Document:

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                                                                   EXHIBIT 10.3b

                            EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of November
1, 2000 by and among HMN Financial, Inc., a Delaware corporation (the
"Company"), Home Federal Savings Bank, a federally chartered savings bank (the
"Bank") and a wholly owned subsidiary of the Company and Michael McNeil, a
resident of Rochester, Minnesota ("Executive").

     A.  Executive currently holds the positions of President and Chief
Executive Officer of the Bank and President of the Company;

     B.  Executive will continue to serve as the President and Chief Executive
Officer of the Bank and President of the Company, all subject to the terms and
conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements of the Bank, the Company and Executive set forth below,
the Bank, the Company and Executive, intending to be legally bound, agree as
follows:

      1.   EMPLOYMENT.  Effective as of November 1, 2000 Executive shall perform
services for the Company and the Bank, upon the terms and conditions set forth
in this Agreement.

      2.   TERM OF EMPLOYMENT.  Unless terminated at an earlier date in
accordance with Section 7 hereof, the term of Executive's employment with the
Company and the Bank under this Agreement shall be for a period of two years
commencing on November 1, 2000 and ending on October 31, 2002, or any one-year
extension hereof (such two year term, the "Employment Period").  Commencing on
the first anniversary of the Execution of this Agreement and on each
anniversary thereafter, this Agreement shall be extended for a period of twelve
(12) months in addition to the then-remaining term of employment under this
Agreement, unless any of the Company, the Bank or the Executive gives contrary
written notice to the others not less than 90 days in advance of the date on
which the term of employment under this Agreement would otherwise be extended,
and PROVIDED THAT no extension shall occur unless prior to each anniversary of
the effective date, each of the Company Board and the Bank Board has reviewed a
formal evaluation of Executive's performance during the year preceding such
anniversary prepared by the Compensation Committee of the Company Board and
explicitly approved such extension of the term of this Agreement.

      3.   POSITION AND DUTIES.

      (a)  EMPLOYMENT WITH THE COMPANY AND THE BANK.  During the term of
Executive's employment with the Company and the Bank, Executive shall perform
such duties and responsibilities as the Board of Directors of the Company (the
"Company Board") or the Board of Directors of the Bank (the "Bank Board") shall
assign to him from time to

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time consistent with his position.  Executive shall be an executive officer
of the Company and the Bank and Executive's title shall be "President" of the
Company  and "President" and "Chief Executive Officer" of the Bank.

      (b)  PERFORMANCE OF DUTIES AND RESPONSIBILITIES.  Executive shall serve
the Company and the Bank faithfully and to the best of his ability and shall
devote his full working time, attention and efforts to the business of the
Company and the Bank during his employment with the Company and the Bank.
Executive hereby represents and confirms that he is under no contractual or
legal commitments that would prevent him from fulfilling his duties and
responsibilities as set forth in this Agreement.  During his employment with
the Company and the Bank, Executive may participate in charitable activities
and personal investment activities to a reasonable extent, and he may serve as
a director of business organizations in which he has personally invested, so
long as such activities and directorships do not interfere with the performance
of his duties and responsibilities hereunder.

      4.   COMPENSATION.

      (a)  SALARY.  During the Employment Period, the Bank shall pay to
Executive an annual base salary of $200,000.00, less deductions and
withholdings, which base salary shall be paid in accordance with the Bank's
normal payroll policies and procedures. During each year after the first year
of Executive's employment hereunder, the Compensation Committee of the Company
Board shall conduct an annual performance review of Executive and thereafter
establish Executive's base salary in an amount not less than the base salary in
effect for the prior year,

      (b)  EMPLOYEE BENEFITS.  During the Employment Period, Executive shall be
entitled to participate in all employee benefit plans and programs of the Bank
to the extent that Executive meets the eligibility requirements for each
individual plan or program. The Bank provides no assurance as to the adoption
or continuance of any particular employee benefit plan or program, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto. In addition, Executive
shall be eligible for stock awards and stock options of the Company as
authorized from time to time by the Company Board.

      (c)  EXPENSES.  During the Employment Period, the Bank shall reimburse
Executive for all reasonable and necessary out-of-pocket business, travel and
entertainment expenses incurred by him in the performance of his duties and
responsibilities hereunder subject to the Bank's normal policies and procedures
for expense verification and documentation, including reimbursement of monthly
dues paid to the Rochester Golf and Country Club.  The Bank shall provide for
Executive's use an automobile, and shall pay for all expenses associated with
the Bank's ownership of such automobile.

      5.   CONFIDENTIAL INFORMATION.  Except as permitted by the Company Board
or the Bank Board, during the Employment Period and at all times thereafter,
Executive shall not divulge, furnish or make accessible to anyone or use in any
way other than in the ordinary course of the business of the Company or the
Bank, any confidential, proprietary or

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secret knowledge or information of the Company or the Bank that Executive has
acquired or shall acquire during the term of his work for the Company or the
Bank as an employee, 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.  Executive 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.  During the Employment Period,
Executive shall refrain from any acts or omissions that would reduce the
value of such knowledge or information to the Company or the Bank.  The
foregoing obligations of confidentiality shall not apply to any knowledge or
information that (i) is now or subsequently becomes generally publicly known
in the form in which it was obtained from the Company or the Bank, (ii) is
independently made available to Executive 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, other than as a direct or
indirect result of the breach of this Agreement by Executive.

      6.   VENTURES.  If, during the Employment Period, Executive is engaged in
or associated with the planning or implementing of any project, program or
venture involving the Company or the Bank and a third party or parties, all
rights in such project, program or venture shall belong to the Company or the
Bank, as applicable.  Except as approved in writing by the Company Board or the
Bank Board, Executive shall not be entitled to any interest in any such
project, program or venture or to any commission, finder's fee or other
compensation in connection therewith, other than the compensation to be paid to
Executive by the Bank as provided herein.  Executive shall have no interest,
direct or indirect, in any customer or supplier that conducts business with the
Company or the Bank, unless such interest has been disclosed in writing to and
approved by the Company Board or the Bank Board, as applicable, before such
customer or supplier seeks to do business with the Company or the Bank.
Ownership by Executive, as a passive investment, of less than 2.5% of the
outstanding shares of capital stock of any corporation listed on a national
securities exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 6.

      7.   TERMINATION OF EMPLOYMENT.

      (a)  The Executive's employment with the Company and the Bank shall
terminate immediately upon:

           (i)   Executive's receipt of written notice from the Company or the
                 Bank of the termination of his employment;

           (ii)  Receipt by the Company or the Bank of Executive's written
                 resignation from the Company or the Bank;

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           (iii) Executive's Disability (as defined below);

           (iv)  Executive's death; or

           (v)   the expiration of the Employment Period.

      (b)  The date upon which Executive's termination of employment with the
Company and the Bank occurs shall be the "Termination Date."

      (c)  In the event of Executive's termination of employment for any of the
foregoing reasons, Executive shall immediately resign as a director and/or
officer of the Company and the Bank and any of their subsidiaries.

      8.   PAYMENTS UPON TERMINATION OF EMPLOYMENT.

      (a)  If prior to a Change in Control (as defined in the separate
Change-in-Control Agreement attached hereto (the "Change-in-Control
Agreement")) or after the Transition Period as defined in the Change-in-Control
Agreement, Executive's employment with the Company and the Bank is terminated:

           (i)   by the Company or the Bank for any reason other than (A) for
                 Cause (as defined below), or (B) the delivery of a written
                 notice to Executive that the Bank elects not to extend the
                 term of this Agreement, or

           (ii)  by Executive as a result of his resignation for Good Reason
                 (as defined below), or

           (iii) by reason of Executive's Disability (as defined below),

the Bank shall:

           (i)   pay to Executive as severance pay an amount equal to his
                 current base salary during the remaining period of the
                 Employment Period; and

           (ii)  if Executive elects to continue his group health insurance
                 coverage with the Bank following the termination of his
                 employment with the Company and the Bank, reimburse him for
                 the full cost of the premiums he is required to pay to
                 maintain such coverage at the same level of coverage that was
                 in effect as of the Termination Date for the remaining term of
                 the Employment Period.

Any amount payable to Executive as severance pay or reimbursement for the cost
of the continuation of his group health insurance coverage hereunder shall be
subject to deductions

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and withholdings and shall be paid to Executive by the Bank in approximately
equal monthly installments during the remaining term of this Agreement
commencing on the first normal payroll date of the Bank following the
expiration of all applicable rescission periods provided by law and
continuing monthly thereafter.

The Bank shall be entitled to deduct from any severance pay otherwise payable
to Executive hereunder:  (i) any amount earned as income by Executive after the
Termination Date as a result of self-employment or employment with any other
employer, and (ii) any amount received by Executive after the Termination Date
under any short-term or long-term disability insurance plan or program provided
to him by the Bank.  In addition, the Bank shall be entitled to cease making
reimbursement payments to Executive for the cost of the continuation of his
group health insurance coverage with the Bank after the Termination Date if
Executive becomes eligible for comparable group health insurance coverage from
any other employer.  For purposes of mitigation and reduction of the Bank's
financial obligations to Executive under this Section 8(a), Executive shall
promptly and fully disclose to the Bank in writing:  (i) the nature and amount
of any such earned income from self-employment or employment with any other
employer, (ii) the amount of any such disability insurance payments, or (iii)
the fact that he has become eligible for comparable group health insurance
coverage from any other employer, and Executive shall be liable to repay any
amounts to the Bank that should have been so mitigated or reduced but for
Executive's failure or unwillingness to make such disclosures.

      (b)  If after a Change in Control and during the Transition Period,
Executive's employment terminates, Executive's rights to payments and benefits
shall be governed by the Change-in-Control Agreement.

      (c) If Executive's employment with the Company or the Bank is terminated
by reason of:

           (i)   Executive's abandonment of his employment or Executive's
                 resignation for any reason other than Good Reason (as defined
                 below),

           (ii)  termination of Executive's employment by the Company or the
                 Bank for Cause (as defined below),

           (iii) Executive's death, or

           (iv)  the expiration of the Employment Period,

the Bank shall pay to Executive or his beneficiary or his estate, as the case
may be, his base salary through the Termination Date.

      (d)  "Cause" hereunder shall mean:

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           (i)   an act or acts of dishonesty undertaken by Executive and
                 intended to result in substantial gain or personal enrichment
                 of Executive at the expense of the Company or the Bank;

           (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;

           (iii) the conviction of Executive of a felony;

           (iv)  failure of Executive to perform his duties and
                 responsibilities hereunder 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; or

           (v)   material breach of any terms and conditions of this 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.

      (e)  "Good Reason" hereunder shall mean:

           (i)   material breach of any terms and conditions of this Agreement
                 by the Company or the Bank not caused by Executive, which
                 breach has not been cured by the Company or the Bank within
                 ten days after written notice thereof to the Company or the
                 Bank from Executive;

           (ii)  the Company or the Bank shall require Executive to relocate to
                 any place other than a location within thirty-five miles of
                 the

                 location at which the Executive performed his primary duties
                 immediately prior to the requirement by the Company or the
                 Bank to relocate or, if the Executive performed such duties at
                 the Company's principal executive offices, the Company or the
                 Bank shall relocate its principal executive offices to any
                 location other than a location within thirty-five miles from
                 the location of the principal executive offices; or

           (iii) a material reduction of Executive's base salary, perquisites
                 or benefits unless such reduction is part of a general
                 reduction in the base salaries, perquisites and/or benefits
                 for all executive officers of the Company or the Bank.

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      (f)  "Disability" hereunder shall mean the inability of Executive to
perform on a full-time basis the duties and responsibilities of his employment
with the Company and 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.

      (g)  In the event of termination of Executive's employment, the sole
obligation of the Company and the Bank shall be its obligation to make the
payments called for by Sections 8(a) or 8(c) hereof, as the case may be, and
the Company and the Bank shall have no other obligation to Executive or to his
beneficiary or his estate, except as otherwise provided by law, under the terms
of any other applicable agreement between Executive and the Company or the Bank
or under the terms of any employee benefit plans or programs then maintained by
the Bank in which Executive participates.

      (h)  Notwithstanding the foregoing provisions of this Section 8, the Bank
shall not be obligated to make any payments to Executive under Section 8(a)
hereof unless Executive shall have signed a release of claims in favor of the
Bank and the Company in a form to be prescribed by the Company Board or the
Bank Board, all applicable consideration periods and rescission periods
provided by law shall have expired and Executive is in strict compliance with
the terms of Section 5 hereof as of the dates of the payments.

      9.  RETURN OF RECORDS AND PROPERTY.  Upon termination of his employment
with the Company and the Bank, Executive shall promptly 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 any automobile,
manuals, books, blank forms, documents, letters, memoranda, notes, notebooks,
reports, printouts, computer disks, computer tapes, source codes, 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, passwords, credit cards, personal computers, telephones
and other electronic equipment belonging to the Company or the Bank.

      10. REMEDIES.

      (a)  EQUITABLE.  Executive acknowledges that it would be difficult to
fully compensate the Company or the Bank for monetary damages resulting from
any breach by him of the provisions of Section 5 hereof.  Accordingly, in the
event of any actual or threatened breach of any such provisions, the Company
and the Bank shall, in addition to any other remedies they may have, be
entitled to injunctive and other equitable relief to enforce such provisions,
and such relief may be granted without the necessity of proving actual monetary
damages.

      (b)  ARBITRATION.  Except for disputes arising under Section 5 hereof,
all disputes involving the interpretation, construction, application or alleged
breach of this Agreement and all disputes relating to the termination of
Executive's employment with the

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Company or the Bank 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 by Executive 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 attorneys' fees and costs to the
prevailing party.  The parties hereby agree that this arbitration provision
shall be in lieu of any requirement that either party exhaust such party's
administrative remedies under federal, state or local law.

      11. MISCELLANEOUS.

      (a)  GOVERNING LAW.  All matters relating to the interpretation,
construction, application, validity and enforcement of this Agreement shall be
governed by the laws of the State of Minnesota without giving effect to any
choice or conflict of law provision or rule, whether of the State of Minnesota
or any other jurisdiction, that would cause the application of laws of any
jurisdiction other than the State of Minnesota.

      (b)  ENTIRE AGREEMENT.  Except for a Change in Control Agreement between
Executive and the Bank dated the date hereof, this Agreement contains the
entire agreement of the parties relating to the subject matter of this
Agreement and supersedes all prior agreements and understandings with respect
to such subject matter, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
that are not set forth herein.

      (c)  AMENDMENTS.  No amendment or modification of this Agreement shall be
deemed effective unless made in writing and signed by the parties hereto.

      (d)  NO WAIVER.  No term or condition of this Agreement shall be deemed
to have been waived, except by a statement in writing signed by the party
against whom enforcement of the waiver  is sought.  Any written waiver shall
not be deemed a continuing waiver unless specifically stated, shall operate
only as to the specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act other than
that specifically waived.

      (e)  ASSIGNMENT.  This Agreement shall not be assignable, in whole or in
party, by either party without the written consent of the other party.

      (f)  COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, and such counterparts executed and delivered, each as an
original, shall constitute but one and the same instrument.

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      (g)  SEVERABILITY.  To the extent that any portion of any provision of
this Agreement shall be invalid or unenforceable, it shall be considered
deleted herefrom and the remainder of such provision and of this Agreement
shall be unaffected and shall continue in full force and effect.

      (h)  CAPTIONS AND HEADINGS.  The captions and paragraph headings used in
this Agreement are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.

      IN WITNESS WHEREOF, Executive, the Company and the Bank have executed
this Agreement as of the date set forth in the first paragraph.

                                       HMN FINANCIAL, INC.

                                       By /s/ M.F. Schumann
                                          ________________________________

                                         Its Chairman
                                             _____________________________

                                       HOME FEDERAL SAVINGS BANK

                                       By /s/ M.F. Schumann
                                          ________________________________

                                         Its  Chairman
                                             _____________________________

                                       MICHAEL MCNEIL

                                       /s/ Michael McNeil
                                       ___________________________________

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                                                                   EXHIBIT 10.4a

                         CHANGE-IN-CONTROL AGREEMENT

      AGREEMENT entered into as of November 1, 2000 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 Timothy P. Johnson (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, Executive and the Bank are currently party to a Change in
Control Severance Agreement dated January 2, 1998 (the "Prior Agreement"); and

      WHEREAS, Executive and the Bank desire to terminate the Prior Agreement;
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:

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      1.  EMPLOYMENT.  The Executive has concurrently herewith executed an
Employment Agreement (the "Employment Agreement") which governs the terms of
the Executive's employment, unless an Event shall be deemed to have occurred as
contemplated by Section 2.

      2.  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" shall be deemed to
      have occurred if any of the following occur:

               (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 2(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 2(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;

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                      (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 2(a)(ii), "Continuing Directors" shall mean:  (A)
          individuals who, on the date hereof, are directors of the Company,
          (B) individuals elected as directors of the Company subsequent to the
          date hereof for whose election proxies shall have been solicited by
          the Board of Directors of the Company or (C) any individual elected
          or appointed by the Board of Directors of the Company to fill
          vacancies on the Board of Directors of the Company caused by death or
          resignation (but not by removal) or to fill newly-created
          directorships, provided that a "Continuing Director" shall not
          include an individual whose initial assumption of office occurs as a
          result of an actual or threatened election contest with respect to
          the threatened election or removal of directors (or other actual or
          threatened solicitation of proxies or consents) by or on behalf of
          any person other than the Board of Directors of the Company;

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

                                        -3-
<PAGE>

          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;

               (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 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof
          that ultimately results in such an Event, or a tender or exchange
          offer or proxy contest is commenced which ultimately results in an
          Event described in Section 2(a)(i) or 2(a)(ii) hereof; or

               (vi)   There shall be an involuntary termination or Constructive
          Involuntary Termination of employment of the Executive, and the
          Executive reasonably demonstrates that such event (x) was requested
          by a party other than the Board of Directors of the Company or the
          Bank that had previously taken other steps reasonably calculated to
          result in an Event described in Section 2(a)(i), 2(a)(ii), 2(a)(iii)
          or 2(a)(iv) hereof and which ultimately results in an Event described
          in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof, or (y)
          otherwise arose in connection with or in anticipation of an Event
          described in Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof
          that ultimately occurs.

      Notwithstanding anything stated in this Section 2(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 2(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
      2(a)(iii) or 2(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.

      3.  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

                                    -4-
<PAGE>

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 3):

          (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 4(d)), the employment of the Executive with the Company or the
      Bank is voluntarily or involuntarily terminated for any reason (unless
      such termination is a voluntary termination by the Executive other than a
      Constructive Involuntary Termination or is on account of the death or
      Disability of the Executive or is a termination by the Company or the
      Bank for Cause), 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 2.99 times the average annual base
          salary payable by the Bank and included in the gross income for
          Federal Income Tax purposes of the Executive during the shorter of
          the period consisting of the five most recently completed taxable
          years of the Executive ending before the First Event (other than an
          Event described in Section 2(a)(v) or 2(a)(vi) unless the Executive
          is terminated prior to the occurrence of an Event described in
          Section 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv)) or that portion of
          such period during which the Executive was employed by the Company or
          the Bank (for which purpose compensation for a partial year shall be
          annualized, in accordance with temporary or final regulations
          promulgated under Section 280G(d) of the Internal Revenue Code of
          1986, as amended (the "Code"), or any successor provision thereto,
          before determining average annual compensation for the period, such
          average annual compensation to be determined in accordance with
          temporary or final regulations promulgated under Section 280G(d) of
          the Code or any successor provision thereto and 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; 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, disability and life 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, with respect
          to health insurance coverage, for those portions remaining during

                                     -5-
<PAGE>

          such two-year period that duplicate health insurance coverage that is
          in place for the Executive under any other policy provided at the
          expense of another employer); provided however, that in the event
          that the Executive's participation in any such health, disability or
          life insurance plan or program of the Company or the Bank is barred,
          the Company or the Bank, at its sole cost and expense, shall arrange
          to provide the Executive with benefits substantially similar to those
          which the Executive would be entitled to receive under such plan or
          program if he were not barred from participation.

          (b)  The payments provided for in this Section 3 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)    the Executive shall not be given substantially equivalent
          or greater title, duties, responsibilities and authority, in each
          case as compared with the Executive's status immediately prior to the
          First Event, other than for Cause or on account of Disability;

               (ii)   the Executive's annual base salary shall be reduced from
          the Executive's annual base salary in effect immediately prior to the
          First Event;

               (iii)  the Company or the Bank shall fail to provide the
          Executive with benefits under either of their pension, profit
          sharing, retirement, life insurance, medical, health and accident,
          disability, bonus and incentive plans and other employee benefit
          plans and arrangements that in the aggregate for all such plans and
          arrangements are at least as favorable to the Executive as those
          benefits covering the Executive immediately prior to the First Event
          or shall fail to provide the Executive with at least the number of
          paid vacation days to which the Executive was entitled immediately
          prior to the First Event;

               (iv)   the Bank shall have failed to obtain assumption of this
          Agreement by any successor as contemplated by Section 5(b) hereof;

               (v)    the Company or the Bank shall require the Executive to
          relocate to any place other than a location within thirty-five miles
          of the location at which

                                         -6-
<PAGE>

          the Executive performed his primary duties immediately prior to the
          First Event or, if the Executive performed such duties at the
          Company's principal executive offices, the Company shall relocate
          its principal executive offices to any location other than a
          location within thirty-five miles of the location of the principal
          executive offices immediately prior to the First Event; or

      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 3(d), if the lump sum cash
      payment due and the other benefits to which the Executive shall become
      entitled under Section 3(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 3(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 3(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 3(d).

          (e)  The Executive shall not be required to mitigate the amount of
      any payment or other benefit provided for in Section 3 by seeking other
      employment or otherwise, nor (except as specifically provided in Section
      3(a)(ii) or 3(b)) shall the amount of any payment or other benefit
      provided for in Section 3 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 3
      shall survive the termination of this Agreement.

                                      -7-
<PAGE>

      4.  DEFINITION OF CERTAIN ADDITIONAL TERMS.

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

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

               (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 2(a)(i), 2(a)(ii), 2(a)(iii) or 2(a)(iv) hereof (the
      "Commencement Date") and ending one year after the Commencement Date.

                                       -8-
<PAGE>

      5.  SUCCESSORS AND ASSIGNS.

          (a)  This Agreement shall be binding upon and inure to the benefit of
      the successors, legal representatives and assigns of the parties hereto;
      provided, however, that the Executive shall not have any right to assign,
      pledge or otherwise dispose of or transfer any interest in this Agreement
      or any payments hereunder, whether directly or indirectly or in whole or
      in part, without the written consent of the Company or the Bank or either
      of their successors.

          (b)  The Company and the Bank will require any successor (whether
      direct or indirect, by purchase of a majority of the outstanding voting
      stock of the Company or the Bank or all or substantially all of the
      assets of the Company or the Bank, or by merger, consolidation or
      otherwise), by agreement in form and substance satisfactory to the
      Executive, to assume expressly and agree to perform this Agreement in the
      same manner and to the same extent that the Company and the Bank would be
      required to perform it if no such succession had taken place.  Failure of
      the Company or the Bank, as applicable, to obtain such agreement prior to
      the effectiveness of any such succession (other than in the case of a
      merger or consolidation) shall be a breach of this Agreement and shall
      entitle the Executive to compensation from the Bank in the same amount
      and on the same terms as the Executive would be entitled hereunder if the
      Executive terminated his employment on account of a Constructive
      Involuntary Termination, except that for purposes of implementing the
      foregoing, the date on which any such succession becomes effective
      shall be deemed the date of termination.  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 5(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 5(b) or which otherwise becomes bound by
      all the terms and provisions of this Agreement by operation of law.

      6.  GOVERNING LAW.  This Agreement shall be construed in accordance with
the laws of the State of Minnesota.

      7.  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:

                                    -9-
<PAGE>

          (a)  In the case of the Company or the Bank shall be:

               HMN Financial, Inc.
               Attention:  Chairman of the Board
               101 North Broadway
               Spring Valley, Minnesota  55975

          (b)  In the case of the Executive shall be:

               Timothy P. Johnson
               701 Bonner Court S.E.
               Stewartville, Minnesota 55976

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.

      8.  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.  In the event that any benefits to
the Executive provided in this Agreement are held to be unavailable to the
Executive as a matter of law, the Executive shall be entitled to severance
benefits from the Bank, in the event of an involuntary termination or
Constructive Involuntary Termination of employment of the Executive (other than
a termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period prior to the First Event.

      9.  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) October 31, 2002,  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 30 days prior to October 31, 2002 or the one-year extension period
then in effect, as the case may be, or (B) if the Commencement Date occurs on
or prior to October 31, 2002 (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.

                                   -10-
<PAGE>

      10. TERMINATION OF PRIOR AGREEMENT.  This Agreement supercedes the Prior
Agreement which is hereby terminated and neither party shall have any rights or
obligations pursuant to the terms of the Prior Agreement.

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

                                       HOME FEDERAL SAVINGS BANK

                                       By  /s/ M.F. Schumann
                                          ____________________________________
                                             Its  Chairman
                                                 _____________________________

                                       Executive

                                       /s/ Timothy P. Johnson
                                       _______________________________________

                                    -11-

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