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EXHIBIT 10.2




CHANGE-IN-CONTROL AGREEMENT




          AGREEMENT entered into as of May 27, 2008 by and between Home Federal Savings Bank, a
federally chartered savings bank (the “Bank”) and a wholly owned subsidiary of HMN Financial, Inc.,
a Delaware corporation (the “Company”), and                      (the “Executive”).




WITNESSETH:




          WHEREAS, the Executive is a key member of the management of the Company and the Bank and has
heretofore devoted substantial skill and effort to the affairs of the Company and the Bank; and




          WHEREAS, it is desirable and in the best interests of the Bank and the Company and its
shareholders to continue to obtain the benefits of the Executive’s services and attention to the
affairs of the Company and the Bank; and




          WHEREAS, it is desirable and in the best interests of the Bank and the Company and its
shareholders to provide inducement for the Executive (A) to remain in the service of the Company
and the Bank in the event of any proposed or anticipated change in control of the Company and
(B) to remain in the service of the Company and the Bank in order to facilitate an orderly
transition in the event of a change in control of the Company; and




          WHEREAS, it is desirable and in the best interests of the Bank and the Company and its
shareholders that the Executive be in a position to make judgments and advise the Company with
respect to proposed changes in control of the Company or the Bank; and




          WHEREAS, the Executive desires to be protected in the event of certain changes in control of
the Company or the Bank; and




          WHEREAS, for the reasons set forth above, the Bank and the Executive desire to enter into this
Agreement.




          NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
contained herein, the Bank and the Executive agree as follows:




     1. Events. No amounts or benefits shall be payable or provided for pursuant to this
Agreement unless an Event shall occur during the Term of this Agreement.




     (a) For purposes of this Agreement, an “Event” means the occurrence of any of the
following:



 









 






     (i) Any “person” (as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, or any successor statute thereto (the “Exchange
Act”)) acquires or becomes a “beneficial owner” (as defined in Rule 13d-3 or any
successor rule under the Exchange Act), directly or indirectly, of securities of the
Company or the Bank representing 35% or more of the combined voting power of the
then outstanding securities entitled to vote generally in the election of directors
(“Voting Securities”), provided, however, that the following shall not constitute an
Event pursuant to this Section 1(a)(i):




     (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 Section 1(a)(iii)) with respect to which, immediately following
such acquisition, more than 65%, respectively, of (x) the combined voting
power of the Company’s or the Bank’s then outstanding Voting Securities and
(y) the Company’s or the Bank’s then outstanding common stock (the “Common
Stock”) is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who beneficially owned Voting Securities
and Common Stock, respectively, of the Company or the Bank immediately prior
to such acquisition in substantially the same proportions as their ownership
of such Voting Securities and Common Stock, as the case may be, immediately
prior to such acquisition;




     (D) any acquisition of Voting Securities or Common Stock directly from
the Company or the Bank;




     (ii) Continuing Directors shall not constitute a majority of the members of the
Board of Directors of the Company. For purposes of this Section 1(a)(ii),
“Continuing Directors” shall mean: (A) individuals who, on the date hereof, are
directors of the Company, (B) individuals elected as directors of the Company
subsequent to the date hereof for whose election proxies shall have been solicited
by the Board of Directors of the Company or (C) any individual elected or appointed
by the Board of Directors of the Company to fill vacancies on the Board of Directors
of the Company caused by death or resignation (but not by removal) or to fill
newly-created



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directorships, provided that a “Continuing Director” shall not include an individual
whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the threatened election or removal of directors (or
other actual or threatened solicitation of proxies or consents) by or on behalf of
any person other than the Board of Directors of the Company;




     (iii) Consummation of a reorganization, merger or consolidation of the Company
or the Bank 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;




     (iv) (x) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company or the Bank or (y)  approval by the shareholders of
the Company of the sale or other disposition of all or substantially all of the
assets of the Company or the Bank (in one or a series of transactions), other than
to a corporation with respect to which, immediately following such sale or other
disposition, more than 65% of, respectively, (1) the combined voting power of the
then outstanding voting securities of such corporation entitled to vote generally in
the election of directors and (2) the then outstanding shares of common stock of
such corporation is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who were the beneficial owners, respectively, of
the Voting Securities and Common Stock immediately prior to such sale or other
disposition in substantially the same proportions as their ownership, immediately
prior to such sale or other disposition, of the Voting Securities and Common Stock,
as the case may be; or




     (v) The Company or the Bank enters into a letter of intent, an agreement in
principle or a definitive agreement relating to an Event described in Section
1(a)(i), 1(a)(ii), 1(a)(iii) or 1(a)(iv) hereof that ultimately results in such an
Event, or a tender or exchange offer or proxy contest is commenced



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which ultimately results in an Event described in Section 1(a)(i) or 1(a)(ii)
hereof.




Notwithstanding anything stated in this Section 1(a), an Event shall not be deemed to occur
with respect to the Executive if (x) the acquisition or beneficial ownership of the 35% or
greater interest referred to in Section 1(a)(i) is by the Executive or by a group, acting in
concert, that includes the Executive or (y) a majority of the then combined voting power of
the then outstanding voting securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring all or substantially all of
the assets of the Company or the Bank shall, immediately after a reorganization, merger,
consolidation, exchange or disposition of assets referred to in Section 1(a)(iii) or
1(a)(iv), be beneficially owned, directly or indirectly, by the Executive or by a group,
acting in concert, that includes the Executive.




     (b) For purposes of this Agreement, a “subsidiary” of the Company or the Bank shall
mean any entity of which securities or other ownership interests having general voting power
to elect a majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Company or the Bank.



     2. Payments and Benefits. If any Event shall occur during the Term of this Agreement,
then the Executive shall be entitled to receive from the Company, the Bank or either of their
successors (which term as used herein shall include any person acquiring all or substantially all
of the assets of the Company or the Bank) a cash payment and other benefits on the following basis
(unless the Executive’s employment by the Company is terminated voluntarily or involuntarily prior
to the occurrence of the earliest Event to occur (the “First Event”), in which case the Executive
shall be entitled to no payment or benefits under this Section 2):




     (a) If at the time of, or at any time after, the occurrence of the First Event and
prior to the end of the Transition Period (as defined in Section 3(d)), the employment of
the Executive with the Company or the Bank is involuntarily terminated for any reason
(provided, however, that a termination on account of the death or Disability of the
Executive or a termination by the Company or the Bank for Cause does not qualify for
benefits under this Agreement), or is a Constructive Involuntary Termination, the Executive
(or the Executive’s legal representative, as the case may be),




     (i) shall be entitled to receive from the Company, the Bank or either of their
successors, upon such termination of employment with the Company, the Bank or either
of their successors, a cash payment in an amount equal to 2.0 times the sum of the
following:



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     (A) the actual base salary payable by the Bank and included in the gross
income for Federal Income Tax purposes of the Executive during the taxable
year of the Executive ending before the First Event (other than an Event
described in Section 1(a)(v) unless the Executive is terminated prior to the
occurrence of an Event described in Section 1(a)(i), 1(a)(ii), 1(a)(iii) or
1(a)(iv)); and




     (B) the actual bonus payable by the Bank to the Executive with respect to
such taxable year (provided, however, that if Executive’s employment is
terminated under circumstances described in 2(a) above before calculation
and payment of such bonus, then the actual bonus with respect to the year
that precedes such taxable year will be used);




such payment to be made to the Executive by the Company, the Bank or either of their
successors in a lump sum at the time of such termination of employment. The payment
provided under this section is intended to be a short-term deferral and thus exempt
from Section 409A of the Code; and




     (ii) shall be entitled for two years after the termination of the Executive’s
employment with the Company or the Bank to participate in any health insurance plan
or program in which the Executive was entitled to participate immediately prior to
the First Event as if he were an employee of the Company or the Bank during such
two-year period (except for those portions remaining during such two-year period
that duplicate health insurance coverage that is in place for the Executive under
any other policy or program provided at the expense of another employer. In the
event that Executive’s participation in group health insurance coverage is not
possible under any of the applicable plans and laws then in effect, the Company will
purchase coverage reasonably comparable to the coverage provided under the plan
provided by the Company, to the extent such coverage is reasonably available, and
Executive will cooperate with the Company to obtain the most favorable rate for such
coverage for Executive. All such Company-provided premiums or cost of coverage
shall be paid directly to the insurance carrier or other provider by the Company.
The continued coverage under this section is intended to be a reimbursement plan and
to comply with Section 409A of the Code. In this regard, the amount of benefits
provided during Executive’s taxable year will not affect the benefits provided
during any other taxable year, and the right to continued coverage is not subject to
liquidation or exchange for another benefit; and




     (iii) shall be entitled to a lump sum payment in an amount equal to the amount
the Company or the Bank would otherwise expend for its share of the premiums for 24
months of life and disability coverage. Such lump-sum payment will be paid to
Executive at the time of the Executive’s termination of



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employment. The payment provided under this section is intended to be a short-term
deferral and thus exempt from Section 409A of the Code.




     (b) The payments provided for in this Section 2 shall be in addition to any salary or
other remuneration otherwise payable to the Executive on account of employment by the
Company, the Bank or one or more of either of their subsidiaries or successors (including
any amounts received prior to such termination of employment for personal services rendered
after the occurrence of the First Event) but shall be reduced by any severance pay which the
Executive receives from the Bank, its subsidiaries or its successor under any other policy
or agreement of the Bank or its subsidiaries in the event of involuntary termination of
Executive’s employment.




     (c) In the event that at any time from the date of the First Event until the end of the
Transition Period,




     (i) there is a material diminution in the Executive’s authority, duties or
responsibilities in each case as compared with the such authority, duties or
responsibilities immediately prior to the First Event;




     (ii) there is a material reduction in the Executive’s annual base salary as
compared to the annual base salary in effect immediately prior to the First Event;




     (iii) there is a material diminution in the authority, duties or
responsibilities of the supervisor to whom the Executive is required to report,
including a requirement that the Executive report to an officer of the Bank or the
Company rather than the Board of Directors of the Company or the Bank (but only if
the Executive reported to such Board of Directors immediately prior to the First
Event);




     (iv) there is a material diminution in the budget over which the Executive
retains authority; or




     (v) there is a material change in the geographic location at which the
Executive performs his primary duties (for this purpose, a requirement that the
Executive relocate his principal residence by more than 35 miles or a relocation of
the Company’s principal executive offices (if that is where the Executive performed
his duties) by more than 35 miles shall be a “material change”); [or




     [(vi) any other action or inaction by the Company or the Bank that constitutes
a material breach of the Executive’s employment agreement by the Company or the
Bank;]



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and the Executive provides notice to the Company within 90 days of the occurrence of any of
the changes described in Section 2(c)(i)-(v)[(vi)] and the Company thereafter fails to cure
such change within 30 days, then a termination of employment with the Company or the Bank by
the Executive thereafter shall constitute a Constructive Involuntary Termination.




     (d) Notwithstanding any provision to the contrary contained herein except the last
sentence of this Section 2(d), if the lump sum cash payment due and the other benefits to
which the Executive shall become entitled under Section 2(a) hereof, either alone or
together with other payments in the nature of compensation to the Executive which are
contingent on a change in the ownership or effective control of the Company or the Bank or
in the ownership of a substantial portion of the assets of the Company or the Bank or
otherwise, would constitute a “parachute payment” as defined in Section 280G of the Code or
any successor provision thereto, such lump sum payment and/or such other benefits and
payments shall be reduced (but not below zero) to the largest aggregate amount as will
result in no portion thereof being subject to the excise tax imposed under Section 4999 of
the Code (or any successor provision thereto) or being non-deductible to the Company or the
Bank for federal income tax purposes pursuant to Section 280G of the Code (or any successor
provision thereto). The Company or the Bank in good faith shall determine the amount of any
reduction to be made pursuant to this Section 2(d) and shall select from among the foregoing
benefits and payments those which shall be reduced. No modification of, or successor
provision to, Section 280G or Section 4999 subsequent to the date of this Agreement shall,
however, reduce the benefits to which the Executive would be entitled under this Agreement
in the absence of this Section 2(d) to a greater extent than they would have been reduced if
Section 280G and Section 4999 had not been modified or superseded subsequent to the date of
this Agreement, notwithstanding anything to the contrary provided in the first sentence of
this Section 2(d).




     (e) The Executive shall not be required to mitigate the amount of any payment or other
benefit provided for in Section 2 by seeking other employment or otherwise, nor (except as
specifically provided in Section 2(a)(ii) or 2(b)) shall the amount of any payment or other
benefit provided for in Section 2 be reduced by any compensation earned by the Executive as
the result of employment by another employer after termination, or otherwise.




     (f) The obligations of the Company and the Bank under this Section 2 shall survive the
termination of this Agreement.




3. Definition of Certain Additional Terms.




     (a) As used herein, other than in Section 2(a) hereof, the term “person” shall mean an
individual, partnership, corporation, estate, trust or other entity.



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     (b) As used herein, the term “Cause” shall mean, and be limited to:




	 	(i)	 	an act or acts of dishonesty undertaken by
Executive and intended to result in substantial gain or personal
enrichment of Executive at the expense of the Company or the Bank;
	 
	 	(ii)	 	unlawful conduct or gross misconduct that is
willful and deliberate on Executive’s part and that, in either event,
is injurious to the Company or the Bank; or
	 
	 	(iii)	 	the conviction of Executive of a felony.
	 
	 	(iv)	 	failure of Executive to perform his duties and
responsibilities under the Employment Agreement or to satisfy his
obligations as an officer or employee of the Company or the Bank, which
failure has not been cured by Executive within 30 days after written
notice thereof to Executive from the Company or the Bank, as
applicable; or
	 
	 	(v)	 	material breach of any terms and conditions of
the Employment Agreement by Executive not caused by the Company or the
Bank, which breach has not been cured by Executive within ten days
after written notice thereof to Executive from the Company or the Bank.






     (c) As used herein, the term “Disability” shall mean the inability of Executive to
perform on a full-time basis the duties and responsibilities of his employment with the
Company or the Bank by reason of his illness or other physical or mental impairment or
condition, if such inability continues for an uninterrupted period of 180 days or more
during any 360-day period. A period of inability shall be “uninterrupted” unless and until
Executive returns to full-time work for a continuous period of at least 30 days.




     (d) As used herein, the term “Transition Period” shall mean the one year period
commencing on the date of the earliest to occur of an Event described in Section 1(a)(i),
1(a)(ii), 1(a)(iii), 1(a)(iv) or 1(a)(v) hereof (the “Commencement Date”) and ending one
year after the Commencement Date.




4. Successors and Assigns.




     (a) This Agreement shall be binding upon and inure to the benefit of the successors,
legal representatives and assigns of the parties hereto; provided, however,



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that the Executive shall not have any right to assign, pledge or otherwise dispose of or
transfer any interest in this Agreement or any payments hereunder, whether directly or
indirectly or in whole or in part, without the written consent of the Company or the Bank or
either of their successors.




     (b) The Company and the Bank will require any successor (whether direct or indirect, by
purchase of a majority of the outstanding voting stock of the Company or the Bank or all or
substantially all of the assets of the Company or the Bank, or by merger, consolidation or
otherwise), by agreement in form and substance satisfactory to the Executive, to assume
expressly and agree to perform this Agreement in the same manner and to the same extent that
the Company and the Bank would be required to perform it if no such succession had taken
place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which is required to execute
and deliver the agreement provided for in this Section 4(b) or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law and “Bank” shall mean
the Bank as hereinbefore defined and any successor to its business and/or assets as
aforesaid which is required to execute and deliver the agreement provided for in this
Section 4(b) or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.



     5. Governing Law. This Agreement shall be construed in accordance with the laws of
the State of Minnesota.



     6. Notices. All notices, requests and demands given to or made pursuant hereto shall
be in writing and shall be delivered or mailed to any such party at its address which:




	 	(a)	 	In the case of the Company or the Bank shall be:
	 
	 	 	 	HMN Financial, Inc.

Attention: Chairman of the Board

1016 Civic Center Drive NW

Rochester, Minnesota 55901
	 
	 	(b)	 	In the case of the Executive shall be:
	 
	 	 	 	                                                            
	 
	 	 	 	                                                            
	 
	 	 	 	                                                            




Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly
addressed, postage prepaid, registered or certified mail, shall be deemed to have been given on the
registered date or that date stamped on the certified mail receipt.




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     7. Severability; Severance. In the event that any portion of this Agreement is held
to be invalid or unenforceable for any reason, it is hereby agreed that such invalidity or
unenforceability shall not affect the other portions of this Agreement and that the remaining
covenants, terms and conditions or portions hereof shall remain in full force and effect, and any
court of competent jurisdiction may so modify the objectionable provision as to make it valid,
reasonable and enforceable.



     8. Term. This Agreement shall commence on the date of this Agreement and shall
terminate, and the Term of this Agreement shall end, on the later of (A) May 30, 2010, provided
that such period shall be extended automatically for one year and from year to year thereafter
until notice of termination is given by the Company or the Executive to the other party hereto at
least 180 days prior to May 30, 2010 or the expiration of the one-year extension period then in
effect, as the case may be, or (B) if the Commencement Date occurs on or prior to May 30, 2010 (or
prior to the end of the extension year then in effect as provided for in clause (A) hereof), one
year after the Commencement Date.



     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.



	 	 	 	 	 	 	 	 	 
	 	 	HOME FEDERAL SAVINGS BANK	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Its	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Executive	 	 
	 
	 	 	 	 	 	 	 







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