Exhibit
10.3c


 


CONFIDENTIAL


 


SEPARATION AGREEMENT


 


THIS SEPARATION AGREEMENT (this “Agreement”) is made
and entered into by and among Timothy P. Johnson (“Johnson”), a resident of
Minnesota, HMN Financial, Inc., a Delaware corporation (the “Company”), and Home
Federal Savings Bank, a federally chartered savings bank (the “Bank”) and a
wholly owned subsidiary of the Company.


 


BACKGROUND


 


A.                                   Johnson
was employed by the Company and/or the Bank since 1992.  Johnson has served as a director and as the
Chief Financial Officer for the Company and as a director and as the Chief
Financial Officer for the Bank since November 1, 2000.


 


B.                                     Johnson
was employed under the terms of an Employment Agreement effective as of January
1, 2002 (the “Employment Agreement”), is party to Incentive Stock Option
Agreements dated as of June 21, 1995 and April 16, 2002 (the “Option
Agreements”), owns one share preferred stock of Home Federal REIT, Inc., a
Delaware corporation and indirect subsidiary of the Bank (“REIT”), and also was
eligible to participate in other plans and programs of the Company and other
plans and programs of the Bank.


 


C.                                     Johnson
has announced his intent to resign as an employee, officer and director of the
Company and of the Bank effective as of March 31, 2003 (the “Separation Date”).


 


D.                                    The
parties are concluding Johnson’s employment relationship amicably, but mutually
recognize Johnson’s employment relationship may give rise to potential claims
or liabilities.


 


 

















 


E.                                      The
Company and the Bank expressly deny that they may be liable to Johnson on any
basis or that they have engaged in any unlawful or improper conduct toward
Johnson or treated Johnson unfairly.


 


F.                                      The
parties desire to resolve all issues now in dispute between Johnson and the
Company and the Bank and have agreed to a full settlement of such issues.


 


NOW THEREFORE, in consideration of the mutual promises
and provisions contained in this Agreement and the Releases referred to below,
the parties, intending to be legally bound, agree as follows:


 


AGREEMENTS


 


1.                                      Releases.


 


a.                                       Release
by Johnson.  On or within 21
days after the Separation Date, Johnson shall execute a Release in the form
attached to this Agreement as Exhibit A (the “Johnson Release”).  This Agreement will not be interpreted or
construed to limit the Johnson Release in any manner.


 


b.                                       Release
by the Company.  On or within 21
days after the Separation Date, the Company will execute a Release in the form
attached to this Agreement as Exhibit B (the “Company Release”).  This Agreement will not be interpreted or
construed to limit the Company Release in any manner.


 


2.                                      Resignations.  By executing this Agreement, Johnson
confirms his resignation of all positions held by Johnson as an employee,
officer, or director of the Company, of the Bank, and of any direct or indirect
affiliate of the Company or the Bank. 
All such resignations are effective as of the Separation Date.  The Company and the Bank each


 


2

















 


confirm their acceptance of Johnson’s resignations, respectively.  At the same time he signs this Agreement,
Johnson will also sign eight copies of a letter affirming his resignations, for
inclusion in the corporate records of the Company, the Bank and their
affiliates, in the form attached to this Agreement as Exhibit C.


 


3.                                      Duties
Through Separation Date; Use of Vacation Time.


 


a.                                       Duties.  From the date of this Agreement through
the Separation Date Johnson shall continue to serve as Chief Financial Officer
of the Company and of the Bank, and will perform duties associated with such
positions.  The Company and the Bank
acknowledge Johnson’s intent to use accrued vacation time for the period from
March 7, 2003 through the Separation Date, and authorize Johnson taking such
vacation time; provided, however that Johnson will make himself available to
the Company and the Bank during such vacation time as necessary to fulfill his
duties as Chief Financial Officer.  The
Company and the Bank will make a good faith effort not to unduly interrupt
Johnson’s vacation and to limit its requests for assistance during his vacation
to once per week.


 


b.                                       Vacation.  Following the Separation Date, the Bank
shall pay Johnson a lump sum for his remaining accrued and unused vacation
time.  If Johnson uses vacation time for
each business day from the date of this Agreement through the Separation Date,
the lump sum will be $6,730.77, less all legally required and authorized
withholdings, based upon an anticipated unused vacation accrual balance of 112
hours.  If Johnson does not use vacation
time for each day from the date of this Agreement through the Separation Date,
his accrued vacation will be adjusted upward in accordance with the regular
policies and practices of the Bank.


 


3

















 


4.                                      Severance
Payments.  The Bank will make
the severance payments set forth in subparagraphs 4.a, 4.b, and 4.c below to
Johnson or on his behalf in lieu of any further payments or compensation that
he would otherwise be entitled to receive under the Employment Agreement, any
incentive program or plan, or as an employee, officer or director of the
Company or of the Bank.  The Bank will
make such payments only if (i) Johnson has not revoked this Agreement or
the Release within the revocation period set forth in paragraph 23 below
(the “Revocation Period”), (ii) the Bank has received written confirmation
from Johnson, in the form attached to this Agreement as Exhibit D, dated not
earlier than the day after the expiration of the Revocation Period, that Johnson
has not revoked and will not revoke this Agreement or the Johnson Release, and
(iii) Johnson has not breached his obligations pursuant to this Agreement
or the Johnson Release.


 


a.                                       Severance
Pay.  The Bank shall pay Johnson
as severance pay $10,937.50, less all legally required and authorized
withholding, payable in a lump sum on the later of (i) the Bank’s first
regularly scheduled payroll date after the Separation Date or (ii) two business
days after the expiration of the Revocation Period.


 


b.                                       Income
Maintenance.  Subject to the
limitations set forth below, the Bank shall pay Johnson income maintenance of
up to fifteen (15) months of Johnson’s base salary as of the Separation Date,
less all legally required and authorized withholdings, in equal installments
over the period from the Separation Date through and including June 30,
2004.  This income maintenance will be
payable pursuant to the Bank’s regular payroll practices and schedule,
commencing on the first payroll date after the Separation Date; provided,
however, that no income maintenance shall be paid until after expiration of the


 


4

















 


Revocation Period. The
Bank shall deduct from any income maintenance payable under this subparagraph
4.b any amount earned as net income by Johnson as a result of self-employment
or as gross income as a result of employment with any other employer, other
than income resulting from Johnson’s foster care duties, during the period from
April 1, 2003 to June 30, 2004.


 


c.                                       Health
Insurance Premiums.  If Johnson
elects to continue his group health insurance under the terms of
paragraph 5 below, the Bank shall pay a portion of the premiums required
to maintain such COBRA coverage, at the same level of coverage that was in effect
on the Separation Date, to the same extent as if Johnson were an employee of
the Bank (the “Employer’s Share”). Payment of the Employer’s Share of the
premiums under this paragraph will be provided for insurance coverage until the
earliest of the following dates: 
(i) June 30, 2004; (ii) the date on which Johnson becomes
eligible for comparable group health insurance coverage from any other
employer, or (iii) the date that COBRA continuation coverage ends under
the applicable plan or laws.  Johnson
shall promptly notify the Bank if he becomes eligible for group health
insurance coverage from any other employer. 
If Johnson elects to continue his group health insurance under the terms
of paragraph 5 below, Johnson shall pay any portion of the premiums required to
maintain such coverage that exceeds the Employer’s Share (“Johnson’s
Share”).  Johnson’s Share is currently
$140.  The Bank shall deduct Johnson’s
Share from any income maintenance payable under paragraph 4.b of this
Agreement.  Where the full amount of
Johnson’s Share exceeds any income maintenance payable under paragraph 4.b,
Johnson shall pay the balance of Johnson’s Share when due.


 


5

















 


d.                                       Disclosure.  For each month from April 1, 2003
through June 30, 2004, Johnson shall promptly and fully disclose to the Bank in
writing (i) the nature and amount of any earned net income from
self-employment and any gross income from employment with any other employer
during any such month (or, if no such income has been earned during any such
month, a statement to that effect), and (ii) whether he has become eligible for
group health insurance coverage from any other employer.  Each monthly statement shall be provided by
Johnson to the Bank’s Human Resources Director no later than the tenth day of
the month following the calendar month to which the statement relates, with the
first statement due May 10, 2003.  At
the Bank’s request, Johnson will provide the Bank with documentation of such
earnings, including without limitation form W-2s, form 1099s, tax returns, wage
statements, or similar documentation. 
Johnson shall repay any amounts to the Bank that should have been so
mitigated or reduced but for Johnson’s delay, failure, or unwillingness to make
such disclosures.


 


5.                                      Health
Insurance Continuation.  Johnson
will have the right to continue his group health insurance coverage after the
Separation Date under such terms as are made available to similarly-situated
former employees of the Bank, pursuant to the terms and conditions of the
applicable plan and laws regarding continuation coverage.  Except as provided in paragraph 4.c of this
Agreement, such continuation coverage will be at Johnson’s expense.


 


6.                                      Stock
Options; Other Equity.


 


a.                                       Company
Options.  Johnson agrees and
acknowledges that the options listed in this paragraph below are his only
options to purchase shares of the Company’s


 


6

















 


Common Stock and that
such options are exercisable only to the extent reflected in the “Amount
Exercisable” column below.  Johnson
further agrees and acknowledges that all of his options to purchase the
Company’s Common Stock will lapse and cease to be outstanding on June 30,
2003, unless previously exercised in accordance with the terms of the
applicable option agreement and plan.


 


	
  Plan

  	
   

  	
  Date of

  Grant

  	
   

  	
  Exercise

  Price

  	
   

  	
  Number of

  Shares

  	
   

  	
  Amount

  Exercisable

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1995

  	
   

  	
  6/21/1995

  	
   

  	
  $

  	
  9.21

  	
  * 

  	
  34,231

  	
  * 

  	
  29,639

  	
  * 

  
	
  2001

  	
   

  	
  4/16/2002

  	
   

  	
  $

  	
  16.13

  	
   

  	
  16,447

  	
   

  	
  0

  	
   

  



 












* All figures in the
above chart reflect the Company’s three-for-two stock split of 1998.


 


b.                                       REIT
Equity.  Within five (5) days
after the Separation Date, Johnson and the Bank will execute a Stock Repurchase
Agreement in the form attached to this Agreement as Exhibit E (the “Stock
Repurchase Agreement”).  Johnson will be
entitled to receive any dividends declared through the Separation Date with
respect to the share currently owned by Johnson, to the same extent as other
preferred shareholders of REIT.  Johnson
acknowledges and agrees that he does not have any other equity or ownership
interests in the Company, the Bank, or any of their direct or indirect
affiliates, except as specifically set forth in this Agreement.


 


7.                                      Retirement
Plans.  To the extent that
Johnson is currently a participant in any retirement, pension, or profit
sharing plans of the Company and/or the Bank (including without limitation the
employee stock ownership plan in which Johnson is currently a participant),
Johnson will be entitled to begin drawing his benefits at the times and under
the terms and conditions set forth in any such plan.


 


7

















 


8.                                      Confidential
Information.


 


a.                                       General
Standard.  Except as permitted
in writing by the Company’s Board of Directors, Johnson shall not at any time
divulge, furnish, disclose, make accessible or use any confidential,
proprietary, or secret knowledge or information of the Company or the Bank that
Johnson acquired during the term of his employment as an employee, officer, or
director of the Company or the Bank, whether developed by himself or by others,
concerning any business strategies, marketing plans or customer lists of the
Company or the Bank or any other confidential or proprietary information or
secret aspects of the business of the Company or the Bank.  Johnson acknowledges that the
above-described knowledge and information constitutes a unique and valuable
asset of the Company and the Bank and represents a substantial investment of
time and expense by the Company and the Bank, and that any disclosure or other
use of such knowledge or information other than for the sole benefit of the
Company or the Bank would be wrongful and would cause irreparable harm to the
Company and the Bank.  The foregoing
obligations of confidentiality shall not apply to information that (i) is or
becomes generally available to the public in the form in which it was obtained
from the Company or the Bank, other than as a direct or indirect result of the
breach of this Agreement by Johnson (ii) was independently made available to
Johnson in good faith by a third party who has not violated a confidential
relationship with the Company or the Bank, or (iii) is required to be disclosed
by legal process.


 


b.                                       Equitable
Relief.  Johnson agrees that the
restrictions and agreements contained in this paragraph 8 are reasonable and
necessary to protect the legitimate interests of the Company and the Bank and
that any violation of this paragraph 8 will cause substantial


 


8

















 


and irreparable harm to
the Company and the Bank that would not be quantifiable and for which no
adequate remedy would exist at law and accordingly injunctive relief will be
available for any violation of this paragraph 8.


 


9.                                      Future
Cooperation.  At the reasonable
request of the Company or the Bank and upon reasonable notice, Johnson will,
from time to time and without further consideration, timely execute and deliver
such acknowledgements, instruments, certificates, and other ministerial
documents (including without limitation, certification as to specific actions
performed by Johnson in his capacity as an officer or director of the Company
or the Bank) as may be necessary or appropriate to formalize and complete the
applicable corporate records; provided, however, that nothing in this paragraph
9 will require Johnson to take any action that he reasonably believes to be
unlawful or unethical or to make any inaccurate statement of actual facts or to
attest to matters outside his personal knowledge.  In addition, at the reasonable request of the Company or the Bank
and upon reasonable notice during the period Johnson is receiving income
maintenance pursuant to subparagraph 4.b, without further consideration,
Johnson will respond to inquiries and discuss with the Company or the Bank
matters related to his responsibilities while he was employed by the Company
and the Bank, provided, however, that the Bank will compensate Johnson at the
rate of $100 per hour for agreed-upon time spent in excess of five hours.


 


10.                               Press
Release.  Johnson understands
and agrees that the Company and the Bank will issue a press release announcing
his departure.  Johnson gives his
approval and consent for the issuance of a press release in the form attached
to this Agreement as Exhibit F


 


9

















 


and agrees that the press release contains no
information about him that is untrue or defamatory or that will tend to harm
his reputation in any way.


 


11.                               Future
References.  Following the
Revocation Period, the Company and the Bank shall provide to Johnson a
reference letter in the form attached to this Agreement as Exhibit G.  Additional originals of the reference letter
will be provided by the Bank upon the reasonable request of Johnson.  It is Johnson’s responsibility to direct or
cause to be directed all future requests for references concerning him to the
Human Resources Director of the Bank, who will respond to such requests by
confirming the dates of Johnson’s employment, identifying the positions held,
describing his duties and responsibilities, and, at his request, confirming his
base salary.  In addition, at the
reasonable request of Johnson to the Human Resources Director of the Bank, the
Bank will send a letter in response to reference requests substantially in the
form attached to this Agreement as Exhibit G and signed by the President of the
Bank.


 


12.                               Records,
Documents, and Property.  On or
before the date he signs this Agreement, Johnson will deliver to the Bank any and
all Company or Bank records and any and all Company or Bank property in his
possession or under his control, including without limitation, manuals, books,
blank forms, documents, letters, memoranda, notes, notebooks, reports,
printouts, computer disks, computer tapes, data, tables, or calculations and
all copies thereof, documents that in whole or in part contain any trade
secrets or confidential, proprietary, or other secret information of the
Company or the Bank and all copies thereof, and keys, access cards, access
codes, source codes, passwords, credit cards, personal


10

















 


computers, telephones,
and other electronic equipment belonging to the Company or the Bank.


 


13.                               Non-disparagement.  Johnson will not malign, defame, or
disparage the reputation, character, image, products, or services of the
Company or the Bank, or the reputation or character of the directors, officers,
employees, or agents of the Company or the Bank.  The Bank will not authorize or permit any statements to be made
on behalf of the Bank that malign, defame, or disparage the reputation,
character, or image of Johnson.


 


14.                               Johnson’s
Representation.  Johnson
represents that, during the entire period that he was an employee, officer or
director of the Company or the Bank or any of their affiliates, he acted in
good faith, had no reasonable cause to believe that his conduct was unlawful,
and reasonably believed that his conduct was in the best interests of the
Company and the Bank and their affiliates.


 


15.                               Claims
Involving the Company or the Bank. 
Johnson will not recommend or suggest to any potential claimants or
plaintiffs or their attorneys or agents that they initiate claims or lawsuits
against the Company or the Bank; any affiliates or divisions of the Company or
the Bank; or any directors, officers, employees, or agents of the Company or
the Bank or any of their affiliates. 
Nor will Johnson voluntarily aid, assist, or cooperate with any claimants
or plaintiffs or their attorneys or agents in any claims or lawsuits now
pending or commenced in the future against the Company or the Bank, any
affiliates or divisions of the Company or the Bank, or any directors, officers,
employees, or agents of the Company or the Bank or any of their affiliates.  However, this paragraph will not be
interpreted or construed to prevent Johnson from giving testimony in response
to questions asked pursuant to a legally


 


11

















 


enforceable subpoena,
deposition notice, or other legal process, during any legal proceedings or
arbitrations involving the Company or the Bank, any affiliates or divisions of
the Company or the Bank, or any directors, officers, employees, or agents of
the Company or the Bank or any of their affiliates.


 


16.                               Full
Compensation.  Johnson
understands that the payments made and other consideration provided by the
Company and the Bank under this Agreement will fully compensate Johnson for and
extinguish any and all of the potential claims Johnson is releasing in the
Johnson Release, including without limitation, his claims for attorneys’ fees
and costs and any and all claims for any type of legal or equitable relief.


 


17.                               No
Admission of Wrongdoing. 
Johnson understands that this Agreement does not constitute an admission
that the Company or the Bank have violated any local ordinance, state or
federal statute, or principle of common law, or that the Company or the Bank
have engaged in any unlawful or improper conduct toward Johnson.  Johnson will not characterize this Agreement
or the payment of any money or other consideration in accordance with this
Agreement as an admission that the Company or the Bank have engaged in any
unlawful or improper conduct toward him or treated him unfairly.


 


18.                               Authority.  Johnson represents and warrants that he has
the authority to enter into this Agreement and the Johnson Release, and that no
causes of action, claims, or demands released pursuant to this Agreement and
the Johnson Release have been assigned to any person or entity not a party to
this Agreement and the Johnson Release.


 


19.                               Legal
Representation.  Johnson
acknowledges that he has been advised by the Company and the Bank to consult
with his own attorney before executing this Agreement and


 


12

















 


the Johnson Release, that
he has had a full opportunity to consider this Agreement and the Release, that
he has had a full opportunity to ask any questions that he may have concerning
this Agreement, the Johnson Release, or the settlement of his potential claims
against the Company or the Bank, and that he has not relied upon any statements
or representations made by the Company or the Bank or their respective
attorneys, written or oral, other than the statements and representations that
are explicitly set forth in this Agreement, the Johnson Release, the Company
Release, the Option Agreements, the Stock Repurchase Agreement, and any
qualified employee benefit plans sponsored by the Bank in which Johnson is a
participant.


 


20.                               Assignment.  The Company and the Bank may, without the
consent of Johnson, each assign its or their rights and obligations under this
Agreement (1) to an affiliate of either or both of them or (2) to any
corporation or other person or business entity to which the Company or the Bank
or both of them may sell or transfer all or substantially all of its or their
assets.  After any such assignment by
the Company and/or the Bank, the assignor or assignors shall be discharged from
all further liability under this Agreement. 
Johnson may not assign his rights or obligations under this Agreement
without prior and  express written
consent from the Company and the Bank.


 


21.                               Entire
Agreement.  This Agreement, the
Johnson Release, the Company Release, the Option Agreements, the Stock
Repurchase Agreement, and any qualified employee benefit plans sponsored by the
Bank in which Johnson is a participant are intended to define the full extent
of the legally enforceable undertakings of the parties, and no promises or representations,
written or oral, that are not set forth explicitly in this Agreement,


 


13

















 


the Johnson Release, the
Company Release, the Option Agreements, the Stock Repurchase Agreement, or any
qualified employee benefit plans sponsored by the Bank in which Johnson is a
participant are intended by either party to be legally binding.  All other agreements and understandings
between the parties, including but not limited to the Employment Agreement, are
hereby cancelled, terminated, and superseded.


 


22.                               Period
to Consider the Release and the Agreement. 
Johnson understands that he has 21 days after the Separation Date to
consider whether to sign this Agreement and the Johnson Release.  If Johnson signs this Agreement and the
Johnson Release before the end of the 21-day period, it will be his voluntary
decision to do so because he has decided he does not need any additional time
to decide whether to sign this Agreement and the Johnson Release.


 


23.                               Right
to Rescind or Revoke.  Johnson
understands that he has the right to rescind or revoke this Agreement and the
Johnson Release for any reason within fifteen (15) calendar days after he
signs them.  Johnson understands that
this Agreement will not become effective or enforceable unless and until he has
not revoked this Agreement or the Johnson Release and the Revocation Period has
expired.  Johnson understands that if he
wishes to revoke, the revocation must be in writing and hand-delivered or
mailed to Home Federal Savings Bank.  If
hand-delivered, the revocation must be (a) addressed to Jeanne Parker,
Human Resources Director,  Home Federal
Savings Bank, 1016 Civic Center Dr. NW, Rochester, MN 55901 and
(b) delivered to Ms. Parker within the fifteen-day period.  If mailed, the revocation must be
(a) postmarked within the fifteen-day period; and


 


14

















 


(b) addressed to
Jeanne Parker, Human Resources Director, 
Home Federal Savings Bank, 1016 Civic Center Dr. NW, Rochester, MN
55901.


 


24.                               Headings.  The descriptive headings of the paragraphs
and subparagraphs of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.


 


25.                               Counterparts.  This Agreement may be executed
simultaneously in two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.


 


26.                               Governing
Law.  This Agreement, the
Johnson Release, and the Company Release will be interpreted and construed in
accordance with, and any dispute or controversy arising from any breach or
asserted breach of this Agreement, the Johnson Release, or the Company Release
will be governed by, the laws of the State of Minnesota.


 


27.                               Conflict
Resolution


 


a.  Mediation.  Except for actions for injunctive relief
authorized by paragraph 8.b of this Agreement, if any dispute arises regarding
the interpretation, construction, application or alleged breach of this
Agreement, the dispute shall be submitted first to non-binding mediation by a
third-party mediator mutually agreed upon by the parties within fifteen (15)
days of the date on which a party provides written notice to the other party
that it or he desires to submit the dispute to mediation pursuant to this
paragraph 27.  The mediator shall be
experienced in conducting mediations, gathering facts and evidence from the
parties and dealing with the subject matter of the dispute.  The mediation shall be conducted in


 


15

















 


Minneapolis, Minnesota,
and all fees and expenses of the mediator shall be shared equally between
Johnson and the Company or the Bank.


 


b.  Arbitration.  If any party or parties is
dissatisfied with the result of any mediation conducted pursuant to paragraph
27.a of this Agreement, the dispute shall be submitted to final and binding
arbitration in Minneapolis, Minnesota. 
The arbitrator shall be selected and the arbitration shall be conducted
pursuant to the then most recent Employment Dispute Resolution Rules of the
American Arbitration Association.  The
decision of the arbitrator shall be final and binding, and any court of
competent jurisdiction may enter judgment upon the award.  All fees and expenses of the arbitrator
shall be shared equally between Johnson and the Company or the Bank.  The arbitrator shall have jurisdiction and
authority to interpret and apply the provisions of this Agreement and relevant
federal, state and local laws, rules and regulations insofar as necessary to
the determination of the dispute and to remedy any breaches of the Agreement
and/or violations of applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement.  The arbitrator shall have
the authority to award attorney’s fees and costs to the prevailing party.


 


[signature page follows]


 


16

















 


IN WITNESS WHEREOF, the parties have executed this
Agreement on the date stated below.


 


 


	
  Dated: March 17,
  2003

  	
  /s/ Timothy P.
  Johnson

  	
   

  	
   

  
	
   

  	
  Timothy P.
  Johnson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated: March 17,
  2003

  	
  HMN FINANCIAL,
  INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BY:

  	
   

  	
  /s/ Michael
  McNeil

  	
   

  	
   

  
	
   

  	
   

  	
  Michael McNeil

  	
   

  
	
   

  	
   

  	
  Its President

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated: March 17,
  2003

  	
  HOME FEDERAL
  SAVINGS BANK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BY:

  	
   

  	
  /s/ Michael
  McNeil

  	
   

  	
   

  
	
   

  	
   

  	
  Michael McNeil

  	
   

  
	
   

  	
   

  	
  Its President

  	
   

  
										



 


17

















 


EXHIBIT
A


 


RELEASE BY TIMOTHY P. JOHNSON


 


Definitions.  I intend all words used in this Release to
have their plain meanings in ordinary English. 
Specific terms that I use in this Release have the following meanings:


 


A.                                   I,
me, and my include both me (Timothy P. Johnson) and anyone who
has or obtains any legal rights or claims through me.


 


B.                                     HMN
means HMN Financial, Inc. any company related to HMN Financial, Inc. in the
present or past (including without limitation, its predecessors, parents,
subsidiaries, affiliates, and divisions), and any successor of HMN Financial,
Inc.


 


C.                                     Home
Federal means Home Federal Savings Bank, any company related to Home
Federal Savings Bank in the present or past (including without limitation, its
predecessors, parents, subsidiaries, affiliates, and divisions), and any
successor of Home Federal Savings Bank.


 


D.                                    Company
means HMN and Home Federal; the present and past officers, directors, governors,
managers, committees, shareholders, members, and employees of HMN or Home
Federal; the present and past fiduciaries of any employee benefit plan
sponsored or maintained by HMN or Home Federal (other than multiemployer
plans); and anyone who acted on behalf of or on instructions from HMN or Home
Federal.


 


E.                                      Agreement
means the Separation Agreement among HMN, Home Federal and me that I executed
on March 17, 2003, including all of the documents attached to the Agreement.


 


F.                                      My
Claims mean all of my rights that I now have to any relief of any kind from
the Company, including without limitation:


 


1.                                       all
claims arising out of or relating to my employment with HMN, Home Federal,  or the termination of that employment;


 


2.                                       all
claims arising out of or relating to the statements, actions, or omissions of
the Company;


 


3.                                       all
claims for any alleged unlawful discrimination, harassment, retaliation or
reprisal, or other alleged unlawful practices arising under any federal, state,
or local statute, ordinance, or regulation, including without limitation,
claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the Americans with


 

















 


Disabilities Act,
42 U.S.C. § 1981, the Employee Retirement Income Security Act, the Equal Pay
Act, the Worker Adjustment and Retraining Notification Act, the Minnesota Human
Rights Act, the Fair Credit Reporting Act, and workers’ compensation
non-interference or non-retaliation statutes (such as Minn. Stat.
§ 176.82);


 


4.                                       all
claims for alleged wrongful discharge; breach of contract; breach of implied
contract; failure to keep any promise; breach of a covenant of good faith and
fair dealing; breach of fiduciary duty; estoppel; my activities, if any, as a
“whistleblower”; defamation; infliction of emotional distress; fraud;
misrepresentation; negligence; harassment; retaliation or reprisal;
constructive discharge; assault; battery; false imprisonment; invasion of
privacy; interference with contractual or business relationships; any other
wrongful employment practices; and violation of any other principle of common
law;


 


5.                                       all
claims for compensation of any kind, including without limitation, bonuses,
commissions, equity-based compensation or stock options, vacation pay, and
expense reimbursements;


 


6.                                       all
claims for back pay, front pay, reinstatement, other equitable relief,
compensatory damages, damages for alleged personal injury, liquidated damages,
and punitive damages; and


 


7.                                       all
claims for attorneys’ fees, costs, and interest.


 


However, My Claims
do not include any claims that the law does not allow to be waived, any claims
I may have for indemnification under the charter documents of the Company or
applicable laws, or any claims that may arise after the date on which I sign
this Release.


 


Agreement
to Release My Claims. 
I will receive consideration from HMN and Home Federal as set forth in
the Agreement if I sign and do not revoke this Release as provided below.  I understand and acknowledge that that
consideration is in addition to anything of value that I would be entitled to
receive from HMN or Home Federal if I did not sign this Release or if I revoked
this Release.  In exchange for that
consideration I give up and release all of My Claims.  I will not make any demands or claims against the Company for
compensation or damages relating to My Claims. 
The consideration that I am receiving is a fair compromise for the
release of My Claims.


 


Additional
Agreements and Understandings.  Even though HMN and Home Federal will provide consideration for
me to settle and release My Claims, the Company does not admit that it is
responsible or legally obligated to me. 
In fact, the Company denies that it is


 


2

















 


responsible or legally obligated to me for My Claims,
denies that it engaged in any unlawful or improper conduct toward me, and
denies that it treated me unfairly.


 


Advice
to Consult with an Attorney.  I understand and acknowledge that I am hereby being advised by
the Company to consult with an attorney prior to signing this Release and I
have done so.  My decision whether to
sign this Release is my own voluntary decision made with full knowledge that
the Company has advised me to consult with an attorney.


 


Period
to Consider the Release. 
I understand that I have 21 days after the last day of my employment
with the Company to consider whether I wish to sign this Release.  If I sign this Release before the end of the
21-day period, it will be my voluntary decision to do so because I have decided
that I do not need any additional time to decide whether to sign this Release.


 


My Right
to Revoke the Release. 
I understand that I may revoke this Release at any time within 15 days
after I sign it, not counting the day upon which I sign it.  This Release will not become effective or
enforceable unless and until the 15-day revocation period has expired without
my revoking it.


 


Procedure for Accepting or Revoking
the Release.  To
accept the terms of this Release, I must deliver the Release, after I have signed
and dated it, to Home Federal by hand or by mail within the 21-day period that
I have to consider the Release.  To
revoke my acceptance of this Release, I must deliver a written, signed
statement that I revoke my acceptance to Home Federal by hand or by mail within
the 15-day revocation period.  All
deliveries must be made to Home Federal at the following address:


 


Jeanne Parker

Human Resources Director

Home Federal Savings Bank

1016 Civic Center Dr. NW

Rochester, MN 55901


 


 


If I choose to deliver the revocation of my acceptance by mail, it must
be postmarked within the period stated above and properly addressed to Home
Federal at the address stated above.


 


Interpretation of the Release.  This Release should be interpreted as
broadly as possible to achieve my intention to resolve all of My Claims against
the Company.  If this Release is held by
a court to be inadequate to release a particular claim encompassed within My
Claims, this Release will remain in full force and effect with respect to all
the rest of My Claims.


 


My
Representations. 
I am legally able and entitled to receive the consideration being
provided  to me in settlement of My
Claims.  I have not been involved in any
personal bankruptcy or other insolvency proceedings at any time since I began
my employment with HMN or Home Federal. 
No child support orders, garnishment orders, or other orders


 


3

















 


requiring that money owed to me by HMN or Home Federal be paid to any
other person are now in effect.


 


I have read this Release carefully. 
I understand all of its terms. 
In signing this Release, I have not relied on any statements or
explanations made by the Company except as specifically set forth in the
Agreement and the Company Release.  I am
voluntarily releasing My Claims against the Company.  I intend this Release to be legally binding.


 


 


	
  Dated:  March 17, 2003

  	
  /s/ Timothy P.
  Johnson

  	
   

  
	
   

  	
  Timothy P.
  Johnson

  



 


4

















 


EXHIBIT B


 


RELEASE BY


HMN FINANCIAL, INC.


 


Definitions.  All words used in this Release have their
plain meanings in ordinary English. 
Specific terms used in this Release have the following meanings:


 


A.                                   HMN
means HMN Financial, Inc., any company related to HMN Financial, Inc. in the
present or past (including without limitation, its predecessors, parents,
subsidiaries, affiliates, and divisions), and any successors of HMN Financial,
Inc.


 


B.                                     Johnson
means Timothy P. Johnson and anyone who has or obtains any legal rights or
claims through Timothy P. Johnson.


 


C.                                     Agreement
means the Separation Agreement between HMN, Home Federal Savings Bank, and
Johnson that HMN executed on March 17, 2003, including all of the documents
attached to the Agreement.


 


D.                                    HMN’s
Claims mean all of HMN’s rights that HMN now has to any relief of any kind
from Johnson, including without limitation:


 


1.                                       all
claims arising out of or that relate to Johnson’s employment with HMN or the
termination of that employment;


 


2.                                       all
claims arising out of or that relate to the statements, actions, or omissions
of Johnson;


 


3.                                       all
claims for breach of contract; breach of implied contract; breach of a covenant
of good faith and fair dealing; breach of fiduciary duty; estoppel; or breach
of any other contract or agreement of any kind between Johnson and HMN;


 


4.                                       all
claims for damages of any kind, attorneys’ fees, costs, disbursements, and
interest.


 


However,
HMN’s Claims do not include any claims that may arise after the date on which
HMN signs this Release, any claims under the Agreement, or any claims based on
alleged intentional misconduct or intentional wrongdoing by Johnson.


 


Agreement
to Release HMN’s Claims. 
HMN will receive consideration from Johnson as set forth in the
Agreement if Johnson does not rescind or revoke the Release signed by him.  In exchange for that consideration HMN gives
up all of HMN’s  Claims.  HMN will not
make any  demands or claims against
Johnson for compensation or damages relating to HMN’s Claims.  The consideration that HMN is receiving is a
fair compromise for the release of HMN’s Claims.


 

















 


Additional
Agreements and Understandings.  Even though Johnson will provide consideration for HMN  to
settle and release HMN’s Claims, Johnson does not admit that he is responsible
or legally obligated to HMN.  In fact,
Johnson denies that he is responsible or legally obligated to HMN for HMN’s
Claims or that he engaged in any unlawful or improper conduct toward HMN.


 


Johnson’s
Right to Revoke the Release Executed by Him.  This Release will not become effective or
enforceable unless and until the revocation period set forth in the Release
signed by Johnson has expired and Johnson has not revoked the Release signed by
him.


 


HMN’s
Representations.   HMN through its undersigned officer has read this Release
carefully and understands all of its terms. 
HMN has had the opportunity to consult with its own attorney prior to
signing this Release.  In signing this
Release, HMN has not relied on any statements or explanations made by Johnson
except as specifically set forth in the Agreement and the Release signed by
Johnson.  HMN is voluntarily releasing
HMN’s  Claims
against Johnson.


 


The undersigned officer of HMN has the authority to legally bind HMN by
the agreements that HMN is making in this Release and represents that there is
nothing to prevent HMN from being legally bound by the agreements that HMN is
making in this Release.


 


 


	
  Dated:March 17,
  2003

  	
  HMN FINANCIAL,
  INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BY:

  	
   

  	
  /s/ Michael
  McNeil

  	
   

  	
   

  
	
   

  	
   

  	
  Michael McNeil

  	
   

  
	
   

  	
   

  	
  Its President

  	
   

  
						



 


2