Document:

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                                                                   EXHIBIT 10.2b

                         EARLY RETIREMENT AGREEMENT
                         --------------------------

     This Early Retirement Agreement (this "Agreement") is made and entered
into effective as of October 24, 2000 by and between James B. Gardner
("Gardner"), a Minnesota resident, and Home Federal Savings Bank, a federally
chartered savings bank (the "Bank").

                                 BACKGROUND
                                 ----------

     A.  Gardner has been employed by the Bank for more than 19 years.
Currently, Gardner is Executive Vice President and Chief Financial Officer of
the Bank and of HMN Financial, Inc. (the "Holding Company").  Gardner also is a
director of the Bank and of the Holding Company.  In addition, Gardner is an
officer and a director of HMN Mortgage Services, Inc. ("Mortgage") and Security
Finance Corporation ("Finance"), both wholly-owned subsidiaries of the Holding
Company and affiliates of the Bank, and of Osterud Insurance Agency, Inc.
("Insurance"), a wholly-owned subsidiary of the Bank.

     B.  Gardner and the Bank are parties to an Employment Agreement dated June
6, 1995 (the "Employment Agreement").  During his employment with the Bank,
Gardner has been eligible to participate in certain employee benefit plans and
programs sponsored by the Bank, including without limitation, the Bank's
medical plan and group term life insurance program and the HMN Financial, Inc.
Employee Stock Ownership Plan (the "ESOP"), the Home Federal Savings Bank
Employees' Savings & Profit Sharing Plan and Trust (the "401(k) Plan"), and the
Home Federal Savings Bank Financial Institutions Retirement Fund (the "FIRF").

     C.  Gardner and the Holding Company are parties to a Non-Qualified Stock
Option Agreement dated June 21, 1995 granting Gardner an option to purchase
26,174 shares of

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Common Stock of the Holding Company (39,261 shares as a result of the Holding
Company's three-for-two stock split) and an Incentive Stock Option Agreement
dated June 21, 1995 ("ISO Agreement") granting Gardner an option to purchase
36,205 shares of Common Stock of the Holding Company (54,307 shares as a
result of the Holding Company's three-for-two stock split) (collectively, the
"Option Agreements").  All of the shares underlying the Option Agreements are
fully vested and currently exercisable, except that as a result of the
partial exercise by Gardner of his option to purchase shares underlying the
ISO Agreement, 39,307 shares of common stock are currently exercisable
pursuant to the terms of the ISO Agreement.

     D.  The parties have mutually agreed that it is in their interests that
Gardner resign as an officer and director of the Bank, the Holding Company,
Mortgage, Finance, and Insurance effective as of the date of this Agreement.

     E.  The parties have mutually agreed that Gardner will continue to be an
employee of the Bank until June 30, 2001 (the "Retirement Date"), at which time
he will retire from his employment with the Bank.

     F.  The parties are concluding their employment relationship amicably, but
mutually recognize that the end of any employment relationship may give rise to
potential claims or liabilities.

     G.  The parties have mutually agreed to a full settlement of all issues
potentially in dispute between them.

     H.  The parties intend that this Agreement will provide for the exchange
of consideration between the parties and will consolidate within one document
the parties' obligations to each other.

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     NOW THEREFORE, in consideration of the mutual promises and provisions
contained in this Agreement and the Release referred to below, the parties
agree as follows:

                                 AGREEMENTS
                                 ----------

     1. RELEASE OF CLAIMS BY GARDNER.  At the same time Gardner executes this
Agreement, he also will execute a Release, in the form attached to this
Agreement as Exhibit A (the "Gardner Release"), in favor of the Bank and the
Holding Company and their affiliates, divisions, joint venture partners,
stockholders, directors, committees, officers, employees, agents, predecessors,
successors, and assigns.  Gardner will re-execute the Gardner Release as of
the Retirement Date.  This Agreement will not be interpreted or construed to
limit the Gardner Release in any manner.  The existence of any dispute
respecting the interpretation of this Agreement or the alleged breach of this
Agreement will not nullify or otherwise affect the validity or enforceability
of the Gardner Release.

     2. RESIGNATIONS.  By executing this Agreement, Gardner confirms his
resignation as an officer and a director of the Bank, the Holding Company,
Mortgage, Finance, and Insurance as of the effective date of this Agreement.

     3. CONTINUING SERVICES TO THE BANK.  Gardner will continue to provide
services to the Bank as set forth in this paragraph 3.

        a. WORK PERIOD.  Between the effective date of this Agreement and the
Retirement Date, Gardner will be available to provide services to the Bank on
a full-time basis during regular business hours and, in that capacity, will
complete special projects that are assigned to him from time to time by the
Chief Financial Officer of the Bank and will consult with the  Bank at the
request of the Chief Financial Officer of the Bank regarding general business
matters. During this time period, Gardner will maintain an office at his

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residence at no expense to the Bank and will take the remainder of his
accrued and unused vacation time.

        b. POST-RETIREMENT ACTIVITIES.  Nothing in this Agreement is intended
to prevent Gardner after the Retirement Date from engaging in any business
enterprise, accepting employment with another employer, or becoming an
independent contractor or consultant, so long as Gardner does not disclose any
of the Bank's or the Holding Company's confidential information as specified in
subparagraph 11.a. below and does not breach his other obligations to the Bank
or the Holding Company as specified in paragraph 11 below.

     4. PAYMENTS.  The Bank will make the payments set forth in subparagraphs
4.a. through 4.e. below to Gardner or for his benefit, and will provide to
Gardner the benefits due under the employee benefit plans described in
paragraphs 6 through 8 below, in lieu of any further payments that he would
be entitled to receive under the Employment Agreement or otherwise as an
employee of the Bank.  The Bank will make the payments set forth in
subparagraphs 4.c. through 4.e. below only if:  (i) Gardner has not rescinded
this Agreement or the Gardner Release within the applicable recission period;
(ii) the Bank has received written confirmation from Gardner, in the form
attached to this Agreement as Exhibit B, dated not earlier than the day after
the expiration of the applicable rescission period, that Gardner has not
rescinded and will not rescind this Agreement or the Gardner Release; and
(iii) Gardner has not breached his obligations pursuant to this Agreement or
the Gardner Release.  Payment of any amounts set forth below will not modify
or terminate the parties' obligations to each other as established by this
Agreement.  If Gardner dies before he receives all of the base salary and
severance pay that he would otherwise be entitled to

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receive under subparagraphs 4.a and 4.c. below, the remaining severance pay
installments will be paid to his wife, or if she is no longer living, to his
estate.  No amounts received by Gardner as compensation from another employer
or as retirement benefits will reduce the amount of severance payments that
the Bank is obligated to make to Gardner under subparagraph 4.c. below.  The
payments set forth in subparagraphs 4.a. and 4.c. below will be transferred
electronically to a bank account designated by him in writing, unless he
advises the Bank in writing that he wants the payments sent to him personally.

        a. BASE SALARY.  The Bank will continue to pay Gardner his current base
salary of $11,250.00 per month, less all legally required withholding, through
the Retirement Date on the Bank's regular payroll dates.

        b. EMPLOYEE BENEFITS.  The Bank will continue to provide Gardner with
all employee benefits made available to its other senior executives under the
Bank's employee benefits plans and programs and will continue to pay the
employer portion of the costs incurred to continue Gardner's medical plan and
group term life insurance coverages through the Retirement Date.

        c. SEVERANCE PAY.  Between July 1, 2001 and May 23, 2003, the Bank will
pay Gardner severance pay in the amount of $11,250.00 per month, less all
legally required withholding, on the Bank's regular payroll dates.

        d. MEDICAL PLAN PAYMENTS.  If Gardner elects to continue his medical
plan coverage under the terms of subparagraph 6.a. below, the Bank will pay a
portion of the costs of such coverage as specified in subparagraph 6.b. below
until the later of the date on which Gardner ceases to be eligible for
continuation coverage under the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended

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("COBRA"), or the last day of the period of Extended Medical Care Coverage
(as defined in subparagraph 6.a. below); provided, however, that the Bank's
obligation to pay a portion of such costs will cease upon the failure of
Gardner to pay the corresponding portion of such costs allocable to him.

        e. LIFE INSURANCE PAYMENTS.  If Gardner elects to continue his group
term life insurance coverage under the terms of subparagraph 7.a. below, the
Bank will pay a portion of the costs of such coverage as specified in
subparagraph 7.b. below until the later of the date on which Gardner ceases to
be eligible for continuation coverage under the applicable provisions of
Minnesota law or May 23, 2003; provided, however, that the Bank's obligation to
pay a portion of such costs will cease upon the failure of Gardner to pay the
corresponding portion of such costs allocable to him.

     5. EXPENSE REIMBURSEMENTS.  The Bank will reimburse Gardner for his
regular and necessary  business expenses incurred by him on behalf of the
Bank through November 3, 2000 according to the Bank's regular policies and
practices.  Gardner will submit his requests for reimbursement supported by
appropriate documentation to the Bank on or before November 24, 2000, and the
Bank will make reimbursement payments to Gardner within 30 days after receipt
of each such request for reimbursement. Thereafter until the Retirement Date,
Gardner shall be reimbursed for all expenses according to the Bank's regular
policies and practices.

     6. MEDICAL PLAN COVERAGE CONTINUATION.

        a. CONTINUED/EXTENDED COVERAGE.  Gardner will have the right to
continue his medical plan coverage after the Retirement Date under COBRA under
such terms as are made available to similarly-situated former employees of the
Bank until he

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ceases to be eligible for COBRA continuation coverage. Thereafter, the Bank
will provide Gardner with individual medical coverage under the Bank's
then-existing medical plan; provided, however, that if the Bank determines in
its discretion that such coverage can no longer be provided to him under its
medical plan, the Bank will provide or make available medical care coverage
substantially equivalent to the Bank's then-existing medical plan (at the
option of the Bank on either a group or individual basis through either an
insurance or similar program or on a self-insured basis).  Such coverage will
continue until the earlier of (i) the date on which Gardner reaches the age
at which he becomes eligible for Medicare benefits under then-applicable law,
or (ii) the date of Gardner's death ("Extended Medical Care Coverage").

        b. ALLOCATION OF COSTS.  During the period of COBRA continuation
coverage, Gardner will pay an amount each month that is equal to the portion
of the cost to provide medical plan coverage to an employee and his or her
spouse under the Bank's then-existing medical plan that is allocated by the
Bank to the employee (currently $100.00 per month) to the Bank.  After the
period of COBRA continuation coverage and during the period of Extended
Medical Care Coverage, Gardner will pay an amount each month that is equal to
the portion of the cost to provide individual medical plan coverage to an
employee under the Bank's then-existing medical plan that is allocated by the
Bank to the employee either to the Bank or to any health insurance company or
other third-party provider designated by the Bank.  The Bank will pay the
balance of the costs or premiums necessary to provide Gardner with continuing
medical coverage during both the COBRA continuation period and the Extended
Medical Care Coverage period.

     7. LIFE INSURANCE COVERAGE CONTINUATION.

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        a. CONTINUATION/EXTENDED COVERAGE.  Gardner will have the right to
continue his group term life insurance coverage after the Retirement Date
under Minnesota law under such terms as are made available to
similarly-situated employees of the Bank until he ceases to be eligible for
group term life insurance continuation coverage.  Thereafter until May 23,
2003, the Bank will provide Gardner with life insurance coverage under the
Bank's then-existing group term life insurance program; provided, however,
that if the  Bank determines in its discretion that such coverage can no
longer be provided under its group term life insurance program, the Bank will
provide or make available life insurance coverage substantially equivalent to
the Bank's then-existing group term life insurance program (at the option of
the Bank on either a group or an individual basis through an insurance
program).  Notwithstanding the preceding sentence, if such life insurance
coverage must be provided on an individual basis and not a group basis
because of underwriting or other reasons, the amount of such life insurance
coverage may be reduced at the discretion of the Bank to the amount that can
be provided through a premium expenditure that is equivalent to the premium
costs that would otherwise be payable by the Bank under the Bank's
then-existing group term life insurance program to provide such coverage.

        b. ALLOCATION OF COSTS.  During both the period of life insurance
continuation coverage and thereafter until May 23, 2003, Gardner will pay an
amount each month that is equal to the portion of the cost to provide group
term life insurance coverage to an employee under the Bank's then-existing
group term life insurance program that is allocated by the Bank to the employee
(currently $15.30 per month) either to the Bank or to any insurance company
designated by the Bank.  The Bank will pay the balance of the costs

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or premiums necessary to provide Gardner with continuing life insurance
coverage during both the life insurance continuation period and thereafter
until May 23, 2003.

     8. RETIREMENT PLANS.  Gardner is a participant in the ESOP, the 401(k)
Plan, and the FIRF (collectively, the "Retirement Plans") and will continue to
be a participant in the Retirement Plans until the Retirement Date.  Because
Gardner will not be employed by the Bank on December 31, 2001, no employer
matching contribution will be made to the 401(k) Plan on Gardner's behalf by
the Bank for 2001.  Gardner will be entitled to begin drawing his retirement
benefits at the times and under the terms and conditions set forth in the
Retirement Plans.

     9. DIRECTOR EMERITUS.  If Gardner does not rescind this Agreement and
the Gardner Release as provided in paragraph 16 below, the Board of Directors
of the Holding Company (the "Board") will take action to appoint Gardner as a
Director Emeritus of the Holding Company at the next regularly scheduled
meeting of the Board following the expiration of the applicable rescission
period for a term that will continue until the Annual Meeting of the Holding
Company's stockholders in 2001.  Thereafter for four years the Board of
Directors of the Holding Company will appoint Gardner as a Director Emeritus
of the Holding Company and the Bank for four successive one year terms each
expiring on the date of the Company's next annual meeting of stockholders
such that Gardner shall be in continuous service as a Director Emeritus until
the Holding Company's 2005 Annual Meeting of Stockholders.

     10. THE BANK'S COOPERATION.  The Bank will ensure that all proper steps
are followed to comply with Gardner's written instructions with respect to his
retirement benefits and his medical and life insurance benefits, and will
provide him with the information that he

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reasonably requires in accordance with the applicable employee benefit plans
and programs sponsored by the Bank in which he is a participant.

11. CONFIDENTIAL INFORMATION; LOYALTY

        a. During the term of Gardner's continuing employment under this
Agreement and thereafter, he will not, except as may be required to perform his
duties as an employee of the Bank or as required by law, disclose to others or
use, whether directly or indirectly, any Confidential Information.  As used in
this Agreement, "Confidential Information" means information about the Bank or
the Holding Company and the Bank's clients and customers that is not available
to the general public and was or will be learned by Gardner in the course of
his employment by the Bank, including without limitation, any data, formulae,
information, proprietary knowledge, trade secrets, credit reports, and analyses
owned, developed, and used in the course of the business of the Bank or the
Holding Company, including client and customer lists and information related
thereto; and all papers, records, and other documents (and all copies thereof)
containing such Confidential Information.  Gardner acknowledges that such
Confidential Information is specialized, unique in nature, and of great value
to the Bank and the Holding Company.  Gardner agrees that on or before November
30, 2000, he will deliver to the Bank and the Holding Company all documents
(and all copies thereof) containing any Confidential Information.
Notwithstanding the preceding sentence or the provisions of paragraph 14, after
such date Gardner may retain such property of the Bank as may reasonably be
necessary for the purpose of providing continuing services to the Bank under
subparagraph 3.a. above, so long as all such Bank property is returned to the
Bank on or before the Retirement Date

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        b. Gardner will not, for a period of one year after the Retirement
Date, for himself, or as the agent of, on behalf of, or in conjunction with,
any person or entity, solicit or attempt to solicit, whether directly or
indirectly: (i) any employee of the Bank or the Holding Company to terminate
such employee's employment relationship with the Bank or the Holding Company;
or (ii) any savings and loan, banking, or similar business from any person or
entity that is or was a client, employee, or customer of the Bank or the
Holding Company and had dealt with Gardner or any other employee of the Bank
under his supervision.

        c. During the term of Gardner's continuing employment under this
Agreement, he may serve as a director of charitable, community, or industry
organizations and as a director of any business corporation to the extent
such directorships do not inhibit the performance of his duties under this
Agreement or conflict with the business of the Bank or the Holding Company.
During the term of Gardner's continuing employment under this Agreement, he
will not engage in any business or activity contrary to the business affairs
or interests of the Bank or the Holding Company.

        d. The provisions of this paragraph 11 will not prevent Gardner from
purchasing, solely for investment, not more than five percent of any financial
institution's stock or other securities that are traded on any national
securities exchange.

        e. The provisions of this paragraph 11 will survive the termination of
Gardner's employment under this Agreement for any reason.

    12. NON-DISPARAGEMENT.  Gardner will not disparage, defame, or besmirch the
reputation, character, image, products, or services of the Bank or the Holding
Company, or the reputation or character of the directors, officers, employees,
or agents of the Bank or the

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Holding Company.  The Bank will not disparage, defame, or besmirch the
reputation, character, or image of Gardner.

    13. CLAIMS INVOLVING THE BANK.  Gardner will not recommend or suggest to
any potential claimants or plaintiffs or their attorneys or agents that they
initiate claims or lawsuits against the Bank, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents,
nor will Gardner 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 Bank, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents;
provided, however, that this paragraph 13 will not be interpreted or
construed to prevent Gardner from giving testimony in response to questions
asked pursuant to a legally enforceable subpoena, deposition notice, or other
legal process, during any legal proceedings involving the Bank, any of its
affiliates or divisions, or any of its or their directors, officers,
employees, or agents.

    14. RECORDS, DOCUMENTS, AND PROPERTY.  Gardner will return to the Bank all
records, correspondence, documents, lists, reports, financial data, plans,
computer disks, computer tapes, source codes, passwords, and other tangible
property in his possession belonging to the Bank on or before October 31, 2000.
Notwithstanding the preceding sentence or the provisions of subparagraph 11.a
above, after such date Gardner may retain such property of the Bank as may
reasonably be necessary for the purpose of providing continuing services to the
Bank under subparagraph 3.a. above, so long as all such Bank property is
returned to the Bank on or before the Retirement Date.

    15. TIME TO CONSIDER AGREEMENT.  Gardner understands that he may take at
least 21 calendar days to decide whether to sign this Agreement and the
Gardner Release, which

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21-day period will commence on the date on which Gardner first
receives copies of this Agreement and the Gardner Release for review.  Gardner
acknowledges that any changes made to this Agreement or the Gardner Release
before he signs them, whether material or immaterial, will not restart the
running of the 21-day period.  Gardner represents that if he signs this
Agreement and the Gardner Release before the expiration of the 21-day period,
it is because he has decided that he does not need any additional time to
decide whether to sign this Agreement and the Gardner Release.

    16. RIGHT TO RESCIND OR REVOKE.  Gardner understands that he has the
right to rescind or revoke this Agreement and the Gardner Release for any
reason within 15 calendar days after he signs them (which 15-day period
expressly includes any other shorter time periods provided by law).  Gardner
understands that this Agreement and the Gardner Release will not become
effective or enforceable unless and until he has not rescinded this Agreement
and the Gardner Release and any applicable rescission period has expired.
Gardner understands that if he wishes to rescind, the rescission must be in
writing and hand-delivered or mailed to the Bank.  If hand-delivered, the
rescission must be: (a) addressed to Mr. M. F. Schumann, Chairman, HMN
Financial, Inc., 101 North Broadway, P. O. Box 231, Spring Valley, MN  55975;
and (b) delivered to Mr. Schumann within the 15-day period.  If mailed, the
rescission must be:  (a) postmarked within the 15-day period; (b) addressed
to Mr. M. F. Schumann, Chairman, HMN Financial, Inc., 101 North Broadway, P.
O. Box 231, Spring Valley, MN  55975; and (c) sent by certified mail, return
receipt requested, first-class postage prepaid.

    17. FULL COMPENSATION.  Gardner and his attorney understand that the
payments made and other consideration provided by the Bank under this Agreement
will fully

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compensate Gardner for and extinguish any and all of the claims Gardner is
releasing in the Gardner Release, including without limitation, his claims
for attorneys' fees and costs and any and all claims for any type of legal or
equitable relief.

    18. NO ADMISSION OF WRONGDOING. Gardner understands that this Agreement
does not constitute an admission that the Bank has violated any local
ordinance, state or federal statute, or principle of common law, or that the
Bank has engaged in any unlawful or improper conduct toward Gardner or has
treated him unfairly.  Gardner will not characterize this Agreement or the
payment of any money or other consideration in accordance with this Agreement
as an admission that the Bank has engaged in any unlawful or improper conduct
toward him or has treated him unfairly.

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

    20. REPRESENTATION.  Gardner acknowledges that he has been represented by
his own attorney in this matter, that he has had a full opportunity to consider
this Agreement and the Gardner Release, that he has had a full opportunity to
ask any questions that he may have concerning this Agreement, the Gardner
Release, or the settlement of his potential claims against the Bank, and that
he has not relied upon any statements or representations made by the Bank or
its attorneys, written or oral, other than the statements and representations
that are explicitly set forth in this Agreement, the Retirement Plans, the
Option Agreements, and any other employee benefit plans or programs sponsored
by the Bank in which Gardner is a participant.

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    21. SUCCESSORS AND ASSIGNS.  This Agreement will be binding upon and inure
to the benefit of the parties and their respective heirs, representatives,
successors, and assigns, including without limitation, a successor to the
business of the Bank by means of purchase, merger, consolidation, or otherwise,
but will not be assignable by either party without the prior written consent of
the other party.

    22. INVALIDITY.  In the event that any provision of this Agreement or the
Gardner Release is determined by a court of competent jurisdiction or
arbitrator to be invalid, illegal, or unenforceable in any respect, such a
determination will not affect the validity, legality, or enforceability of
the remaining provisions of this Agreement or the Gardner Release and the
remaining provisions of this Agreement and the Gardner Release will continue
to be valid and enforceable, and any court of competent jurisdiction or
arbitrator may modify the objectionable provision so as to make it valid and
enforceable.

    23. ENTIRE AGREEMENT. Before signing this Agreement and the Gardner
Release, the parties engaged in discussions and negotiations and generated
certain documents, in which the parties considered the matters that are the
subject of this Agreement and the Gardner Release.  In such discussions,
negotiations, and documents, the parties may have expressed their judgements
and beliefs concerning the intentions, capabilities, and practices of the
parties, and may have forecast future events.  The parties recognize,
however, that all business transactions, including the transactions upon
which the parties' judgments, beliefs, and forecasts are based, contain an
element of risk, and that it is normal business practice to limit the legal
obligations of contracting parties only to those promises and representations
that are essential to the transaction so as to provide certainty as to their
respective future rights and remedies.  Accordingly, this Agreement, the
Gardner Release, the Retirement

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Plans, the Option Agreements, and any other employee benefit plans or
programs sponsored by the Bank in which Gardner 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, the Gardner Release, the Retirement
Plans, the Option Agreements, or any other employee benefit plans or programs
sponsored by the Bank in which Gardner is a participant are intended by
either party to be legally binding, and all other agreements and
understandings between the parties, including the Employment Agreement, are
hereby superseded.

    24. REMEDIES.

        a. INJUNCTIVE RELIEF.  Gardner acknowledges that it would be difficult
to fully compensate the Bank for damages resulting from any breach by him of
the provisions of paragraph 11 of this Agreement.  Accordingly, in the event of
any actual or threatened breach of such provisions, the Bank will (in addition
to any other remedies it may have) be entitled to temporary and/or permanent
injunctive and other equitable relief to enforce such provisions, and such
relief may be granted without the necessity of proving actual damages.

        b. ARBITRATION.  Except for disputes arising under paragraph 11 of this
Agreement, all disputes arising under this Agreement will be submitted to final
and binding arbitration in Rochester, Minnesota.  The arbitrator will be
selected and the arbitration will be conducted pursuant to the then most recent
Employment Dispute Resolution Rules of the American Arbitration Association.
The decision of the arbitrator will be final and binding, and any court of
competent jurisdiction may enter judgment upon the award.  The arbitrator will
have jurisdiction an authority to interpret and apply the provisions of this
Agreement and

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relevant federal, state, and local laws insofar as necessary to
the determination of the dispute and to remedy any breaches of the Agreement.

        25. 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.

        26. 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.

        27. GOVERNING LAW.  This Agreement and the Gardner Release will be
interpreted and construed in accordance with, and any dispute or controversy
arising from any breach or asserted breach of this Agreement or the Gardner
Release will be governed by, the laws of Minnesota.

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

                                     /s/ James B. Gardner
                                     ________________________________________
                                     JAMES B. GARDNER

                                     HOME FEDERAL SAVINGS BANK

                                     By  /s/ M. F. Schumann
                                     ________________________________________
                                     M. F. SCHUMANN
                                     Chairman

                                     17<PAGE>

                                                                   EXHIBIT 10.3a

                         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 Michael McNeil (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 April 1, 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:

<PAGE>

    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;

                                     -2-

<PAGE>

                  (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:

             Michael McNeil
             1951 Waterford Place Southwest
             Rochester, MN 55902

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/ Michael McNeil
                                       ____________________________________

                                    -11-

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