant to materially conform to the Companys
Code of Business Conduct and Ethics; or (vi) the
Participants material breach of any confidentiality,
non-disclosure, non-solicitation, non-competition, invention
assignment or similar agreement with the Company or any
Affiliate.
(g)
Change in Control
means one
of the following:
(1) Any person (as defined in
Sections 13(d) and 14(d) of the Exchange Act) acquires or
becomes a beneficial owner (as defined in
Rule 13d-3
or any successor rule under the Exchange Act), directly or
indirectly, of securities of the Company or the Bank
representing 35% or more of the combined voting power of the
then outstanding securities entitled to vote generally in the
election of directors (
Voting Securities
),
provided, however, that the following shall not constitute a
Change in Control:
(A) any acquisition of beneficial ownership by the Company,
the Bank or a subsidiary of the Company or the Bank;
(B) any acquisition or beneficial ownership by any employee
benefit plan (or related trust) sponsored or maintained by the
Company, the Bank or one or more of their subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation (including without limitation an acquisition in a
transaction of the nature described in part (3) of this
definition) with respect to which, immediately following such
acquisition, more than 65%, respectively, of (x) the
combined voting power of the Companys or the Banks
then outstanding Voting Securities and (y) the
Companys or the Banks then outstanding Common Stock
is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting
Securities and Common Stock, respectively, of the
A-1
Company or the Bank immediately prior to such acquisition in
substantially the same proportions as their ownership of such
Voting Securities and Common Stock, as the case may be,
immediately prior to such acquisition;
(D) any acquisition of Voting Securities or Common Stock
directly from the Company or the Bank; or
(E) any acquisition of beneficial ownership by the
Participant or a group, acting in concert, that includes the
Executive;
(2) Continuing Directors shall not constitute a majority of
the members of the Board. For purposes of this Plan,
Continuing Directors means: (A) individuals
who, on the effective date of this Plan, are directors of the
Company, (B) individuals elected as directors of the
Company subsequent to the effective date of this Plan for whose
election proxies shall have been solicited by the Board or
(C) any individual elected or appointed by the Board to
fill vacancies on the Board caused by death or resignation (but
not by removal) or to fill newly-created directorships, provided
that a Continuing Director shall not include an
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
threatened election or removal of directors (or other actual or
threatened solicitation of proxies or consents) by or on behalf
of any person other than the Board; or
(3) Consummation of a reorganization, merger or
consolidation of the Company or the Bank or a statutory exchange
of outstanding Voting Securities of the Company or the Bank,
unless immediately following such reorganization, merger,
consolidation or exchange, all or substantially all of the
persons who were the beneficial owners, respectively, of Voting
Securities and Common Stock immediately prior to such
reorganization, merger, consolidation or exchange beneficially
own, directly or indirectly, more than 65% of, respectively,
(x) the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors and (y) the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger, consolidation or exchange in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange, of the Voting
Securities and Common Stock, as the case may be; provided,
however, that such a transaction shall not be deemed to be a
Change in Control with respect to a Participant if a majority of
the then combined voting power of the then outstanding voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company or the
Bank shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
exchange or disposition of assets referred to above, by the
Participant or by a group, acting in concert, that includes the
Participant.
Notwithstanding the foregoing, for purposes of Awards hereunder
that are subject to the provisions of Code Section 409A, no
Change in Control shall be deemed to have occurred upon an event
described in clauses (1) through (3) above that would
have the effect of changing the time or form of payment of such
Award unless such event would also constitute a change in the
ownership or effective control of, or a change in the ownership
of a substantial portion of the assets of, the Company for
purposes of Code Section 409A.
(h)
Code
means the Internal
Revenue Code of 1986, as amended and in effect from time to
time, and the regulations promulgated thereunder.
(i)
Committee
means two or more
Non-Employee Directors designated by the Board to administer the
Plan under Section 3 hereof, each member of which shall be
(i) an independent director within the meaning of the rules
and regulations of The NASDAQ Stock Market, (ii) a
non-employee director within the meaning of Exchange Act
Rule 16b-3,
and (iii) an outside director for purposes of
Code Section 162(m).
(j)
Common Stock
means the common
stock, par value $.01, of the Company.
(k)
Company
means HMN Financial,
Inc., a Delaware corporation, or any successor thereto.
(l)
Corporate Transaction
means
(i) dissolution or liquidation of the Company, (ii) a
sale of substantially all of the assets of the Company, or
(iii) a merger or consolidation of the Company with or into
any other corporation, regardless of whether the Company is the
surviving corporation.
A-2
(m)
Disability
means, unless
otherwise defined in an Agreement, any medically determinable
physical or mental impairment that causes the Participant to be
unable to carry out his job responsibilities for a continuous
period of more than six months, in the sole determination of the
Committee.
(n)
Employee
means an employee
(including an officer or director who is also an employee) of
the Company or an Affiliate.
(o)
Exchange Act
means the
Securities Exchange Act of 1934, as amended and in effect from
time to time.
(p)
Fair Market Value
of a Share
means the closing sale price of a Share on the NASDAQ Global
Market (or such other national securities exchange as may at the
time be the principal market for the Shares) on the date of
determination (or if no sale occurred on that day, on the next
preceding day on which a sale of Shares occurred). If the Shares
are not then listed and traded upon a national securities
exchange but are regularly quoted on an automated quotation
system or by a recognized securities dealer, Fair Market Value
of a Share shall be the closing sale price (or the average of
the high bid and low asked prices if selling prices are not
reported) on such system or by such dealer on the date of
determination (or if no such prices were reported on that day,
on the last day such prices were reported). In the absence of an
established market for the Shares as described above, Fair
Market Value of a Share will be what the Committee determines in
good faith and in a manner consistent with Code
Section 409A to be 100% of the fair market value of a Share
on that date.
(q)
Full Value Award
means an
Award other than an Option or Stock Appreciation Right.
(r)
Grant Date
means the date on
which the Committee approves the grant of an Award under the
Plan, or such later date as may be specified by the Committee on
the date the Committee approves the Award.
(s)
Incentive Stock Option
or
ISO
means any Option designated as such and
granted in accordance with the requirements of Code
Section 422.
(t)
Non-Employee Director
means a
member of the Board who is not an Employee.
(u)
Non-Statutory Stock Option
means an Option other than an Incentive Stock Option.
(v)
Option
means a right granted
under the Plan to purchase a specified number of Shares at a
specified price.
(w)
Other Stock-Based Award
means
an Award described in Section 12 of this Plan.
(x)
Parent
means a parent
corporation, as defined in Code Section 424(e), of
the Company.
(y)
Participant
means a person to
whom an Award is or has been made in accordance with the Plan.
(z)
Performance-Based Compensation
means an Award to a person who is, or is determined by the
Committee to likely become, a covered employee (as
defined in Code Section 162(m)(3)) and that is intended to
constitute performance-based compensation within the
meaning of Code Section 162(m)(4)(C).
(aa)
Performance Period
means the
period of time, as specified in an Agreement, during which
Performance Measures must be achieved.
(bb)
Performance Measures
means
any measures of performance established by the Committee that
must be satisfied as a condition precedent to the vesting of an
Award. For any Award intended to constitute Performance-Based
Compensation, the Performance Measures shall consist of one or a
combination of two or more of the following performance
criteria: interest income; net interest income; income before
income tax expense; net income; net income available to common
stockholders; earnings per common share (basic or diluted);
profitability as measured by return ratios (including, but not
limited to, return on average assets, return on average equity)
or by the degree to which any of the foregoing earnings measures
exceed a percentage of interest income; cash flow; market share;
net interest margin; stock price; total stockholder equity;
asset quality; non-performing assets; interest income growth;
operating income; cash flow per share; improvement in, or
attainment of, non-interest expense levels or cost savings. Any
Performance Measure utilized may be expressed in absolute
amounts, on a per share basis, as a growth rate or change from
preceding periods, or as a comparison to the performance of
specified
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companies or other external measures, and may relate to one or
any combination of corporate, group, unit, division, Affiliate
or individual performance.
(cc)
Performance Unit
means the
right to receive a unit valued by reference to a designated
number of Shares or a designated amount of cash upon the
achievement of specified levels of one or more Performance
Measures as provided in this Plan and the applicable Agreement.
(dd)
Prior Plan
means the HMN
Financial, Inc. 2001 Omnibus Stock Plan.
(ee)
Restricted Stock
means
Shares issued to a Participant that are subject to such
restrictions on transfer, forfeiture conditions and other
restrictions or limitations as may be set forth in this Plan and
the applicable Agreement.
(ff)
Restricted Stock Unit
means
a right to receive, in cash
and/or
Shares as determined by the Committee, the Fair Market Value of
a Share, subject to such restrictions on transfer, forfeiture
conditions and other restrictions or limitations as may be set
forth in this Plan and the applicable Agreement.
(gg)
Securities Act
means the
Securities Act of 1933, as amended and in effect from time to
time.
(hh)
Service
means the provision
of services by a Participant to the Company or any Affiliate in
any Service Provider capacity. A Service Providers Service
shall be deemed to have terminated either upon an actual
cessation of providing services, or upon the entity for which
the Service Provider provides services ceasing to be an
Affiliate. Except as otherwise provided in any Agreement,
Service shall not be deemed terminated in the case of
(i) any approved leave of absence; (ii) transfers
among the Company and any Affiliates in any Service Provider
capacity; or (iii) any change in status so long as the
individual remains in the service of the Company or any
Affiliate in any Service Provider capacity.
(ii)
Service Provider
means an
Employee, a Non-Employee Director, or any consultant or advisor
who is a natural person and who provides services to the Company
or any Affiliate.
(jj)
Share
means a share of
Common Stock.
(kk)
Stock Appreciation Right
or
SAR
means the right to receive, in cash
and/or
Shares as determined by the Committee, an amount equal to the
appreciation in value of a specified number of Shares between
the Grant Date of the SAR and its exercise date.
(ll)
Subsidiary
means a
subsidiary corporation, as defined in Code
Section 424(f), of the Company.
(mm)
Substitute Award
means an
Award granted upon the assumption of, or in substitution or
exchange for, outstanding awards granted by a company or other
entity acquired by the Company or any affiliate or with which
the company or any Affiliate combines.
(nn)
Successor
means the guardian
or legal representative of an incompetent Participant, or if the
Participant is deceased, means the estate of the Participant or
the person or persons who may, be bequest or inheritance, or
pursuant to the terms of an Award, acquire the right to exercise
an Option or Stock Appreciate Right or to receive cash
and/or
Shares issuable in satisfaction of an Award in the event of a
Participants death.
(oo)
Transferee
means any
family member (as defined by Rule 701(c)(3)
under the Securities Act) of the Participant.
3.
Administration
of the Plan
.
(a)
Administration
.
The authority
to control and manage the operations and administration of the
Plan shall be vested in the Committee in accordance with this
Section 3.
(b)
Scope of Authority
.
Subject to
the terms of the Plan, the Committee shall have the exclusive
authority, in its discretion, to take such actions as it deems
necessary or advisable to administer the Plan, including:
(1) determining the Service Providers to whom Awards will
be granted, the timing of each such Award, the types of Awards
and the number of Shares covered by each Award, the terms,
conditions, performance criteria, restrictions and other
provisions of Awards, and the manner in which Awards are paid or
settled;
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(2) cancelling or suspending an Award, accelerating the
vesting or extending the exercise period of an Award, or
otherwise amending the terms and conditions of any outstanding
Award, subject to the requirements of Sections 16(c) and
(d); and
(3) establishing, amending or rescinding rules to
administer the Plan, interpreting the Plan and any Award or
Agreement made under the Plan, and making all other
determinations necessary or desirable for the administration of
the Plan.
Notwithstanding the foregoing, the Board shall perform the
duties and have the responsibilities of the Committee with
respect to Awards made to Non-Employee Directors.
(c)
Acts of the Committee;
Delegation
.
A majority of the members of the
Committee shall constitute a quorum for any meeting of the
Committee, and any act of a majority of the members present at
any meeting at which a quorum is present or any act unanimously
approved in writing by all members of the Committee shall be the
act of the Committee. To the extent not inconsistent with
applicable law or stock exchange rules, the Committee may
delegate all or any portion of its authority under the Plan to
determine and administer Awards to Participants who are not
subject to Section 16 of the Exchange Act to one or more
persons who are either Non-Employee Directors or executive
officers of the Company.
(d)
Finality of Decisions
.
The
Committees interpretation of the Plan and of any Award or
Agreement made under the Plan and all related decisions or
resolutions of the Board or Committee shall be final and binding
on all parties with an interest therein.
(e)
Indemnification
.
Each person
who is or has been a member of the Committee or of the Board,
and any other person to whom the Committee delegates authority
under the Plan, shall be indemnified and held harmless by the
Company, to the extent permitted by law, against and from
(i) any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection
with or resulting from any claim, action, suit or proceeding to
which such person may be a party or in which such person may be
involved by reason of any action taken or failure to act, made
in good faith, under the Plan and (ii) any and all amounts
paid by such person in settlement thereof, with the
Companys approval, or paid by such person in satisfaction
of any judgment in any such action, suit or proceeding against
such person, provided such person shall give the Company an
opportunity, at the Companys expense, to handle and defend
the same before such person undertakes to handle and defend it
on such persons own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such person or persons may be entitled
under the Companys Certificate of Incorporation or Bylaws,
as a matter of law, or otherwise, or any power that the Company
may have to indemnify them or hold them harmless.
4.
Shares Available Under the Plan
.
(a)
Maximum
Shares Available
.
Subject to
Sections 4(b) and (c), and to adjustment as provided in
Section 17, a total of 350,000 Shares shall be
authorized for grant under the Plan. All Shares authorized for
grant under this Plan may be granted as Incentive Stock Options.
In determining the number of Shares to be counted against this
limit in connection with any Award, the following rules shall
apply:
(1) Each Share that is subject to an Award of Options or
Stock Appreciation Rights shall be counted against the Shares
available for distribution under this Plan as one Share.
(2) Each Share (or security that is convertibly into, or
equivalent to, a Share) that is subject to any Award other than
Options or Stock Appreciation Rights shall be counted against
the Shares available for distribution under this Plan as one and
two tenths (1.2) Shares.
(3) Where the number of Shares subject to the Award is
variable on the Grant Date, the number of Shares to be counted
against the limit prior to the settlement of the Award shall be
the maximum number of Shares that could be received under that
particular Award.
(4) Where two or more types of Awards are granted to a
Participant in tandem with each other, such that the exercise of
one type of Award with respect to a number of Shares cancels at
least an equal number of Shares
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of the other, the number of Shares to be counted against the
limit prior to the settlement of the Award shall be the largest
number of Shares that would be counted against the limit under
either of the Awards.
(5) With respect to the grant of Performance Units
denominated in dollars, the number of Shares counted against the
Shares available for distribution under this Plan shall be equal
to the result of dividing (i) the dollar amount for which
the Performance Unit is denominated by (ii) the Fair Market
Value of one Share on the date the Performance Unit is granted.
(b)
Effect of Forfeitures and Other
Actions
.
To the extent that any Award is
forfeited or terminates without vesting, or any Option or Stock
Appreciation Right terminates, expires or lapses without being
exercised, the Shares subject to such Award not delivered as a
result thereof shall again be available for Awards under the
Plan. Shares tendered or withheld to pay the exercise price of
an Option or to pay tax withholding will count against the
limitations set forth in Section 4(a) and will not be added
back to the Shares available under the Plan. When a Stock
Appreciation Right that may be settled for shares is exercised,
the number of Shares subject to the Agreement shall be counted
against the number of Shares available for issuance under the
Plan as one Share for every Share subject thereto, regardless of
the number of Shares used to settle the Stock Appreciation Right
upon exercise.
(c)
Forfeitures Under 2001
Plan
.
To the extent that any stock option or
restricted stock award is forfeited or terminates without
vesting, or any stock option terminates, expires or lapses
without being exercised, under the 2001 Plan, the Shares subject
to such stock option or restricted stock award not delivered as
a result thereof shall be available for Awards under the Plan.
Notwithstanding the foregoing, Shares tendered or withheld to
pay the exercise price of a stock option or to pay tax
withholding on an award under the 2001 Plan will not be added
back to the Shares available under the Plan
(d)
Source of Shares
.
Shares
issued under the Plan may come from authorized and unissued
shares or treasury shares. No fractional Shares may be issued
under the Plan, but the Committee may, in its discretion, pay
cash in lieu of any fractional Share in settlement of an Award.
(e)
Individual Option and SAR
Limit
.
The aggregate number of Shares subject
to Options
and/or
Stock
Appreciation Rights granted during any calendar year to any one
Participant shall not exceed 75,000.
5.
Eligibility
.
Participation in
the Plan shall be limited to (i) Service Providers and
(ii) any individual the Company desires to induce to become
a Service Provider, so long as any such inducement grant is
contingent upon such individual becoming a Service Provider. The
granting of Awards is solely at the discretion of the Committee,
except that Incentive Stock Options may only be granted to
Employees.
6.
General Terms of Awards
.
(a)
Award Agreement
.
Except for
Other Stock-Based Awards that involve only the immediate
issuance of unrestricted and fully vested Shares, each Award
shall be evidenced by an Agreement setting forth the number of
Shares subject to the Award together with such other terms and
conditions applicable to the Award (and not inconsistent with
the Plan) as determined by the Committee. An Award to a
Participant may be made singly or in combination with any form
of Award.
(b)
Vesting and Term
.
Each
Agreement shall set forth the period until the applicable Award
is scheduled to expire and any applicable Performance Period.
The Committee may provide for such vesting conditions as it may
determine.
(c)
Transferability
.
Except as
provided in this Section 6(c), (i) during the lifetime
of a Participant, only the Participant (or that
Participants Successor) may exercise an Option or Stock
Appreciation Right, or receive payment with respect to any other
Award; and (ii) no Award may be sold, assigned,
transferred, exchanged or encumbered other than to a Successor
in the event of a Participants death. Any attempted
transfer in violation of this Section 6(c) shall be of no
effect. The Committee may, however, provide in an Agreement or
otherwise that an Award (other than an Incentive Stock Option)
may be transferred or assigned pursuant to a divorce decree or a
domestic relations order, and may be transferable, to the extent
permitted by law, to a Transferee if the Participant does not
receive any consideration for the transfer. Any Award held by a
Transferee shall continue to be subject to the same terms and
conditions that were applicable to that Award immediately before
the transfer thereof to the Transferee. For purposes of any
provision of the Plan relating to notice to a Participant or to
acceleration or
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termination of an Award upon the death or termination of
employment of a Participant, the references to
Participant shall mean the original grantee of an
Award and not any Transferee.
(d)
Termination of Service
.
Unless
otherwise provided in an Agreement, and subject to
Section 13 of this Plan, if a Participants Service
with the Company and all of its Affiliates terminates, the
following provisions shall apply (in all cases subject to the
scheduled expiration of an Option or Stock Appreciation Right,
as applicable):
(1) Upon termination of Service for Cause, all unexercised
Options and SARs and all unvested portions of any other
outstanding Awards shall be immediately forfeited and terminated
without consideration.
(2) Upon termination of Service for any other reason, all
unvested and unexercisable portions of any outstanding Awards
shall be immediately forfeited and terminated without
consideration.
(3) Upon termination of Service for any reason other than
Cause, death or Disability, the currently vested and exercisable
portions of Options and SARs may be exercised within three
months of the date of such termination.
(4) Upon termination of Service due to death or Disability,
the currently vested and exercisable portions of Options and
SARs may be exercised within six months of the date of such
termination.
(e)
Rights as Stockholder
.
No
Participant, Successor, or Transferee shall have any rights as a
stockholder with respect to any securities covered by an Award
unless and until the date the Participant, Successor, or
Transferee becomes the holder of record of the Shares, if any,
to which the Award relates.
(f)
Performance-Based Awards
.
Any
Award may be granted as a performance-based Award if the
Committee establishes one or more Performance Measures upon
which vesting, the lapse of restrictions or settlement in cash
or Shares is contingent. With respect to any Award intended to
be Performance-Based Compensation, the Committee shall establish
and administer Performance Measures in the manner described in
Section 19.
(g)
TARP Compliance
.
Solely to the
extent, and for the period, required under applicable law or
agreement on account of the Companys participation in the
Troubled Assets Relief Program under the Emergency Economic
Stabilization Act of 2008, as amended from time to time
(EESA), the Plan and each Agreement evidencing an
Award shall be deemed to incorporate by reference the executive
compensation and corporate governance standards of
Section 111 of EESA, including any regulation or guidance
issued thereunder, and any successor provisions thereto. The
Company shall be deemed to have all such authority or power to
limit or demand the forfeiture of any payment or benefit
provided under the Plan or any Agreement, and a
Participants right to receive or retain any such payment
or benefit shall be deemed limited or forfeited, as the
Committee, in its sole judgment, shall deem necessary or
advisable in order to comply with any such standard as in effect
from time to time, or to avoid a material adverse effect on the
Companys tax position.
7.
Restricted Stock Awards
.
(a) Shares subject to a Restricted Stock Award shall be
subject to vesting conditions, and the corresponding lapse or
waiver of forfeiture conditions and other restrictions, based on
such factors and occurring over such period of time as the
Committee may determine in its sole discretion. The Committee
may provide whether any consideration other than Services must
be received by the Company or any Affiliate as a condition
precedent to the grant of a Restricted Stock Award.
(b) Unvested Shares subject to a Restricted Stock Award
shall be evidenced by a book-entry in the name of the
Participant with the Companys transfer agent or by one or
more Common Stock certificates issued in the name of the
Participant. Any such Common Stock certificate shall be
deposited with the Company or its designee, together with an
assignment separate from the certificate, in blank, signed by
the Participant, and bear an appropriate legend referring to the
restricted nature of the Restricted Stock evidenced thereby. Any
book-entry shall be subject to transfer restrictions and
accompanied by a similar legend. Upon the vesting of Shares of
Restricted Stock and the corresponding lapse of the restrictions
and forfeiture conditions, the transfer restrictions and
restrictive legend applicable to any book-entry evidencing such
Shares will be removed, or a certificate for the Shares bearing
no restrictive legend shall be delivered to the Participant or a
Successor or a Transferee.
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(c) Except as otherwise provided in this Plan or the
applicable Agreement, a Participant with a Restricted Stock
Award shall have all the other rights of a stockholder,
including the right to receive dividends and the right to vote
the Shares of Restricted Stock. Except as otherwise provided in
this Plan or the applicable Agreement, any Shares or property
other than regular cash dividends distributed with respect to
unvested Shares subject to a Restricted Stock Award shall be
subject to the same conditions and restrictions as the
underlying Shares. Notwithstanding the foregoing, cash dividends
on Shares subject to Restricted Stock or Restricted Stock Units
Awards that have performance vesting provisions shall be subject
to the same conditions and restrictions as the related Shares.
8.
Restricted Stock Unit Awards
.
A
Restricted Stock Unit Award shall be subject to vesting
conditions, and the corresponding lapse or waiver of forfeiture
conditions and other restrictions, based on such factors and
occurring over such period of time as the Committee may
determine in its discretion. The Committee may provide whether
any consideration other than services must be received by the
Company or any Affiliate as a condition precedent to the grant
of a Restricted Stock Unit Award. Following the vesting of a
Restricted Stock Unit Award, payment to the Participant shall be
made in the form of cash, Shares or a combination of cash and
Shares as determined by the Committee. Such payment shall either
comply with the provisions of Code Section 409A or be made
within such time period after vesting as will qualify such
payment for the short-term deferral exemption from
Code Section 409A.
9.
Stock Option Awards
.
(a)
Type and Exercise Price
.
The
Agreement pursuant to which an Option is granted shall specify
whether the Option is an Incentive Stock Option or a
Non-Statutory Stock Option. The exercise price at which each
Share subject to an Option may be purchased shall be determined
by the Committee and set forth in the Agreement, and shall not
be less than the Fair Market Value of a Share on the Grant Date.
(b)
Payment of Exercise Price
.
The
purchase price of the Shares with respect to which an Option is
exercised shall be payable in full at the time of exercise,
which may include, to the extent permitted by the Committee,
payment under a broker-assisted sale and remittance program
acceptable to the Committee. The purchase price may be paid in
cash or, if the Committee so permits, by withholding Shares
otherwise issuable to the Participant upon exercise of the
Option or by delivery to the Company of Shares (by actual
delivery or attestation) already owned by the Participant (in
each case, such Shares having a Fair Market Value as of the date
the Option is exercised equal to the purchase price of the
Shares being purchased), or a combination thereof, unless
otherwise provided in the Agreement. A Participant exercising an
Option shall not be permitted to pay any portion of the purchase
price with Shares if, in the opinion of the Committee, payment
in such manner could have adverse financial accounting
consequences for the Company.
(c)
Exercisability and
Expiration
.
Each Option shall be exercisable
in whole or in part on the terms provided in the Agreement. No
Option shall be exercisable more than seven years after its
Grant Date. In no event shall any Option be exercisable at any
time after its scheduled expiration. When an Option is no longer
exercisable, it shall be deemed to have terminated.
(d)
No Reload Options
.
Options
will not be granted under the Plan in consideration for, and the
grant of Options will not be conditioned on, the delivery of
Shares to the Company in payment of the exercise price
and/or
tax
withholding obligation under any other Option.
(e)
Incentive Stock Options
.
(1) An Option will constitute an Incentive Stock Option
only if the Participant receiving the Option is an Employee, and
only to the extent that (i) it is so designated in the
applicable Agreement and (ii) the aggregate Fair Market
Value (determined as of Option Grant Date) of the Shares with
respect to which Incentive Stock Options held by the Participant
first become exercisable in any calendar year (under the Plan
and all other plans of the Company and its Affiliates) does not
exceed $100,000 (or such other limit as may be required by the
Code to qualify the Option as an Incentive Stock Option). To the
extent an Option granted to a Participant exceeds this limit,
the Option shall be treated as a Non-Statutory Stock Option.
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(2) No Participant may receive an Incentive Stock Option
under the Plan if, immediately after the grant of such Award,
the Participant would own (after application of the rules
contained in Code Section 424(d)) Shares possessing more
than 10% of the total combined voting power of all classes of
stock of the Company or an Affiliate, unless (i) the option
price for that Incentive Stock Option is at least 110% of the
Fair Market Value of the Shares subject to that Incentive Stock
Option on the Grant Date and (ii) that Option will expire
no later than five years after its Grant Date.
(3) The Agreement covering an Incentive Stock Option shall
contain such other terms and provisions that the Committee
determines necessary to qualify the Option as an Incentive Stock
Option.
10.
Stock Appreciation Rights
.
(a)
Nature of Award
.
An Award of a
Stock Appreciation Right shall entitle the Participant (or a
Successor or a Transferee), subject to terms and conditions
determined by the Committee, to receive upon exercise of the
Stock Appreciation Right all or a portion of the excess of
(i) the Fair Market Value of a specified number of Shares
as of the date of exercise of the Stock Appreciation Right over
(ii) a specified exercise price that shall not be less than
100% of the Fair Market Value of such Shares on the Grant Date
of the Stock Appreciation Right.
(b)
Exercise of SAR
.
Each Stock
Appreciation Right may be exercisable in whole or in part at the
times, on the terms and in the manner provided in the Agreement;
provided that no Stock Appreciation Right shall be exercisable
more than seven years after its Grant Date. No Stock
Appreciation Right shall be exercisable at any time after its
scheduled expiration. When a Stock Appreciation Right is no
longer exercisable, it shall be deemed to have terminated. Upon
exercise of a Stock Appreciation Right, payment to the
Participant (or a Successor or Transferee) shall be made at such
time or times as shall be provided in the Agreement in the form
of cash, Shares or a combination of cash and Shares as
determined by the Committee. The Agreement may provide for a
limitation upon the amount or percentage of the total
appreciation on which payment (whether in cash
and/or
Shares) may be made in the event of the exercise of a Stock
Appreciation Right.
11.
Performance Units
.
(a)
Initial Award
.
(1) An Award of Performance Units under the Plan shall
entitle the Participant (or a Successor or Transferee) to future
payments of cash, Shares or a combination thereof, as specified
by the Committee in the Agreement or otherwise, based upon the
achievement of specified levels of one or more Performance
Measures over the course of the relevant Performance Period. The
Agreement shall specify the nature and requisite level(s) of
achievement for each Performance Measure and the length of the
Performance Period applicable to an Award of Performance Units,
and may provide that a portion of a Participants Award
will be paid for performance that exceeds the minimum target but
falls below the maximum target applicable to the Award. The
Agreement shall also provide for the timing of the payment,
which shall either comply with the provisions of Code
Section 409A or be in a lump sum occurring within the
period necessary to cause it to qualify as a short-term
deferral within the meaning of Code Section 409A.
(2) Following the conclusion or acceleration of each
Performance Period, the Committee shall determine (i) the
extent to which Performance Measures have been attained,
(ii) the number of Performance Units that have been earned
and the value thereof, (iii) the extent to which any other
terms and conditions with respect to an Award relating to the
Performance Period have been satisfied and (iv) the amount
of the payment due with respect to an Award of Performance
Units. Payment to the Participant of any Performance Unit Award
shall be made in the form of cash, Shares or a combination of
cash and Shares as determined by the Committee, and shall either
comply with the provisions of Code Section 409A or be made
within such time period after vesting as will qualify such
payment for the short-term deferral exemption from
Code Section 409A.
(b)
Acceleration and
Adjustment
.
The Agreement may permit an
acceleration of the Performance Period and an adjustment of
Performance Measures and payments with respect to some or all of
the Performance Units awarded to a Participant upon the
occurrence of certain events, which may include a Change of
Control, a Corporate Transaction, a recapitalization, a change
in the accounting practices of the Company, a change in the
Participants
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title or employment responsibilities, or the Participants
death or Disability. The Agreement also may provide for a
limitation on the value of an Award of Performance Units that a
Participant may receive.
12.
Other Stock-Based Awards
.
The
Committee may from time to time grant Common Stock and other
Awards that are valued by reference to
and/or
payable in whole or in part in Shares under the Plan. The
Committee, in its sole discretion, shall determine the terms and
conditions of such Awards, which shall be consistent with the
terms and purposes of the Plan. The Committee may, in its sole
discretion, direct the Company to issue Shares subject to
restrictive legends
and/or
stop
transfer instructions that are consistent with the terms and
conditions of the Award to which the Shares relate.
13.
Corporate Transaction
.
(a) In the event of a proposed Corporate Transaction, the
Committee may, but shall not be obligated to:
(1) With respect to a Corporate Transaction that involves a
merger or consolidation, make appropriate provision for the
protection of the outstanding Awards by the substitution of
options, stock appreciation rights, restricted stock, restricted
stock units, performance units or other stock-based awards and
appropriate voting common stock of the corporation surviving any
such merger or consolidation or, if appropriate, the Parent of
the Company or such surviving corporation, in lieu of such
outstanding Awards;
(2) With respect to any Corporate Transaction, including,
without limitation, a merger or consolidation, declare, prior to
the occurrence of the Corporate Transaction, and provide written
notice of such declaration to each holder of an Option or Stock
Appreciation Right, that (i) each outstanding Option and
Stock Appreciation Right, whether or not then exercisable, shall
be canceled at the time of, or immediately prior to the
occurrence of, the Corporate Transaction in exchange for payment
to each holder of an Option or Stock Appreciation Right,
promptly after the Corporate Transaction, of cash (or, if the
Committee so elects in lieu of solely cash, of such form(s) of
consideration, including cash
and/or
property, solely or in such combination as the Committee shall
determine, that the holders of Options and Stock Appreciation
Rights would have received as a result of the Corporate
Transaction if such holders had exercised the Options and Stock
Appreciation Rights immediately prior to the Corporate
Transaction) equal to, for each Share covered by a canceled
Option or Stock Appreciation Right, the amount, if any, by which
the fair market value (as defined in this Section 13(a)(2))
per Share exceeds the exercise price per Share covered by such
Option or Stock Appreciation Right, and (ii) at the time of
the declaration, each Option and Stock Appreciation Right shall
immediately become exercisable in full and each holder of an
Option or Stock Appreciation Right shall have the right, during
the period preceding the time of cancellation of the Option or
Stock Appreciation Right, to exercise the Option or Stock
Appreciation Right as to all or any part of the Shares covered
thereby in whole or in part, as the case may be. In the event of
a declaration pursuant to this Section 13(a)(2), each
outstanding Option and Stock Appreciation Right, to the extent
that it shall not have been exercised prior to the Corporate
Transaction, shall be canceled at the time of, or immediately
prior to, the Corporate Transaction, as provided in the
declaration. For purposes of this Section 13(a) only,
fair market value per Share means the fair market
value, as determined in good faith by the Committee, of the
consideration to be received per Share by the stockholders of
the Company upon the occurrence of the Corporate Transaction,
notwithstanding anything to the contrary provided in this
Agreement;
(3) With respect to any Corporate Transaction, including,
without limitation, a merger or consolidation, declare, prior to
the occurrence of the Corporate Transaction, and provide written
notice of such declaration to each holder of an Option or Stock
Appreciation Right, that (i) each outstanding Option and
Stock Appreciation Right then exercisable, or that becomes
exercisable pursuant to the terms of the agreement related to
such Option or Stock Appreciation Right prior to the occurrence
of such Corporate Transaction, shall be canceled at the time of,
or immediately prior to the occurrence of, the Corporate
Transaction in exchange for payment to each holder of an Option
or Stock Appreciation Right, promptly after the Corporate
Transaction, of cash (or, if the Committee so elects in lieu of
solely cash, of such form(s) of consideration, including cash
and/or
property, solely or in such combination as the Committee shall
determine, that the holders of Options and Stock Appreciation
Rights would have received as a result of the Corporate
Transaction if such holders had exercised the Options and Stock
Appreciation Rights immediately prior to the Corporate
Transaction) equal to, for each Share covered by a canceled
Option or Stock Appreciation Right, the amount, if any, by which
the fair market
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value per Share exceeds the exercise price per Share covered by
such Option or Stock Appreciation Right, and (ii) each
outstanding Option and Stock Appreciation Right that does not
become exercisable prior to the occurrence of such Corporate
Transaction, shall be canceled at the time of, or immediately
prior to, the Corporate Transaction without payment or any other
consideration. In the event of a declaration pursuant to this
Section 13(a)(3), each outstanding Option and Stock
Appreciation Right, to the extent that it shall not have been
exercised prior to the Corporate Transaction, shall be canceled
at the time of, or immediately prior to, the Corporate
Transaction, as provided in the declaration;
(4) With respect to any Corporate Transaction, including,
without limitation, a merger or consolidation, declare, prior to
the occurrence of the Corporate Transaction, and provide written
notice of such declaration to each holder of an Option or Stock
Appreciation Right, that each outstanding Option and Stock
Appreciation Right shall be canceled at the time of, or
immediately prior to the occurrence of, the Corporate
Transaction without payment or any other consideration. In the
event of a declaration pursuant to this Section 13(a)(4),
each outstanding Option and Stock Appreciation Right, to the
extent that it shall not have been exercised prior to the
Corporate Transaction, shall be canceled at the time of, or
immediately prior to, the Corporate Transaction, as provided in
the declaration;
(5) With respect to any Corporate Transaction, including,
without limitation, a merger or consolidation, declare, prior to
the occurrence of the Corporate Transaction, and provide written
notice of such declaration to each holder of an Option or Stock
Appreciation Right, that (i) each outstanding Option and
Stock Appreciation Right shall be canceled at the time of, or
immediately prior to the occurrence of, the Corporate
Transaction without payment or any other consideration, and
(ii) at the time of the declaration, each Option and Stock
Appreciation Right shall immediately become exercisable in full
and each holder of an Option or Stock Appreciation Right shall
have the right, during the period preceding the time of
cancellation of the Option or Stock Appreciation Right, to
exercise the Option or Stock Appreciation Right as to all or any
part of the Shares covered thereby in whole or in part, as the
case may be. In the event of a declaration pursuant to this
Section 13(a)(5), each outstanding Option and Stock
Appreciation Right, to the extent that it shall not have been
exercised prior to the Corporate Transaction, shall be canceled
at the time of, or immediately prior to, the Corporate
Transaction, as provided in the declaration;
(6) Provide, upon the occurrence of the Corporate
Transaction, for the vesting and corresponding waiver of
forfeiture conditions and other restrictions on Restricted Stock
Awards or Restricted Stock Unit Awards that are outstanding as
of the occurrence of the Corporate Transaction, and provide for
notice thereof to the holders of such Awards; or
(7) Provide that, upon the occurrence of the Corporate
Transaction, any portions of any Restricted Stock Awards or
Restricted Stock Unit Awards that are subject to vesting
conditions, forfeiture conditions or other restrictions as of
the occurrence of the Corporate Transaction shall be canceled
without payment or any other consideration, and provide for
notice thereof to the holders of such Awards.
(b) Notwithstanding the foregoing, no holder of an Award
shall be entitled to the payment provided for in this
Section 13 with respect to the any portion of such Award as
shall have expired or been forfeited prior to the occurrence of
the applicable Corporate Transaction.
(c) Notwithstanding any provision of Section 13(a) to
the contrary, at such time as the Company is a participant in
the Troubled Assets Relief Program under EESA, no action of the
Committee taken pursuant to Section 13(a) with respect to
any Award, including, without limitation, the vesting and waiver
of forfeiture conditions or other restrictions with respect to
such Award, shall be effective where such action would
constitute, or result in, a violation or breach of any
restriction or standard imposed on the Company by law, including
any related regulation or guidance, or contract as a consequence
of the Companys participation in the Troubled Assets
Relief Program.
14.
Plan Participation and Service Provider
Status
.
Status as a Service Provider shall
not be construed as a commitment that any Award will be made
under the Plan to that Service Provider or to eligible Service
Providers generally. Nothing in the Plan or in any Agreement or
related documents shall confer upon any Service Provider or
Participant any right to Continuous Service with the Company or
any Affiliate, nor shall it interfere with or limit in
A-11
any way any right of the Company or any Affiliate to terminate
the persons Continuous Service at any time with or without
Cause or change such persons compensation, other benefits,
job responsibilities or title.
15.
Tax Withholding
.
The Company
or any Affiliate, as applicable, shall have the right to
(i) withhold from any cash payment under the Plan or any
other compensation owed to a Participant (including a Successor
or a Transferee) an amount sufficient to cover any required
withholding taxes, and (ii) require a Participant or other
person receiving Shares under the Plan to pay a cash amount
sufficient to cover any required withholding taxes before actual
receipt of those Shares. In lieu of all or any part of a cash
payment from a person receiving Shares under the Plan, the
Committee may permit the individual to cover all or any part of
the required withholdings (up to the Participants minimum
required tax withholding rate or such other rate that will not
trigger a negative accounting impact) through a reduction in the
number of Shares delivered or a delivery or tender to the
Company of Shares held by the Participant or other person, in
each case valued in the same manner as used in computing the
withholding taxes under applicable laws.
16.
Effective Date, Duration, Amendment and
Termination of the Plan
.
(a)
Effective Date
.
The Plan shall
become effective on the date it is approved by the requisite
vote of the Companys stockholders.
(b)
Duration of the Plan
.
The Plan
shall remain in effect until all Shares subject to it shall be
distributed, all Awards have expired or terminated, the Plan is
terminated pursuant to Section 16(c), or the tenth
anniversary of the date of stockholder approval of the Plan,
whichever occurs first (the
Termination
Date
). Awards made before the Termination Date may be
exercised, vested or otherwise effectuated beyond the
Termination Date unless limited in the Agreement or otherwise.
(c)
Amendment and Termination of the
Plan
.
Except as limited in Section 16(d)
below, the Board may at any time and from time to time
terminate, suspend or amend the Plan. The Company shall submit
any amendment of the Plan to its stockholders for approval if
the rules of the principal securities exchange on which the
shares are then listed or other applicable laws or regulations
require stockholder approval of such amendment. No termination,
suspension, or amendment of the Plan or any Agreement may
materially and adversely affect any right acquired by any
Participant (or Successor or Transferee) under an Award granted
before the date of termination, suspension, or amendment, unless
otherwise agreed to by the Participant in the Agreement or
otherwise, or required as a matter of law or effectuated
pursuant to Section 20(e)(5) of this Plan. It will be
conclusively presumed that any adjustment for changes in
capitalization provided for in Sections 11(b) or 17, and
any amendment to the Plan or any Agreement to avoid the
imposition of any additional tax under Code Section 409A
does not adversely affect these rights.
(d)
No Option or SAR
Repricing
.
Except as provided in
Section 17, no Option or Stock Appreciation Right granted
under the Plan may be amended to decrease the exercise price
thereof, or be cancelled in conjunction with the grant of any
new Option or Stock Appreciation Right with a lower exercise
price, or otherwise be subject to any action that would be
treated under accounting rules or otherwise as a
repricing of such Option or Stock Appreciation
Right, unless such action is approved by the Companys
stockholders.
17.
Adjustment for Changes in
Capitalization
.
In the event of any equity
restructuring (within the meaning of Statement of Financial
Accounting Standards No. 123 (revised 2004), referred to as
FAS 123R
) that causes the per share
value of Shares to change, such as a stock dividend or stock
split, the Committee shall cause there to be made an equitable
adjustment to the number and kind of Shares or other securities
issued or reserved for issuance pursuant to the Plan and to
outstanding Awards (including but not limited to the number and
kind of Shares to which such Awards are subject, and the
exercise or strike price of such Awards) to the extent such
other Awards would not otherwise automatically adjust in the
equity restructuring; provided, in each case, that with respect
to Incentive Stock Options, no such adjustment shall be
authorized to the extent that such adjustment would cause such
Incentive Stock Options to violate Code Section 422(b) or
any successor provision; provided further, that no such
adjustment shall be authorized under this Section to the extent
that such adjustment would cause an Award to be subject to
adverse tax consequences under Code Section 409A. In the
event of any other change in corporate capitalization, which may
include a merger, consolidation, any reorganization (whether or
not such reorganization comes within the definition of such term
in Code Section 368), or any partial or complete
liquidation of the Company to the extent such events do not
constitute equity restructurings or business combinations within
the meaning of FAS 123R, such
A-12
equitable adjustments described in the foregoing sentence may be
made as determined to be appropriate and equitable by the
Committee to prevent dilution or enlargement of rights. In
either case, any such adjustment shall be conclusive and binding
for all purposes of the Plan. Unless otherwise determined by the
Committee, the number of Shares subject to an Award shall always
be a whole number.
18.
Dividend Equivalents
.
An Award
(other than an Option or SAR) that does not involve the issuance
of Shares concurrently with the grant of the Award may, if so
determined by the Committee, provide the Participant with the
right to receive dividend equivalent payments with respect to
Shares subject to the Award (both before and after the Shares
are earned, vested or acquired), which payments may be either
made currently, credited to an account for the Participant, or
deemed to have been reinvested in additional Shares which shall
thereafter be deemed to be part of and subject to the underlying
Award, including the same vesting and performance conditions.
Dividend equivalent amounts credited to an account for the
Participant may be settled in cash or Shares or a combination of
both, as determined by the Committee, and shall be subject to
the same vesting and performance conditions as the underlying
Award.
19.
Performance-Based Compensation
.
(a)
Designation of Awards
.
If the
Committee determines at the time a Full Value Award is granted
to a Participant who is then an executive officer of the Company
that such Participant is, or is likely to be, a covered
employee for purposes of Code Section 162(m) as of
the end of the tax year in which the Company would ordinarily
claim a tax deduction in connection with such Award, then the
Committee may provide that this Section 19 will be
applicable to such Award, which shall be considered
Performance-Based Compensation.
(b)
Performance Measures
.
If an
Award is subject to this Section 19, then the lapsing of
restrictions thereon and the distribution of cash, Shares or
other property pursuant thereto, as applicable, shall be subject
to the achievement of one or more of the Performance Measures
specified in the definition of that term in this Plan. When
establishing Performance Measures for a Performance Period, the
Committee may exclude amounts or charges relating to an event or
occurrence that the Committee determines, consistent with the
requirements of Code Section 162(m), should appropriately
be excluded. The Committee may also adjust Performance Measures
for a Performance Period to the extent permitted by Code
Section 162(m) to prevent the dilution or enlargement of a
Participants rights with respect to Performance-Based
Compensation. The Committee will determine any amount payable in
connection with an Award subject to this Section 19
consistent with the requirements of Code Section 162(m),
and may adjust downward, but not upward, any amount determined
to be otherwise payable in connection with such an Award.
(c)
Limitations
.
Subject to
adjustment as provided in Section 17, no Participant may be
granted Performance-Based Compensation in any calendar year with
respect to more than 75,000 Shares, for Awards denominated
in Shares, and the maximum dollar value payable to any
Participant in any 12 month period with respect to
Performance-Based Compensation denominated in cash is $500,000.
20.
Other Provisions
.
(a)
Unfunded Plan
.
The Plan shall
be unfunded and the Company shall not be required to segregate
any assets that may at any time be represented by Awards under
the Plan. Neither the Company, its Affiliates, the Committee,
nor the Board shall be deemed to be a trustee of any amounts to
be paid under the Plan nor shall anything contained in the Plan
or any action taken pursuant to its provisions create or be
construed to create a fiduciary relationship between the Company
and/or
its
Affiliates, and a Participant or Successor or Transferee. To the
extent any person has or acquires a right to receive a payment
in connection with an Award under the Plan, this right shall be
no greater than the right of an unsecured general creditor of
the Company.
(b)
Limits of Liability
.
(1) Any liability of the Company to any Participant or
Successor or Transferee with respect to an Award shall be based
solely upon contractual obligations created by the Plan and the
Award Agreement.
(2) Except as may be required by law, neither the Company
nor any member of the Board or of the Committee, nor any other
person participating (including participation pursuant to a
delegation of authority under Section 3(c) of the Plan) in
any determination of any question under the Plan, or in the
interpretation, administration or
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application of the Plan, shall have any liability to any party
for any action taken, or not taken, in good faith under the Plan.
(c)
Compliance with Applicable Legal
Requirements
.
No Shares distributable
pursuant to the Plan shall be issued and delivered unless the
issuance of the Shares complies with all applicable legal
requirements, including compliance with the provisions of
applicable state securities laws, the Securities Act, the
Exchange Act and the requirements of the exchanges on which the
Companys Shares may, at the time, be listed.
(d)
Other Benefit and Compensation
Programs
.
Payments and other benefits
received by a Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participants regular,
recurring compensation for purposes of the termination,
indemnity or severance pay laws of any country and shall not be
included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or
similar arrangement provided by the Company or an Affiliate
unless expressly so provided by such other plan, contract or
arrangement, or unless the Committee expressly determines that
an Award or portion of an Award should be included to accurately
reflect competitive compensation practices or to recognize that
an Award has been made in lieu of a portion of competitive cash
compensation.
(e)
Requirements of Law
.
(1) To the extent that federal laws do not otherwise
control, the Plan and all determinations made and actions taken
pursuant to the Plan shall be governed by the laws of the State
of Delaware without regard to its
conflicts-of-law
principles and shall be construed accordingly.
(2) If any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision
had not been included.
(3) It is intended that the Plan and all Awards granted
pursuant to it shall be administered by the Committee so as to
permit the Plan and Awards to comply with Exchange Act
Rule 16b-3.
If any provision of the Plan or of any Award would otherwise
frustrate or conflict with the intent expressed in this
Section 20(e)(3), that provision to the extent possible
shall be interpreted and deemed amended in the manner determined
by the Committee so as to avoid the conflict. To the extent of
any remaining irreconcilable conflict with this intent, the
provision shall be deemed void as applied to Participants
subject to Section 16 of the Exchange Act to the extent
permitted by law and in the manner deemed advisable by the
Committee.
(4) It is intended that (i) all Awards of Options,
SARs and Restricted Stock under the Plan will not provide for
the deferral of compensation within the meaning of Code Section
409A and thereby be exempt from Code Section 409A, and
(ii) all other Awards under the Plan will either not
provide for the deferral of compensation within the meaning of
Code Section 409A, or will comply with the requirements of Code
Section 409A, and Awards shall be structured and the Plan
administered in accordance with this intent. For Awards subject
to Code Section 409A, the following provisions shall apply:
(A)
Separation from Service
. If any
amount shall be payable with respect to any Award hereunder as a
result of a Participants termination of employment or
other service, then notwithstanding any other provision of this
Plan, a termination of employment or other service will be
deemed to have occurred only at such time as the Participant has
experienced a separation from service as such term
is defined for purposes of Code Section 409A.
(B)
Timing of Payment to a Specified
Employee
. If any amount shall be payable with
respect to any Award hereunder as a result of a
Participants separation from service at such
time as the Participant is a specified employee,
then notwithstanding any other provision of this Plan, no
payment shall be made, except as permitted under Code
Section 409A, prior to the first day of the seventh (7th)
calendar month beginning after the Participants separation
from service (or the date of his earlier death). The Company may
adopt a specified employee policy that will apply to identify
the specified employees for all deferred compensation plans
subject to Code Section 409A; otherwise, specified
employees will be identified using the default standards
contained in the regulations under Code Section 409A.
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(5) It is intended that the Plan, the Awards and any
payments made under the Plan or an Award comply with any and all
laws, including any regulation or guidance issued thereunder
which may apply to the Company, any Employee or Board member
because of the Companys participation in the Troubled
Assets Relief Program under EESA, and the Awards shall be
structured and the Plan administered in accordance with this
intent. The Company shall have the right to amend this Plan or
any Agreement without the consent of the affected Participant,
at any time and from time to time, as the Company, in its sole
judgment, shall deem necessary or advisable in order to comply
with any such law or to avoid a material adverse effect on the
Companys tax position. If the making of any payment or the
provision of any benefit under this Plan or any Agreement would
be in violation of any such law or would, the Committees
sole judgment, have a material adverse effect on the
Companys tax position, or if the making of such payment or
provision of such benefit may, in the Committees sole
judgment, limit or adversely impact the ability of the Company
to participate in, or the terms of the Companys
participation in, any program offered under EESA by the Treasury
or to qualify for any other relief under EESA, each affected
Participant shall be deemed to have waived his right to such
payment or such benefit, or portion thereof, under this Plan or
the Agreement.
A-15
HMN FINANCIAL, INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 28, 2009
10:00 a.m.
1016 Civic Center Drive NW
Rochester, Minnesota
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HMN Financial, Inc.
1016 Civic Center Drive N.W.
Rochester, Minnesota 55901-6057
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proxy
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This proxy is solicited by the Board of Directors for use at the Annual Meeting on Tuesday, April
28, 2009.
The shares of stock you hold in your account will be voted as you specify on the reverse side.
If no choice is specified, the proxy will be voted FOR Items 1, 2, 3 and 4.
By signing the proxy, you revoke all prior proxies and appoint Timothy R. Geisler and Jon J.
Eberle, and each of them with full power of substitution, to vote your shares on the matters shown
on the reverse side and any other matters which may come before the Annual Meeting and all
adjournments.
Vote by Internet, Telephone or Mail
24 Hours a Day, 7 Days a Week
Your phone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
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INTERNET
www.eproxy.com/hmnf
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PHONE
1-800-560-1965
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MAIL
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Use the Internet to vote your proxy
until 12:00 p.m. (CT) on
April 27, 2009.
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Use a touch-tone telephone to
vote your proxy until 12:00 p.m.
(CT) on April 27, 2009.
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Mark, sign and date your proxy
card and return it in the
postage-paid envelope provided.
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Please have your proxy card and the
last four digits of your Social Security
Number or Tax Identification Number
available. Follow the simple instructions
to obtain your records and create an
electronic ballot.
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Please have your proxy card and the
last four digits of your Social Security
Number or Tax Identification Number
available. Follow the simple instructions
the voice provides you.
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If you vote your proxy by Internet or by Telephone, you do NOT need to mail back your Voting Instruction Card.
00065186
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Address Change? Mark Box to the right and Indicate changes below:
o
ADDRESS BLOCK
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COMPANY #
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TO
VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS PROXY
CARD.
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TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND
RETURN THIS PROXY CARD.
The
Board of Directors Recommends a Vote FOR Items 1, 2, 3 and 4.
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1.
Election of directors:
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01 Mahlon C. Schneider
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Vote FOR
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Vote WITHHELD
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02 Hugh C. Smith
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all nominees
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from all nominees
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(except as marked)
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(Instructions: To withhold authority to vote for any
indicated nominee, write the number(s) of the nominee(s) in
the box provided to the right.)
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Please fold here Do not separate
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2.
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The ratification of the appointment of KPMG LLP as the independent
registered public accounting firm of the Company for the fiscal year
ending December 31, 2009.
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For
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Against
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Abstain
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3.
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The approval of the HMN Financial, Inc. 2009 Equity Incentive Plan.
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For
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Against
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Abstain
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4.
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The approval, in an advisory (non-binding) vote, of the compensation of
executives, as disclosed in the proxy statement.
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o
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For
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o
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Against
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Abstain
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5.
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In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting, or any adjournments or
postponements thereof.
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE
VOTED
FOR
EACH PROPOSAL.
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Date
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Signature(s)
in Box
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Please sign exactly as your name(s) appears on Proxy. If
held in joint tenancy, all persons should sign. Trustees,
administrators, etc., should include title and authority.
Corporations should provide full name of corporation and title
of authorized officer signing the Proxy.
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