Document:

EXHIBIT 10.5

 

HOME FEDERAL BANK

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of this 27th day of March, 2013, contemporaneously with the Change-in-Control Agreement, by and between HOME FEDERAL BANK, a federally chartered savings bank (hereinafter referred to as the “Bank”), P. O. Box 5000, Sioux Falls, South Dakota 57117-5000, the operating subsidiary of  HF Financial Corp. (the “Holding Company”) and Michael Westberg (the “Employee”).

 

RECITALS

 

A.                                    The Board of Directors of the Bank desires to employ the Employee, and the Employee desires to be employed, as Senior Vice President / Chief Credit Officer of the Bank under the terms and conditions set forth herein.

 

B.                                    The Board of Directors of the Bank recognizes the important service that the Employee will provide for the Bank.

 

C.                                    The Board of Directors of the Bank hereby provides the Employee timely notice of non-extension and termination of the Employee’s Restated Employment Agreement dated December 31, 2008, and thus corresponding termination of the Employee’s Restated Change in Control Agreement dated December 31, 2008.

 

D.                                    The Board of Directors of the Bank has approved and authorized the execution of this Employment Agreement with the Employee.

 

E.                                     The Board of Directors of the Bank has approved and authorized the execution of a Change-in-Control Agreement with the Employee on a contemporaneous basis with this Agreement.

 

F.                                      The Board of Directors of the Bank and of the Holding Company have authorized the Chairman of the Bank’s Board of Directors to finalize and sign this Agreement with the Employee.

 

COVENANTS

 

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained and further contained in the Change-in-Control Agreement between the parties executed contemporaneously herewith, the parties agree as follows:

 

1.                                      Term

 

This Agreement shall be effective and commence on March 31, 2013, and shall continue in effect through June 30, 2014. It may be renewed for not less than one year by mutual agreement of the parties, no later than ninety (90) days prior to the

 

 

end of the existing term. Except as otherwise provided in the Change-in-Control Agreement, the Employee’s Change-in-Control Agreement shall terminate when this Agreement terminates.

 

2.                                      Employment and Duties

 

The Employee is hereby employed as Senior Vice President / Chief Credit Officer of the Bank and shall have all such authority, powers, duties, and responsibilities as may be given to the Employee from time to time by the Bank’s Chief Executive Officer. The Employee shall devote substantially all of the Employee’s working time and efforts to the affairs of the Bank and will at all times faithfully, industriously, loyally, and to the best of the Employee’s ability, experience, and talents, perform all of the lawful duties that may be required of and from Employee pursuant to the terms of this Agreement.  Exhibit A to this Agreement provides a list of those material outside positions, investments, and activities presently engaged in by the Employee.  The Employee’s ongoing participation in these outside interests is permitted so long as such interests individually or in the aggregate do not conflict or interfere with the performance of the Employee’s duties, violate any applicable laws or regulations, or involve activities contrary to the best interests of the Bank.  The Employee’s participation in any other material outside interests, including without limitation service on any outside Board of Directors, is subject to prior approval by the Chief Executive Officer in consultation with the Chairman of the Bank’s Board of Directors.

 

3.                                      Compensation

 

(a)                                 The Bank shall pay the Employee a base salary at a rate of no less than One Hundred and Sixty-Three Thousand and No/100 Dollars ($163,000.00) per year during the term of this Agreement upon the same frequency and on the same basis that that Bank normally makes salary payments to other employee personnel. Appropriate adjustments to the Employee’s base salary will be made at the Bank’s discretion giving consideration to the value of the Employee’s services and to comparable adjustments to salaries paid to other executive employees of the Bank.

 

(b)                                 The Employee shall participate in the same manner as other similarly-situated executives in the Bank’s executive incentive plans.

 

(c)                                  Employee shall be eligible for grants of equity-based compensation under the terms of any stock option and incentive plan of the Holding Company and any successor plan thereto, as such grants are determined in the discretion of the Holding Company’s Board or its designated committee.

 

(d)                                 The Bank may terminate the Employee’s right to the unpaid or unvested incentive compensation under Sections 3(b) and 3(c), and may require reimbursement to the Bank and the Holding Company by the Employee of any incentive compensation previously paid or vested within the prior 12-month period pursuant to the

 

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applicable incentive compensation plan, in the event:  (i) of a willful or reckless breach by the Employee of Employee’s obligations under Sections 6 to 8 of this Agreement; (ii) of the Employee’s misconduct constituting Cause under Section 5(a) of this Agreement; or (iii) the Employee is obligated to disgorge to or reimburse the Bank or the Holding Company for such compensation paid or payable to the Employee by reason of application of Section 304 of the Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other applicable law or regulation requiring recapture, reimbursement or disgorgement of incentive-based pay.  In the event the Employee fails to make prompt reimbursement of any such incentive compensation previously paid, the Company may, to the extent permitted by applicable law, deduct the amount required to be reimbursed from the Employee’s compensation otherwise due under this Agreement.

 

4.                                      Benefits

 

The Bank shall during the term of this Agreement provide the Employee, in addition to the base salary, all benefits made available to other executive officers of the Bank as described in the Bank’s benefit plan(s) and policies including, but not limited to, group term life insurance, group medical, dental and disability coverage, Personal Time Off (PTO), and retirement.  Such benefits are subject to the terms of the applicable benefit plan or policy.  The Bank reserves the right to modify or discontinue any of these benefits on a company-wide basis.

 

5.                                      Termination

 

(a)                                 Termination for Cause.  The Bank shall have the right to immediately discharge the Employee for Cause. Cause shall include:

 

(i)                                     Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or a final cease-and-desist order;

 

(ii)                                  Intentional failure to perform the Employee’s stated duties;

 

(iii)                               Action or inaction which adversely impacts the Bank’s safety, soundness, security, assets, customers or employees;

 

(iv)                              Personal dishonesty;

 

(v)                                 Incompetence;

 

(vi)                              Breach of fiduciary duty involving personal profit;

 

(vii)                           Falsification of records or other misrepresentation related to the business or affairs of the Bank;

 

(viii)                        Failure to comply with the rules, regulations or policies of the Bank;

 

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(ix)                              Engaging in personal conduct which, when considering the Employee’s position with the Bank, would materially detract from its business reputation or goodwill in the community served;

 

(x)                                 Material breach of any provision of this Agreement;

 

(xi)                              Willful misconduct;

 

(xii)                           Insubordinate failure to work cooperatively with the Chief Executive Officer of the Bank or the Holding Company, including without limitation failure to follow the Chief Executive Officer’s lawful directions;

 

(xiii)                        Criminal conviction of a felony or a gross misdemeanor involving the property or personnel of the Bank; and

 

(xiv)                       Fraud, misappropriation, embezzlement, or theft by the Employee or intentional damage to the property or business of the Bank by the Employee.

 

Nothing in this provision shall prevent the Bank from putting the Employee on a paid or unpaid administrative leave during the pendency of criminal charges against the Employee, during an investigation (internal or otherwise) into any suspected misconduct or illegal conduct of the Employee, or for any other reason deemed appropriate in the reasonable discretion of the Chief Executive Officer of the Bank. Nothing in this provision shall prohibit the Bank from reasonably disciplining the Employee, including reassignment to another position, for wrongdoing or misconduct in a manner that does not result in termination.

 

(b)                                 Termination  Without Cause. The Employee’s employment under this Agreement may be terminated without Cause by either the Bank or Employee at any time upon sixty (60) days written notice to either the Employee or the Chief Executive Officer as applicable.  The Bank may relieve the Employee of any or all of Employee’s duties during this notice period.  The Bank reserves the right to accelerate the Employee’s termination date by paying the Employee prorated base salary, less applicable withholdings, in lieu of all or any applicable portion of this notice period.

 

(c)                                  Absenteeism.  If the Employee is absent from work in partial-day or full-day increments for any reason, including but not limited to illness or injury, for a period of time or in a manner that materially affects the functioning of the Bank, the Employee’s department, the Employee’s direct or indirect reports, or the Employee’s work obligations, the Bank may, in its reasonable discretion, terminate the Employee’s employment with the Bank without prior notice. Nothing in this absenteeism provision shall relieve the Bank from fulfilling any duties it may have under the Americans with Disabilities Act, any applicable State Human Rights Act, the Family and Medical Leave Act, or any other applicable law or regulation nor shall it preclude the Employee from receiving benefits to

 

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which the Employee may be entitled under any disability plan or agreement sponsored by the Bank.

 

(d)                                 Death.  The Employee’s employment hereunder shall terminate automatically upon the Employee’s death.

 

(e)                                  Board and Officer Positions.  Upon the voluntary or involuntary termination of the Employee’s employment for any reason, the Employee will be deemed to have resigned from all director and officer positions Employee may then hold with the Bank, the Holding Company, and any related or affiliated entity.

 

(f)                                   Severance  Terms.  Upon termination of the Employee’s employment under this Section 5, the Employee shall forfeit all rights to future compensation under Section 3; provided, however, that if employment is terminated as a result of the Employee’s death or disability as described in Section 5(f)(iii), compensation under Section 3(b) will not be forfeited, and will be payable to the Employee or the Employee’s estate/heirs in accordance with the terms of the Bank’s executive incentive plans. Additionally, Employee will be paid for accrued but unused PTO pursuant to the terms of the Bank’s PTO policy. Except where termination follows a change in control, as defined in the Employee’s Change-in-Control Agreement, and subject to any applicable regulatory requirements and the Employee’s signing and not revoking a release of claims in a form reasonably acceptable to the Bank, and further subject to compliance with Sections 6 to 8 below (Agreement Not to Compete, Solicitation of Employees, and Confidential Information), the Employee shall receive the following amounts, except to the extent previously paid by the Bank to the Employee, as full payment, compromise and settlement of all non-vested compensation, and as additional consideration for the restrictive covenants contained in this Agreement.  The Employee must sign and return the above-referenced release, if at all, so that the release is effective (taking into account any revocation period provided for therein) by no later than the sixtieth (60th) calendar day following the date the Employee’s employment is terminated.  Where the period available to execute (and to not revoke) the release spans more than one calendar year, the first payment shall not be made until the second calendar year as required by the applicable terms of this Agreement and Section 409A of the Code.

 

(i)                                     In the event the Employee’s employment is terminated by the Bank for Cause, the Bank shall pay the Employee the Employee’s salary through the date of termination for Cause, at the rate in effect at the time of notice of termination, and the Bank shall thereafter have no further obligation to the Employee under this Agreement;

 

(ii)                                  In the event the Employee’s employment is terminated by the Bank without Cause, other than by reason of death or disability as described in Section 5(f)(iii), the Employee shall be paid the Employee’s salary through the date of termination.  In addition, the Employee shall as severance pay continue to be paid Employee’s monthly base salary through the

 

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remainder of the then-existing term; such payments made on the first day of each month and each payment less applicable withholdings.  Subject to the provisions of subsection (vii) of this Section 5(f) and any other requirements of applicable law, the first payment shall be made on the first day of the third month coincident with or next following the Employee’s termination of employment and shall include all monthly payments theretofore due under this Agreement;

 

(iii)                               In the event the Employee’s employment is terminated by the Bank because of disability (as defined by and determined under the Bank’s Disability Plan), the Bank will pay the Employee the Employee’s salary through the last day of the month in which the Employee is terminated, plus on the 90th day following the Employee’s termination of employment a lump sum amount equal to three (3) months of Employee’s base salary, less applicable withholdings;

 

(iv)                              In the event of the Employee’s death, the Bank shall pay the Employee’s spouse, beneficiary, or the Employee’s estate, the Employee’s then current salary through the last day of the month in which such death occurs;

 

(v)                                 In the event the Employee’s employment is terminated by the Employee, and if the Employee provides written notice as required in Section 5(b), the Bank shall, subject to the provisions of subsection (vii) of this Section 5(f), pay the Employee’s current salary through the month of termination and on the 60th day following the Employee’s termination of employment a lump sum amount equal to one additional month’s salary, less applicable withholdings. Failure to give such notice pursuant to Section 5(b) shall result in forfeiture of the Employee’s accrued PTO and the Employee shall be paid only through the last day worked;

 

(vi)                              In the event the Employee’s employment is terminated because the Employee has chosen not to renew the term of the Agreement following the Bank’s offer to renew the Agreement (on substantially similar terms) pursuant to Section 1, the Bank shall pay the Employee the Employee’s salary during the period of time that the Employee continues to work (but not beyond the end of the term), at the rate then in effect, plus accrued PTO. However, the Bank may request the Employee to terminate employment before the end of the term, in which event the Bank shall pay the Employee the Employee’s salary through the end of the term of the Agreement at the rate then in effect, plus the Employee’s accrued PTO.  In the event the Employee’s employment is terminated because the Bank has chosen not to extend the term of the Agreement pursuant to Section 1 the Bank shall pay the Employee the Employee’s salary through the end of the term of the Agreement, at the rate then in effect, plus accrued PTO; and

 

(vii)                           Notwithstanding the foregoing payment provisions, if the Bank determines that any payments described above are subject to 409A(a)(2)(B)(i) of the

 

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Code, as defined below (or a successor provision), the payments described above shall be delayed until the earlier of the Employee’s death or the first day of the month coincident with or next following the six-month anniversary of the Employee’s termination of employment and shall include all payments theretofore due under this Agreement. Provided, however, that no payments shall be made and payments already made shall be returned to the Bank if the Employee violates the provisions contained in Sections 6 to 8 of this Agreement.

 

Compensation following a change in control, as defined in the Employee’s Change-in-Control Agreement, shall be governed solely by the terms of that agreement and the Employee shall not be entitled to any severance payment under this Agreement.

 

6.                                      Agreement Not to Compete

 

The Employee agrees that during the Employee’s employment with the Bank and for a period of one (1) year after the voluntary or involuntary termination of employment by the Employee or by the Bank for any reason,  the Employee will not, either directly or indirectly, on the Employee’s own behalf or as a partner, member, officer, employee, consultant, stockholder (except by ownership of less than 1% of the outstanding stock of a publicly held corporation, or the ownership does not involve any managerial or operation responsibility), director or trustee of any person, firm, or corporation or otherwise, engage in or assist others to engage in any business competing with the business carried on by the Bank, or solicit business from any customers of the Bank, within the State of South Dakota east of the Missouri River and those other cities, towns, municipalities, or counties where the Bank conducts business within or outside of the state of South Dakota (the “Restricted Area”).  The Employee understands and agrees that the provisions of this Section 6 restrict Employee’s competitive acts within the Restricted Area, even if Employee (i) resides or is located outside the Restricted Area or (ii) is engaged by an entity headquartered outside the Restricted Area. “Bank” as used in this provision shall include all branch operations, loan production offices, and all other locations. If the Employee violates the non-compete provisions of this Section 6 the Employee shall return to the Bank any severance payments received after termination under Section 5(f) or under Section 4(a)(iii) of the Employee’s Change-in-Control Agreement.

 

7.                                      Solicitation of Employees

 

The Employee agrees that during the Employee’s employment with the Bank and for one (1) year after the voluntary or involuntary termination of such employment for any reason, the Employee will not induce or attempt to induce any person who is an employee of the Bank to leave the employ of the Bank and engage in any business which competes with the Bank’s business.  If the Employee violates the non-solicitation provisions of this Section 7 the Employee shall return to the Bank any severance payments received after termination under

 

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Section 5(f) or under Section 4(a)(iii) of the Employee’s Change-in-Control Agreement.

 

8.                                      Confidential Information

 

The Employee acknowledges that as a result of employment with the Bank, the Employee will have access to and knowledge of confidential, trade secret and proprietary information of the Bank and the Holding Company. In exchange for the consideration set forth herein, and for the consideration set forth in the Change-in-Control Agreement contemporaneously executed, the Employee agrees not to disclose to anyone inside or outside the Bank or use for the Employee’s own benefit or the benefit of others, any of this information without the express written consent of the Bank. The Employee acknowledges an unauthorized disclosure or use of this information would be unfair and would cause the Bank irreparable harm.  The Employee also acknowledges that Employee is subject to the policies of the Company regarding insider trading and blackout periods in effect from time to time. If the Employee violates the confidentiality provisions of this Section 8 the Employee shall return to the Bank any severance payments received after termination under Section 5(f) or under Section 4(a)(iii) of the Employee’s Change-in-Control Agreement.

 

9.                                      Preemptive Provisions

 

The following preemptive provisions of this Section 9 shall prevail over and control the terms of this Agreement:

 

(a)                                 To the extent that regulatory requirements, whether implemented by the Securities and Exchange Commission or banking regulators, or the restrictions imposed by any banking regulator are in conflict with the terms of this Agreement, the provisions of those regulatory requirements and the restrictions imposed by the banking regulator shall prevail and control.

 

(b)                                 If the Employee is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e)(3) or (g)(1); the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion:  (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

 

(c)                                  If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties will not be affected.

 

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(d)                                 If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(x)(1), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the contracting parties will not be affected.

 

(e)                                  All obligations under this Agreement shall be terminated, except to the extent determined that continuation of the Agreement is necessary for the continued operation of the Bank:  (i) by the Director of the OCC (or his designee), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. § 1823(c); or (ii) by the Director of the OCC (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, will not be affected by such action.

 

(f)                                   Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

 

10.                               No Assignments

 

This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee in the Employee’s reasonable discretion, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effective date of any such succession or assignment shall be a breach of this Agreement.

 

11.                               Notice

 

For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement (provided that all notices to the Bank shall be directed to the attention of the Chief Executive Officer with a copy to the Secretary of the Bank), or to such other address as either party may have furnished to the other in writing in accordance herewith. Notices shall be effective upon receipt.

 

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12.                               Entire Agreement/Waivers

 

This Agreement and the contemporaneously executed Change-in-Control Agreement, as either may be amended from time to time, represent the entire agreement between the parties and supersede all previous communications, representations, understandings, and agreements, either oral or written, between the Bank and the Employee with respect to the employment of the Employee by the Bank, including without limitation the Employee’s Restated Employment Agreement and Restated Change in Control Agreement, both dated December 31, 2008. No waiver of the terms of this Agreement shall be binding upon either party unless in writing, signed by the party to be charged. The waiver or failure of either party to enforce the terms of this Agreement in one instance shall not constitute a waiver of that party’s rights under this Agreement with respect to other violations.

 

13.                               Severability

 

The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

 

14.                               Section 409A of the Code

 

Notwithstanding any other provision of this Agreement to the contrary, Employee and the Bank agree that the payments hereunder shall be exempt from, or satisfy the applicable requirements, if any, of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) in a manner that will preclude the imposition of penalties described in Code Section 409A.  Employee and the Bank agree that this Agreement shall be interpreted to the extent possible to be exempt from or satisfy the requirements described above.  Payments made under this Agreement are intended to satisfy the short-term deferral rule and the separation pay exception within the meaning of Section 409A.  Employee’s termination of employment for any reason shall mean a “separation from service” within the meaning of Code Section 409A.  Notwithstanding anything herein to the contrary, this Agreement shall, to the maximum extent possible, be administered, interpreted and construed in a manner consistent with Code Section 409A; provided, that in no event shall the Bank have any obligation to indemnify Employee from the effect of any taxes under Code Section 409A.

 

15.                               Governing Law

 

The laws of the United States to the extent applicable and otherwise the laws of the State of South Dakota shall govern this Agreement, without regard to conflicts of law provisions.

 

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16.                               Arbitration and Remedies

 

(a)                                 Except as otherwise expressly provided in this Agreement, any dispute or claim arising under or with respect to this Agreement, or the termination of this Agreement, will be resolved by arbitration in the state of South Dakota in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association by a mutually agreeable neutral arbitrator. The decision or award of the arbitrator shall be final and binding upon the parties and may be entered as a judgment or order in any Court of competent jurisdiction;

 

(b)                                 All information and documentation submitted by the parties or received from any other source, together with all transcripts of the hearing(s) or other proceedings, and the arbitrator’s findings shall be treated by the arbitrator and the parties as Confidential Information and the participants agree not to disclose or turn over any such information or documentation to a third party without the prior written consent of the parties, or pursuant to a lawful subpoena or court order, or an order to obtain injunctive relief;

 

(c)                                  Employee acknowledges that compliance with Sections 6, 7, and 8 is necessary to protect the business and goodwill of the Bank, and that a breach of these sections would irreparably and continually damage the Bank for which money damages may not be adequate. Consequently, the Employee agrees that the Bank will be entitled to injunctive and other equitable relief from the courts for breach or threatened breach of these sections and the Employee agrees that it will not be a defense to any request for such relief that the Bank has an adequate remedy at law. For purposes of any such proceeding, the Bank and the Employee submit to the non-exclusive jurisdiction of the courts of the state of South Dakota, and of the United States located in the State of South Dakota, and each agrees not to raise and waives any objection to or defense based on the venue of any such court or forum non-conveniens;

 

(d)                                 If a court of competent jurisdiction determines that any provision of this Agreement is unreasonable in scope, time, or geography, it is hereby authorized by the Employee and the Bank to enforce the same in such narrower scope, shorter time or lesser geography as such court determines to be reasonable and proper under all the circumstances. The restrictive covenants in Section 6 shall be deemed separate covenants for each and every state, county, municipality, and town, and in the event the covenants for one or more of the geographic territories is determined to be unenforceable, the remaining covenants shall continue to be effective; and

 

(e)                                  The Bank will also have such other legal remedies as may be appropriate under the circumstances including, but not limited to, recovery of damages occasioned by a breach.

 

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17.                               Survival

 

Notwithstanding any termination of this Agreement or the Employee’s employment hereunder, the Employee shall remain bound by the provisions of this Agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of Employee’s employment, including without limitation the provisions of Sections 6, 7, and 8.

 

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

 

	
EMPLOYEE
    	
BANK
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Michael Westberg
    	
 
    	
/s/ Michael M.   Vekich
    
	
Michael Westberg
    	
By: Michael M.   Vekich
    
	
 
    	
Its: Chairman of   the Board
    
			

 

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EXHIBIT A

 

13EXHIBIT 10.6

 

HOME FEDERAL BANK

 

CHANGE-IN-CONTROL AGREEMENT

 

This Change-in-Control Agreement (this “Agreement”) is entered into as of the 27th day of March, 2013, and effective March 31, 2013, contemporaneously with an Employment Agreement, by and between Home Federal Bank, a federally chartered savings bank, the operating subsidiary of HF Financial, Inc. (the “Holding Company”), and Michael Westberg (the “Employee”). As used herein, the term “the Bank” shall mean Home Federal Bank, or if the context requires, its successor.

 

WHEREAS, the Board of Directors of the Bank desires to employ the Employee as Senior Vice President / Chief Credit Officer of the Bank; and

 

WHEREAS, the Holding Company offers its common stock for sale to the public and is subject to supervision by the Securities and Exchange Commission (“SEC”); and

 

WHEREAS, the Bank is subject to supervision by the Office of the Comptroller of the Currency (OCC), and the Holding Company is subject to supervision by the Federal Reserve; and

 

WHEREAS, the Board of Directors of the Bank recognizes that, as is the case with publicly held corporations generally, the possibility of a change-in-control of the Holding Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Bank, the Holding Company and its stockholders; and

 

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into a Change-in-Control Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee to Employee’s assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change-in-control of the Holding Company, although no such change is now known of;

 

WHEREAS, the Board of Directors of the Bank and of the Holding Company have approved the execution of an Employment Agreement with the Employee on a contemporaneous basis with this Agreement (the “Employment Agreement”); and

 

WHEREAS, the Board of Directors of the Bank and of the Holding Company have approved the execution of this Agreement with the Employee and have authorized the Chairman of the Bank’s Board of Directors to finalize and sign the Agreement to take effect as stated in Section 1 hereof.

 

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, it is agreed as follows:

 

1.                                      Term of Agreement. This Agreement will commence on the date hereof and shall continue while the Employee is employed with the Bank; provided, however, that this

 

 

Agreement shall terminate when the Employment Agreement terminates, except that if such agreement terminates at a time when the Bank or Holding Company is actively negotiating a transaction with a third party that results in a Change-in-Control or at a time when shareholders of the Holding Company are being solicited to vote for directors who would not be Continuing Directors as defined in Section 2 below and the election of such directors would effect a Change-in-Control or at a time when shareholders of the Holding Company are being solicited to tender their shares in an offering that if successful would result in a Change-in-Control, this Agreement shall not terminate until nine months following the termination of the Employment Agreement.

 

2.                                      Change-in-Control. No benefits shall be payable hereunder unless there shall have been a Change-in-Control, as set forth below, and the Employee’s employment is terminated as described in this Agreement. For purposes of this Agreement, a “Change-in-Control” shall mean:

 

a.                                      a change-in-control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Holding Company is then subject to such reporting requirement; or

 

b.                                      the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Holding Company or any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that such person has become the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Holding Company (i) representing 20% or more, but not more than 50%, of the combined voting power of the Holding Company’s then outstanding securities unless the transaction resulting in such ownership has been approved in advance by the Continuing Directors (as hereinafter defined); or (ii) representing more than 50% of the combined voting power of the Holding Company’s then outstanding securities (regardless of any approval by the Continuing Directors); provided, however, that notwithstanding the foregoing, no Change-in-Control shall be deemed to have occurred for purposes of this Agreement by reason of the ownership of 20% or more of the total voting capital stock of the Holding Company then issued and outstanding by the Holding Company, any subsidiary of the Holding Company or any employee benefit plan of the Holding Company or of any subsidiary of the Holding Company or any entity holding shares of the Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan (any such person or entity described in this clause is referred to herein as a “Company Entity”); or

 

c.                                       any acquisition of control as defined in 12 Code of Federal Regulations Section 574.4, or any successor regulation, of the Holding Company which would require the filing of an application for acquisition of control or notice of Change-in-Control in a manner which is set forth in 12 CFR Section 574.3, or any successor regulation; or

 

d.                                      the Continuing Directors (as hereinafter defined), cease to constitute a majority of the Holding Company’s Board of Directors; or

 

e.                                       the shareholders of the Holding Company approve (i) any consolidation or merger of the Holding Company in which the Holding Company is not the continuing or

 

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surviving company or pursuant to which shares of Holding Company stock would be converted into cash, securities or other property, other than a merger of the Holding Company in which shareholders immediately prior to the merger have the same proportionate ownership of stock of the surviving company immediately after the merger; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Holding Company; or (iii) any plan of liquidation or dissolution of the Holding Company.

 

For purposes of this definition, “Continuing Director” shall mean any person who is a member of the Board of Directors of the Holding Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (i) was a member of the Board of Directors on the date of this Agreement; or (ii) subsequently becomes a member of the Board of Directors, if such person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this definition, “Acquiring Person” shall mean any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act) directly or indirectly, of securities of the Holding Company representing 20% or more of the combined voting power of the Holding Company’s then outstanding securities, but shall not include the Investors or any Holding Company Entity; and “Affiliate” and “Associate” shall have their respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

 

3.                                      Termination Following a Change-in-Control. If a Change-in-Control shall have occurred during the term of this Agreement, the Employee shall be entitled to the benefits provided in Section 4(a) hereof upon termination of the Employee’s employment within 24 months following the month in which a Change-in-Control occurs unless such termination is:  (i) because of the Employee’s death or Disability (as defined below); (ii) by the Bank for Cause (as defined below); or (iii) by the Employee other than for Good Reason (as defined below):

 

a.                                      Cause. Termination by the Bank of the Employee’s employment for “Cause” shall have the meaning of “Cause” under the Employment Agreement.

 

b.                                      Good Reason. The Employee’s termination of employment for “Good Reason” shall mean termination by the Employee upon the occurrence, without Employee’s express written consent, within 24 months following a Change-in-Control of any one or more of the following:

 

(i)                                           the assignment to the Employee of duties that constitute a material diminution of Employee’s authority, duties or responsibilities (including reporting requirements) as in effect immediately prior to the Change-in-Control or any other action of the Bank which results in a diminishment in such position, authority, duties, or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Bank promptly after receipt of notice thereof given by the Employee;

 

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(ii)                                        a reduction in the Employee’s base salary as in effect on the date hereof or as the same shall be increased from time-to-time;

 

(iii)                                     relocation of the Employee’s principal place of employment to a location outside a radius of 50 miles of the Bank’s corporate office immediately prior to the Change-in-Control;

 

(iv)                                    the failure by the Bank to (a) continue in effect any material compensation or benefit plan, program, policy or practice in which the Employee was participating at the time of the Change-in-Control, or (b) provide the Employee with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program, policy and practice as in effect immediately prior to the Change-in-Control (or as in effect following the Change-in-Control, if greater);

 

(v)                                       the failure of the Bank to obtain a satisfactory agreement from any successor to the Bank to assume and agree to perform this Agreement, as contemplated in Section 7 hereof; and

 

(vi)                                    any purported termination by the Bank of the Employee’s employment that is not effected pursuant to a Notice of Termination (as defined below).

 

The Bank’s right to terminate the Employee’s employment pursuant to this Subsection shall not be affected by the Employee’s Disability as defined below. The Employee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. The Employee’s termination of employment for Good Reason as defined in this Subsection 3(b) shall constitute termination for Good Reason for all purposes of this Agreement, notwithstanding that the Employee may also thereby be deemed to have “retired” under any applicable retirement programs of the Bank.

 

c.                                       Disability. Disability shall mean incapacity due to physical or mental illness as determined by the Bank’s disability plan.

 

d.                                      Notice of Termination. Any purported termination of the Employee’s employment by the Bank or by the Employee (other than by reason of the Employee’s death) within 24 months following the month in which a Change-in-Control occurs, shall be communicated by Notice of Termination to the other party hereto in accordance with Section 8 hereof. No purported termination of the Employee’s employment by the Bank shall be effective if it is not pursuant to a Notice of Termination. Failure by the Employee to provide Notice of Termination shall not limit any of the Employee’s rights under this Agreement except to the extent the Bank can demonstrate that it suffered actual damages by reason of such failure. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination (as defined below) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated.

 

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e.                                       Date of Termination. “Date of Termination” shall mean the date specified in the Notice of Termination (except in the case of the Employee’s death, in which case Date of Termination shall be the date of death); provided, however, that if the Employee’s employment is terminated by the Bank, the date specified in the Notice of Termination shall be at least 30 days from the date the Notice of Termination is given to the Employee and if the Employee terminates his employment for Good Reason, the date specified in the Notice of Termination shall not be more than 60 days from the date the Notice of Termination is given to the Bank.

 

4.                                      Compensation Upon Termination. Following a Change-in-Control that occurs during the term of this Agreement, and upon the Employee’s termination of employment within 24 months following the month in which the Change-in-Control occurred, the Employee shall be entitled to the following benefits:

 

a.                                      If employment by the Bank is terminated (A) by the Bank for any reason other than Cause, or (B) by the Employee for Good Reason, the Employee shall be entitled to the benefits, to be funded from the general assets of the Bank, provided below:

 

(i)                                           the Bank shall pay the Employee’s full annual base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given;

 

(ii)                                        the Bank shall pay the Employee in accordance with the terms of the Short-Term Incentive Plan, any incentive payment Employee has a right to receive on the last day of the fiscal year prior to Employee’s Date of Termination;

 

(iii)                                     the Bank shall pay as severance pay to the Employee, a lump sum severance payment equal to (A) 1.5 times the Employee’s annual base salary in effect at the time Notice of Termination is given or immediately prior to the date of the Change-in-Control, whichever is greater, and (B) the greater of the following amounts: (x) the amount, if any, awarded to the Employee pursuant to the terms of the Short-Term Incentive Plan in the two plan years immediately prior to the Change-in-Control, divided by twenty-four, and then multiplied by the number of months in the current fiscal year completed before the Date of Termination or (y) the amount that the Employee had accrued during the current plan year under the terms of the Short-Term Incentive Plan as of the month end prior to the Date of Termination (in either case, the calculation utilized in determining such award amounts shall be adjusted for the limited purpose of determining severance under this paragraph (iii) to exclude Change-in-Control Expenses, and “Change-in-Control Expenses” shall mean the aggregate investment banking, legal and accounting fees payable by the Company or the Bank arising from the transaction that has resulted in the Change-in-Control); provided, however, that payments under this subparagraph will be conditioned upon compliance with Sections 6 through 8 of the Employee’s Employment Agreement (Agreement Not to Compete, Solicitation of Employees, and Confidential Information) and payments made under this subparagraph must be returned to the Bank if the Employee violates the provisions contained in any of such Sections;

 

(iv)                                    the Bank shall pay the Employee the amount that has accrued to the Employee under the Long-Term Incentive Plan as of the first day of the month following the Date of Termination;

 

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(v)                                       for and during the period of time that the Employee is eligible for and properly elects continued coverage under the Bank’s health and dental plans, the Bank will continue to subsidize that coverage as if the Employee remained an active employee of the Bank but for no more than 24 months following the Date of Termination and only with respect to the level of health and dental insurance coverage in which the Employee was enrolled immediately prior to the Notice of Termination (e.g., single or family). If the Employee’s continuation coverage terminates for reasons other than nonpayment of the Employee’s share of the cost of the coverage or fraud before the Employee has received 24 months of coverage, then the Bank shall reimburse the Employee for replacement health and dental coverage during the remainder of the 24 months following the Date of Termination, but only with respect to the level of health and dental insurance coverage in which the Employee was enrolled immediately prior to the Notice of Termination (e.g., single or family), and only in an amount up to the difference between the then COBRA premium charged by the Bank (or its successor) to COBRA continues and the amount that active employees are required to pay for their coverage. Such reimbursement may be made directly to the provider of the Employee’s health and dental coverage or as a reimbursement to the Employee upon the presentation of evidence of the cost and continuation of such coverage. Provided, however, that all health and dental benefits receivable by the Employee pursuant to this Subsection (v)(A) shall be discontinued if the Employee obtains full-time employment providing comparable health and dental benefits to the Employee provided in accordance with this Subsection (v)(A) during the 24-month period following the Date of Termination;

 

(vi)                                    payment in accordance with any other plans or agreements available to executive officers which by their terms provide for payments upon a change in control that may be in place between the Employee and the Bank or the Holding Company from time to time; and

 

(vii)                                 in accordance with the Holding Company’s current stock option and incentive plan or any successor plan adopted by the Holding Company’s Board of Directors, the vesting of awards and lapsing of restrictions as set forth in such plans.

 

The payments provided for in Section 4(a)(i) and (iii) through (vi) above shall be made on the 60th day following the date the Employee separated from service as defined in Section 409A of the Code and regulations and guidance issued thereunder.  Payments paid as reimbursements shall be made within 30 days of a request for reimbursement but only if the request is made within 60 days of the date that payment was made. Notwithstanding the above, if the Bank determines that any of the payments in Section 4(a) are subject to 409A(a)(2)(B)(i) of the Code (or a successor provision), then any such payments shall be delayed until the earlier of the Employee’s death or the first day of the month coincident with or next following the sixth month anniversary of the Employee’s termination of employment and shall be paid in a lump sum on that date.

 

b.                                      The Bank shall also pay to the Employee any reasonable legal fees and reasonable expenses incurred by the Employee (i) as a result of successful litigation against the Bank for nonpayment of any benefit hereunder, or (ii) in connection with any dispute with any Federal, state, or local governmental agency with respect to benefits claimed under this Agreement. If the Employee utilizes arbitration to resolve any such dispute, the Bank will pay

 

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any reasonable legal fees and reasonable expenses incurred by the Employee in connection therewith. Such reimbursement must be requested no later than two months after the conclusion of the successful litigation and shall be paid within two months after the request for reimbursement.

 

c.                                       The Employee shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 4 be reduced by any compensation earned by the Employee as the result of employment by another employer after the Date of Termination, or otherwise, except as set forth in Section 4(a)(v) hereof.

 

5.                                      Certain Reduction of Payments by the Bank. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Bank to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “Payment”) would be nondeductible (in whole or part) by the Bank for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such amounts payable or distributable pursuant to this Agreement are hereinafter referred to as “Agreement Payments”) shall be reduced to the Reduced Amount. The “Reduced Amount” shall be an amount, not less than zero, expressed in present value, which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Bank because of Section 280G of the Code. For purposes of this Section 5, present value shall be determined in accordance with Section 280G(d)(4) of the Code, or its successor.  The Bank shall determine the reductions in such a manner that to the extent possible, the provisions of Section 409A of the Code are not violated.

 

6.                                      No Exclusivity Rights. Nothing in this Agreement shall prevent or limit the Employee’s continuing or future participation in any benefit, bonus, incentive, retirement or other plan or program provided by the Bank and for which the Employee may qualify, nor, except as provided in Section 13, shall anything herein limit or reduce such rights as the Employee may have under any other agreement with, or plan, program, policy or practice of the Bank. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any agreement with, or plan, program, policy or practice of the Bank (including, without limitation, the cash out of unused vacation days upon termination of employment) shall be payable in accordance with such agreement, plan, program, policy or practice, except as explicitly modified by this Agreement.

 

7.                                      Successors.

 

a.                                      The Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Bank or of any division or subsidiary thereof employing the Employee to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform if no such succession had taken place. Failure of the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to terminate employment within 24

 

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months following the Change-in-Control and to receive compensation from the Bank in the same amount and on the same terms as he would be entitled hereunder if his employment were terminated for Good Reason following a Change-in-Control.

 

b.                                      This Agreement shall inure to the benefit of and be enforceable by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Employee should die while any amount would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate or, if no estate, in accordance with applicable law.

 

8.                                      Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, postage prepaid, addressed to the other party as follows:

 

 

	
 
    	
If to the Bank,   to:
    	
Home Federal Bank
    
	
 
    	
Attention:   Corporate Secretary
    
	
 
    	
225 South Main   Avenue
    
	
 
    	
Sioux Falls, SD   57104
    
	
 
    	
 
    
	
 
    	
If to Employee,   to:
    	
 
    
	
 
    	
Michael Westberg
    
	
 
    	
2120 S.   Silverpine Court
    
	
 
    	
Sioux Falls, SD   57110
    

 

or to the home address which is maintained on file with the Bank.

 

Either party to this Agreement may change its address for purposes of this Section 8 by giving 15 days’ prior notice to the other party hereto.

 

9.                                      Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Employee and such officer as may be specifically designated by the Board to sign on behalf of the Bank. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Dakota.

 

10.                               Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

 

11.                               Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

 

12.                               Arbitration. Any disputes under this Agreement will be resolved by arbitration, in the state of South Dakota, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association by a mutually agreeable neutral

 

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arbitrator. The decision or award of the arbitrator shall be final and binding upon the parties and may be entered as a judgment or order in any Court of competent jurisdiction. All information and documentation submitted by the parties or received from any other source, together with all transcripts of the hearing(s) or other proceedings, and the arbitrator’s findings, shall be treated by the arbitrator and the parties as confidential information and the participants agree not to disclose or turn over any such information or documentation to a third party without the prior written consent of the parties, or pursuant to a lawful subpoena or court order, or an order to obtain a injunctive relief.

 

13.                               Employment Agreement. Reference is hereby made to that certain Employment Agreement, dated contemporaneously with this Change-in-Control Agreement, by and between the Bank and the Employee. All terms and conditions of the Employee’s Employment Agreement, including the non-compete provisions in Section 6 thereof, shall continue in force and effect (until termination of the Employment Agreement in accordance with its terms), including following a Change-in-Control, except as expressly modified by this Section, except that when the Employee is terminated following a Change-in-Control, the severance provisions in the Employee’s Employment Agreement shall not apply and payments to the Employee shall be governed by this Agreement. The mutual promises in this Agreement and in the Employment Agreement shall serve as consideration for each agreement contemporaneously executed, to the extent such consideration is required.

 

14.                               Effective Date. This Agreement shall become effective as of the date first set forth above.

 

15.                               Employment. This Agreement does not constitute a contract of employment or impose on the Bank any obligation to retain the Employee as an employee, to continue his current employment status, or to change any employment policies of the Bank.

 

16.                               Section 409A of the Code.  It is the intent of the parties that this Agreement be construed to avoid the excise tax and penalties described in Section 409A of the Code. The Agreement shall be interpreted in a manner consistent with that intention. In that regard, the concept of “termination of employment” shall be interpreted to mean “separation from service” within the meaning of Section 409A.

 

17.                               Amendments. No amendments or additions to this Agreement shall be binding unless stipulated in writing and signed by the party to be charged, except as herein otherwise provided.

 

18.                               Entire Agreement. This Agreement and the contemporaneously executed Employment Agreement, as either may be amended from time to time, represent the entire agreement between the parties and supersede all previous communications, representations, understandings, and agreements, either oral or written, between the Bank and the Employee with respect to the employment of the Employee by the Bank, including without limitation the Employee’s Restated Employment Agreement and Restated Change in Control Agreement, both dated December 31, 2008.

 

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19.                               Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

 

20.                               Governing Law. The laws of the United States to the extent applicable and otherwise the laws of the State of South Dakota shall govern this Agreement.

 

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

 

	
 
    	
HOME FEDERAL BANK
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Michael M.   Vekich
    
	
 
    	
By: Michael M.   Vekich
    
	
 
    	
Its: Chairman of   the Board
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EMPLOYEE
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Michael   Westberg
    
	
 
    	
Michael Westberg
    

 

 

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