SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) FOR THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-24100
HMN FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 41-1777397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 North Broadway, Spring Valley, Minnesota 55975-0231
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
(507) 346-7345
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's common stock
as of the latest practicable date.
Class Outstanding at August 6, 1996
Common stock, .01 par value 4,673,340
This Form 10-Q consists of 87 pages.
The exhibit index is on page 19.
1
<PAGE>
HMN FINANCIAL, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1: Financial Statements (unaudited)
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the
Three Months Ended and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity
for the Six Month Period Ended June 30, 1996 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 2: Changes in Securities 16
Item 3: Defaults Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security
Holders 16-17
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K, Form 10-C
and Form 11-K 17
Signatures 18
2
<PAGE>
PART I - FINANCIAL STATEMENTS
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1996 1995
------------------------
<S> <C> <C>
Cash and cash equivalents $ 5,942,504 4,334,694
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $151,722,163 and
$158,517,548) 148,705,801 158,416,201
Other marketable securities
(amortized cost $41,173,928 and
$32,247,959) 40,441,555 31,903,566
----------- -----------
189,147,356 190,319,767
=========== ===========
Securities held to maturity:
Mortgage-backed and related securities
(estimated market value
$13,952,026 and $13,931,879) 13,834,625 13,744,063
Other marketable securities
(estimated market value $996,540
and $3,224,263) 999,343 3,227,729
----------- -----------
14,833,968 16,971,792
=========== ===========
Loans receivable, net 331,649,722 314,850,684
Federal Home Loan Bank stock, at cost 5,157,900 3,801,900
Real estate, net 153,122 279,851
Premises and equipment, net 3,547,124 3,645,536
Accrued interest receivable 3,425,342 3,381,507
Deferred income taxes 635,326 0
Prepaid expenses and other assets 486,959 362,928
----------- -----------
Total assets $ 554,979,323 537,948,659
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 363,194,751 373,539,468
Federal Home Loan Bank advances 101,053,053 68,876,978
Accrued interest payable 1,717,330 1,562,347
Advance payments by borrowers for
taxes and insurance 517,502 550,990
Accrued expenses and other liabilities 1,233,906 1,732,193
----------- -----------
Total liabilities 467,716,542 446,261,976
=========== ===========
Commitments and contingencies
Stockholders' equity:
Serial preferred stock: authorized
500,000 shares; issued and
outstanding none 0 0
Common stock ($.01 par value):
authorized 7,000,000 shares;
issued 6,085,775 shares 60,858 60,858
Additional paid-in capital 59,348,005 59,285,581
Retained earnings, subject to
certain restrictions 53,490,813 50,371,038
Net unrealized loss on securities
available for sale (2,231,697) (265,358)
Unearned employee stock ownership
plan shares (5,137,310) (5,336,150)
Unearned compensation restricted
stock awards (933,605) (1,050,305)
Treasury stock, shares at cost
1,164,575 and 783,850 (17,334,283) (11,378,981)
----------- -----------
Total stockholders' equity 87,262,781 91,686,683
----------- -----------
Total liabilities and stockholders'
equity $ 554,979,323 537,948,659
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---------------------
<S> <C> <C>
Interest Income:
Loans receivable $ 6,409,310 5,727,836
Securities available for sale:
Mortgage-backed and related 2,527,670 2,598,254
Other marketable 580,897 828,629
Securities held to maturity:
Mortgage-backed and related 256,754 163,004
Other marketable 32,405 125,210
Cash equivalents 62,086 132,915
Other 74,648 59,919
--------- ---------
Total interest income 9,943,770 9,635,767
--------- ---------
Interest expense:
Deposits 4,720,966 4,630,653
Federal Home Loan Bank advances 1,227,662 1,025,995
--------- ---------
Total interest expense 5,948,628 5,656,648
--------- ---------
Net interest income 3,995,142 3,979,119
Provision for loan losses 75,000 75,000
--------- ---------
Net interest income after
provision for loan losses 3,920,142 3,904,119
--------- ---------
Non-interest income:
Fees and service charges 81,855 79,342
Securities gains (losses), net 268,487 (5,190)
Gain on sales of loans 1,135 76,951
Other 133,533 30,007
--------- ---------
Total non-interest income 485,010 181,110
--------- ---------
Non-interest expense:
Compensation and benefits 1,099,123 977,992
Occupancy 195,363 186,298
Federal deposit insurance premiums 214,864 198,474
Advertising 79,354 66,650
Data processing 120,743 120,902
Other 274,789 287,016
--------- ---------
Total non-interest expense 1,984,236 1,837,332
--------- ---------
Income before income tax expense 2,420,916 2,247,897
Income tax expense 887,832 842,425
--------- ---------
Net income $ 1,533,084 1,405,472
========= =========
Earnings per common share and common
share equivalents $ 0.34 0.27
========= =========
<CAPTION>
Six Months Ended
June 30,
1996 1995
----------------------
<S> <C> <C>
Interest Income:
Loans receivable $12,548,056 11,182,650
Securities available for sale:
Mortgage-backed and related 5,301,360 5,255,555
Other marketable 985,741 1,377,378
Securities held to maturity:
Mortgage-backed and related 523,777 292,827
Other marketable 75,853 250,963
Cash equivalents 165,804 272,511
Other 138,630 112,368
---------- ----------
Total interest income 19,739,221 18,744,252
---------- ----------
Interest expense:
Deposits 9,539,249 8,917,227
Federal Home Loan Bank advances 2,289,523 1,860,776
---------- ----------
Total interest expense 11,828,772 10,778,003
---------- ----------
Net interest income 7,910,449 7,966,249
Provision for loan losses 150,000 150,000
---------- ----------
Net interest income after
provision for loan losses 7,760,449 7,816,249
---------- ----------
Non-interest income:
Fees and service charges 159,371 153,133
Securities gains (losses), net 769,037 (11,867)
Gain on sales of loans 7,084 76,951
Other 250,922 66,864
---------- ----------
Total non-interest income 1,186,414 285,081
---------- ----------
Non-interest expense:
Compensation and benefits 2,205,118 1,937,821
Occupancy 392,145 365,857
Federal deposit insurance premiums 424,656 396,947
Advertising 152,039 138,138
Data processing 249,196 243,682
Other 543,902 566,220
---------- ----------
Total non-interest expense 3,967,056 3,648,665
---------- ----------
Income before income tax expense 4,979,807 4,452,665
Income tax expense 1,860,032 1,683,768
---------- ----------
Net income $ 3,119,775 2,768,897
========== ==========
Earnings per common share and common
share equivalents $ 0.67 0.52
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Month Period Ended June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
(Loss) on
Additional Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 $ 60,858 59,285,581 50,371,038 (265,358)
Net income 3,119,775
Change in unrealized
loss on securities
available for sale (1,966,339)
Treasury stock
purchases
Amortization of
restricted stock awards
Earned employee stock
ownership plan shares 62,424
------- ---------- ---------- ----------
Balance, June 30, 1996 $ 60,858 59,348,005 53,490,813 (2,231,697)
======= ========== ========== ==========
<CAPTION>
Unearned
Shares
Employee Unearned
Stock Compensation Total
Ownership Restricted Treasury Stockholders'
Plan Stock Awards Stock Equity
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 $(5,336,150) (1,050,305) (11,378,981) 91,686,683
Net income 3,119,775
Change in unrealized
loss on securities
available for sale (1,966,339)
Treasury stock
purchases (5,955,302) (5,955,302)
Amortization of
restricted stock awards 116,700 116,700
Earned employee stock
ownership plan shares 198,840 261,264
--------- ----------- ---------- ----------
Balance, June 30, 1996 $(5,137,310) (933,605) (17,334,283) 87,262,781
========= =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,119,775 2,768,897
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 150,000 150,000
Depreciation 181,971 171,376
Amortization of (discounts) premiums, net (16,163) 32,696
Amortization of deferred loan fees (229,289) (288,648)
Provision for deferred income taxes 147,562 204,389
Securities (gains) losses, net (774,273) 11,867
Gain on sales of real estate (39,100) (5,958)
Gain on sales of loans (7,084) (76,951)
Proceeds from sales of loans originated for sale 362,070 0
Amortization of restricted stock awards 116,700 0
Amortization of unearned ESOP shares 198,840 204,850
Earned employee stock ownership shares priced
above original cost 62,424 33,941
Increase in accrued interest receivable (43,835) (533,024)
Increase in accrued interest payable 154,983 736,953
Increase in other assets (124,031) (175,822)
Increase (decrease) in other liabilities 55,481 (422,242)
Other, net (26,994) (3,517)
--------- ---------
Net cash provided by operating activities 3,289,037 2,808,807
--------- ---------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale 49,480,583 31,993,334
Principal collected on securities available
for sale 6,740,657 6,218,086
Proceeds collected on maturity of securities
available for sale 5,500,000 700,000
Purchases of securities available for sale (53,439,412) (44,065,239)
Principal collected on securities held
to maturity 863,649 480,290
Proceeds collected on maturity of securities
held to maturity 2,000,000 1,000,000
Purchase of securities held to maturity (709,765) (5,067,445)
Proceeds from sales of loans receivable 154,612 3,038,421
Purchase of Federal Home Loan Bank stock (1,356,000) (685,100)
Net increase in loans receivable (27,035,570) (19,582,860)
Proceeds from sale of real estate 361,010 110,929
Purchases of premises and equipment (83,559) (352,980)
---------- ----------
Net cash used by investing activities (17,523,795) (26,212,564)
---------- ----------
Cash flows from financing activities:
(Decrease) increase in deposits (10,344,717) 10,269,742
Purchase of treasury stock (5,955,302) (4,040,125)
Proceeds from Federal Home Loan Bank advances 45,700,000 25,000,000
Repayment of Federal Home Loan Bank advances (13,523,925) (7,368,326)
(Decrease) increase in advance payments by
borrowers for taxes and insurance (33,488) 3,047
---------- ----------
Net cash provided by financing activities 15,842,568 23,864,338
---------- ----------
Increase in cash and cash equivalents 1,607,810 460,581
Cash and cash equivalents, beginning of period 4,334,694 12,097,156
---------- ----------
Cash and cash equivalents, end of period $ 5,942,504 12,557,737
========== ==========
Supplemental cash flow disclosures:
Cash paid for interest $ 11,673,789 10,041,500
Cash paid for income taxes 1,780,833 1,358,000
Supplemental noncash flow disclosures:
Loans securitized and transferred to
securities available for sale $ 9,694,418 0
Transfer of loans to real estate 168,187 115,814
Securities purchased with liability due
to broker 0 6,575,656
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
June 30, 1996 and 1995
(1) HMN FINANCIAL, INC.
HMN Financial, Inc. (HMN) was incorporated under the laws of the State of
Delaware for the purpose of becoming the savings and loan holding company of
Home Federal Savings Bank (the Bank) in connection with the Bank's conversion
from a federally chartered mutual savings bank to a federally chartered stock
savings bank, pursuant to its Plan of Conversion. HMN commenced on May 23,
1994, a Subscription and Community Offering of its shares in connection with
the conversion of the Bank (the Offering). The Offering was closed on June 22,
1994, and the conversion was consummated on June 29, 1994.
The consolidated financial statements included herein are for HMN, Security
Finance Corporation (SFC), the Bank and the Bank's wholly owned subsidiary,
Osterud Insurance Agency, Inc. During 1995 the Bank owned 100% of the
outstanding shares of SFC. On December 29, 1995 the Bank sold all its
outstanding shares of common stock in SFC to HMN at SFC's fair value. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(2) BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity and consolidated statements of cash flows in conformity
with generally accepted accounting principles. The information under the
heading "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" is written with the presumption that the users of the
interim financial statements have read or have access to the most recent Annual
Report on Form 10-K of HMN Financial, Inc., which contains the latest audited
financial statements and notes thereto, together with "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" as of December
31, 1995 and for the year then ended. All adjustments consisting of only
normal recurring adjustments which are, in the opinion of management, necessary
for the fair presentation of the interim financial statements have been
included and all significant intercompany accounts and transactions have been
eliminated in consolidation. The statements of income for the three month and
six month periods ended June 30, 1996 are not necessarily indicative of the
results which may be expected for the entire year.
Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform with the current period presentation.
7
<PAGE>
(3) NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it
no longer controls and liabilities that have been extinguished. The financial-
components approach focuses on the assets and liabilities that exist after the
transfer. Many of these assets and liabilities are components of financial
assets that existed prior to the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with
pledge of collateral. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996, and must be applied prospectively. Management is currently studying the
effect of adopting SFAS No. 125.
(4) EARNINGS PER SHARE
Earnings per common share and common share equivalent for the three months
ended June 30, 1996 and 1995 were computed by dividing net income for each
period ($1,533,084 and $1,405,472 respectively) by the weighted average common
shares and common share equivalents outstanding (4,580,792 and 5,234,242,
respectively) during each period. Earnings per common share and common share
equivalent for the six months ended June 30, 1996 and 1995 were computed by
dividing net income for each period ($3,119,775 and $2,768,897, respectively)
by the weighted average common shares and common share equivalents outstanding
(4,673,506 and 5,348,554, respectively) during each period.
8
<PAGE>
(5) REGULATORY CAPITAL REQUIREMENTS
At June 30, 1996, the Bank met each of the three current minimum regulatory
capital requirements. The following table summarizes the Bank's regulatory
capital position at June 30, 1996:
<TABLE>
<CAPTION>
Amount Percent<F1>
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
Tangible Capital:
Actual $70,943 13.10%
Required 8,124 1.50
------ -----
Excess $62,819 11.60%
====== =====
Core Capital:
Actual $70,943 13.10%
Required<F2> 16,248 3.00
------ -----
Excess $54,695 10.10%
====== =====
Risk-Based Capital:
Actual $73,221 32.81%
Required<F3><F4> 17,853 8.00
------ -----
Excess $55,368 24.81%
====== =====
<FN>
<F1> Tangible and core capital levels are shown as a percentage of total
adjusted assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
<F2> In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on December 31, 1990. This core capital ratio is 3% of total
adjusted assets for thrifts that receive the highest supervisory rating
for safety and soundness ("CAMEL" rating), with a 4% to 5% core capital
requirement for all other thrifts.
<F3> Calculated based on the OTS requirement of 8% of risk-weighted assets.
<F4> Beginning March 31, 1995, a savings institution whose interest rate
risk("IRR") exposure (as calculated under OTS guidelines) exceeds 2% of
total assets may be required to deduct an IRR component in calculating its
total capital for purposes of determining whether it meets the risk-based
capital requirement. The IRR component is an amount equal to one-half of
the difference between measured IRR and 2%, multiplied by the estimated
economic value of its total assets. Based on the Bank's interest rate
risk position at March 31, 1996, the latest date for which such
information is available, this rule would require an $8.5 million
deduction from the Bank's capital for purposes of calculating risk-based
capital. The OTS currently does not require the IRR component to be
deducted from the risk-based capital calculation but may require the
deduction in accessing the Bank's individual capital requirements at some
time in the future.
</FN>
(6) STOCKHOLDERS' EQUITY AND STOCK CONVERSION
HMN was incorporated for the purpose of becoming the savings and loan holding
company of the Bank in connection with the Bank's conversion from a federally
chartered mutual savings bank to a federally chartered stock savings bank,
pursuant to
9
<PAGE>
a Plan of Conversion adopted on February 10, 1994. HMN commenced on May 23,
1994, a Subscription and Community Offering (the Offering) of its shares in
connection with the conversion of the Bank. The Offering was closed on June
22, 1994, and the conversion was consummated on June 29, 1994, with the
issuance of 6,085,775 shares of HMN's common stock at a price of $10 per share.
Total proceeds from the conversion of $59,178,342 net of costs relating to the
conversion of $1,679,408, have been recorded as common stock and additional
paid-in capital. HMN received all of the capital stock of the Bank in exchange
for 50% of the net proceeds of the conversion.
During 1996, with Board authorization and approval from the Office of Thrift
Supervision (OTS), HMN purchased a total of 380,725 shares of its own common
stock from the open market for $5,955,302. All shares were placed in treasury
stock.
10
<PAGE>
HMN FINANCIAL, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
HMN's net income is dependent primarily on its net interest income, which is
the difference between interest earned on its loans and investments and the
interest paid on interest-bearing liabilities. Net interest income is
determined by (i) the difference between the yield earned on interest-earning
assets and rates paid on interest-bearing liabilities (interest rate spread)
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. HMN's interest rate spread is affected by regulatory, economic
and competitive factors that influence interest rates, loan demand and deposit
flows. Net interest margin is calculated by dividing net interest income by
the average interest-earning assets and is normally expressed as a percentage.
Net interest income and net interest margin are affected by changes in interest
rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. HMN's net income is also
affected by the generation of non-interest income, which primarily consists of
gains from the sale of securities, fees and service charges. In addition, net
income is affected by the level of operating expenses and establishment of a
provision for loan losses.
The operations of financial institutions, including the Bank, are significantly
affected by prevailing economic conditions, competition and the monetary and
fiscal policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest primarily on competing
investments, account maturities and the levels of personal income and savings
in the market area of the Bank.
NET INCOME
HMN's net income for the second quarter of 1996 was $1.5 million, or $0.34 per
share compared to net income for the same quarter of 1995 of $1.4 million, or
$0.27 per share. Net income increased by $128,000, or 9.1%, principally due to
an increase of $274,000 in net security gains which was partially offset by an
increase of $121,000 in compensation and benefit expenses. Earnings per share
for the second quarter of 1996 increased $0.07, or 26%, due to the increased
earnings and the repurchase of HMN's own common stock in the open market. Net
income for the six month period ended June 30, 1996 compared to the same period
of 1995 increased by $351,000, or 12.7%, principally due to an increase of
$781,000 in net security gains which was partially offset by an increase of
$267,000 in compensation and benefit expenses.
NET INTEREST INCOME
Net interest income was $4.0 million for both the second quarter of 1996 and
the second quarter of 1995. HMN has been purchasing its own stock in the open
market at an average price that is less than its current book value. The
balance sheet impact of the stock repurchase program has been to reduce equity
and replace it with
11
<PAGE>
additional advances and/or deposit growth. Comparing the three month period
ended June 30, 1996 to the same three month period in 1995, average interest-
earning assets increased by $16.2 million due primarily to loan purchases and
average interest-bearing liabilities increased by $24.9 million due to advances
and deposit growth. The changes caused interest income for the three months
ended June 30, 1996, adjusted for interest rate changes, to increase by
$308,000 for the same period in 1995, and interest expense for the three months
ended June 30, 1996, adjusted for interest rate changes, to increase by
$292,000 for the same period in 1995. Net interest income for the six months
ended June 30, 1996 was $7.91 million, a decrease of $56,000, or 0.7%, from
$7.97 million for the six months ended June 30, 1995. Comparing the six month
period ended June 30, 1996 to the same six month period in 1995, average
interest-earning assets increased by $21.8 million due primarily to loan
purchases and average interest-bearing liabilities increased by $29.2 million
due to advances and deposit growth. As a result of the changes, interest
income for the first six months of 1996, adjusted for interest rate changes,
increased by $995,000 for the same period in 1995 and interest expense for the
first six months of 1996, adjusted for interest rate changes, increased by
$1,051,000 for the same period in 1995.
Net interest margin was 2.98%, 2.97%, 2.94%, 2.98% and 3.05%, respectively for
the quarters ended June 30, 1996, March 31, 1996, December 31, 1995, September
30, 1995 and June 30, 1995. Based upon the current interest rate environment
HMN expects the net interest margin to flatten or slightly decline in at least
the near term.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter of 1996 and 1995 was
$75,000. The provision for loan losses for the six months ended June 30, 1996
and 1995 was $150,000. The provision is the result of management's evaluation
of the loan portfolio, a historically low level of non-performing loans,
minimal loan charge off experience, and its assessment of the general economic
conditions in the geographic area where properties securing the loan portfolio
are located. Management's evaluation did not reveal conditions that would
cause it to increase the provision for loan losses during 1996 compared to
1995. Future economic conditions and other unknown factors will impact the
need for future provisions for loan losses. As a result, no assurances can be
given that increases in the allowance for loan losses will not be required
during future periods.
A reconciliation of HMN's allowance for loan losses is summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance at January 1, $ 2,190,664 1,893,143
Provision 150,000 150,000
Charge-offs (1,216) (1,034)
Recoveries 23 67
---------- ----------
Balance at June 30, $ 2,339,471 2,042,176
========== ==========
</TABLE>
NON-INTEREST INCOME
Non-interest income was $485,000 for the second quarter of 1996, an increase of
$304,000, or 168%, compared to $181,000 for the second quarter of 1995. The
increase was principally due to a $274,000 increase in gain on the sale of
securities, a $33,000 increase in commissions earned on the sale of uninsured
products and a
12
<PAGE>
$71,000 increase in other income which was partially offset by a $76,000
decrease in gain on sale of loans. During 1996 fixed rate and floating rate
collateralized mortgage obligation securities (CMOs) and other securities were
sold in order to assist in funding the purchase and origination of loans and to
change the interest rate risk profile of the available for sale security
portfolio. Non-interest income for the six months ended June 30, 1996 was
$1.2 million, an increase of $901,000, or 316%, compared to $285,000 for the
six months ended June 30, 1995. The increase was principally due to a $781,000
increase in gain on the sale of securities, a $69,000 increase in commissions
earned on the sale of uninsured products and a $115,000 increase in other
income which was partially offset by a $70,000 decrease in gain on sale of
loans.
NON-INTEREST EXPENSE
Non-interest expense was $1.98 million for the second quarter of 1996, an
increase of $147,000, or 8%, from $1.84 million for the second quarter of 1995.
The majority of the increase in non-interest expense between the two quarters
was due to a $121,000, or 12.4%, increase in compensation and benefits and was
the result of adding new employees, normal merit and salary increases and the
impact of awards granted under the Recognition and Retention Plan adopted in
June of 1995. Non-interest expense for the six months ended June 30, 1996 was
$3.967 million, an increase of $318,000, or 8.7%, from $3.649 million for the
six months ended June 30, 1995. The principal cause for the increase in non-
interest expense between the two periods was due to a $267,000, or 13.8%,
increase in compensation and benefits expense and was the result of adding new
employees, normal merit and salary increases and the impact of awards granted
under the Recognition and Retention Plan adopted in June of 1995.
INCOME TAX EXPENSE
Income tax expense was $888,000 for the second quarter of 1996, an increase of
$45,000, or 5.4%, from $842,000 for the second quarter of 1995 and is primarily
due to an increase in taxable income between the two periods. Income tax
expense for the six months ended June 30, 1996 was $1.9 million, an increase of
$176,000, or 10.5%, from $1.7 million for the same period in 1995 primarily due
to an increase in taxable income.
FINANCIAL CONDITION AND LIQUIDITY
For the six months ended June 30, 1996 the net cash provided from operating
activities was $3.3 million, net cash used for investing activities was $17.5
million and net cash provided by financing activities was $15.8 million. HMN
had $49.5 million in proceeds from the sale of securities and it collected
another $15.1 million from principal payments and the maturity of securities.
HMN purchased $54.1 million of securities during 1996. HMN purchased or
originated additional net loans of $27.0 million and had $517,000 of proceeds
from the sale of loans. During 1996 deposits decreased by $10.3 million which
was offset by net additional borrowing from the FHLB of $32.2 million. HMN
also repurchased 380,725 shares of its own common stock for $5.955 million
during 1996. During July of 1996, HMN completed the purchase of another
240,060 shares of its own common stock in the open market.
13
<PAGE>
HMN has certificates of deposit with outstanding balances of $155.8 million
that mature from July of 1996 through June 30, 1997. Based upon past
experience management anticipates that the majority of the deposits will renew
for another term with the Bank. Any deposits which do not renew will be
replaced with deposits from other customers, or funded with advances from the
Federal Home Loan Bank, or will be funded through the sale of securities.
Management does not anticipate that it will have a liquidity problem with the
deposit maturities.
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of non-performing
assets in the Bank's portfolio at June 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans
One-to-four family real estate $ 20 $ 196
Nonresidential real estate 169 85
Commercial business 116 128
Consumer 10 32
---- ----
Total 315 441
---- ----
Restructured loans 35 94
Foreclosed Assets
Real estate:
One-to-four family 173 315
---- ----
Total non-performing assets $ 523 $ 850
==== ====
Total as a percentage of total assets 0.09 % 0.16 %
==== ====
Total non-performing loans $ 350 $ 535
==== ====
Total as a percentage of total loans
receivable, net 0.11 % 0.17 %
==== ====
</TABLE>
Total non-performing assets at June 30, 1996 were $523,000, a decrease of
$327,000, or 38.5%, from $850,000 at December 31, 1995. The decrease was the
result of principal payments received as a result of the sale of properties or
loans being brought current through collection efforts.
ASSET/LIABILITY MANAGEMENT
HMN continues to focus its fixed-rate one-to-four family residential loan
program on loans with contractual terms of 20 years or less. HMN also
originates and purchases adjustable rate mortgages which have initial fixed
rate terms of one to five years and then adjust annually each year thereafter.
Refer to page 15 for table.
14
<PAGE>
The following table sets forth the interest rate sensitivity of HMN's assets
and liabilities at June 30, 1996, using certain assumptions that are described
in more detail below:
<TABLE>
<CAPTION>
Maturing or Repricing
---------------------
Over 6
6 Months Months to Over 1-3 Over 3-5
(DOLLARS IN THOUSANDS) or Less One Year Years Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
Mortgage-backed and
related securities<F1> $ 64,704 5,129 17,728 28,256
Other marketable securities 22,741 4,340 5,700 1,004
Securities held to maturity:
Mortgage-backed and
related securities<F1> 8,868 2,926 881 595
Other marketable securities 0 999 0 0
Loans receivable, net<F1><F2>
Fixed rate one-to-four
family<F3> 18,960 17,308 57,445 40,968
Adjustable rate
one-to-four family<F3> 20,681 32,707 18,447 16,493
Multi family 6 4 48 0
Fixed rate commercial
real estate 216 185 578 336
Adjustable rate commercial
real estate 5,034 2,087 0 0
Commercial business 307 158 293 131
Consumer loans 9,924 1,452 2,925 1,352
Federal Home Loan Bank stock 0 0 0 0
Cash equivalents 4,942 0 0 0
------- ------ ------- ------
Total interest-earning
assets 156,383 67,295 104,045 89,135
------- ------ ------- ------
Non-interest checking 2,228 0 0 0
NOW accounts 15,804 0 0 0
Passbooks 3,246 2,904 8,854 5,667
Money market accounts 1,814 1,622 4,947 3,166
Certificates 101,145 54,669 124,550 16,868
Federal Home Loan Bank advances 64,731 714 11,608 19,000
------- ------ ------- ------
Total interest-bearing
liabilities 188,968 59,909 149,959 44,701
------- ------ ------- ------
Interest-earning assets less
interest-bearing liabilities $(32,585) 7,386 (45,914) 44,434
======= ====== ======= ======
Cumulative interest-rate
sensitivity gap $(32,585) (25,199) (71,113) (26,679)
======= ====== ======= ======
Cumulative interest-rate gap as a
percentage of total assets at
June 30, 1996 (5.87) (4.54) (12.81) (4.81)
======= ====== ======= ======
Cumulative interest-rate gap as a
percentage of interest-earning
assets at December 31, 1995 (1.07) (7.53)
======= ======
Cumulative interest-rate gap as a
percentage of interest-earning
assets at December 31, 1994 (2.47) (2.26)
======= ======
<CAPTION>
Over 5 No Stated
(DOLLARS IN THOUSANDS) Years Maturity Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Securities available for sale:
Mortgage-backed and
related securities<F1> 35,905 0 151,722
Other marketable securities 0 7,389 41,174
Securities held to maturity:
Mortgage-backed and
related securities<F1> 565 0 13,835
Other marketable securities 0 0 999
Loans receivable, net<F1><F2>
Fixed rate one-to-four family<F3> 82,788 0 217,469
Adjustable rate
one-to-four family<F3> 412 644 89,384
Multi family 0 0 58
Fixed rate commercial real estate 541 0 1,856
Adjustable rate commercial
real estate 0 0 7,121
Commercial business 75 0 964
Consumer loans 1,484 0 17,137
Federal Home Loan Bank stock 0 5,158 5,158
Cash equivalents 0 0 4,942
------- ------- -------
Total interest-earning assets 121,770 13,191 551,819
------- ------- -------
Non-interest checking 0 0 2,228
NOW accounts 0 0 15,804
Passbooks 10,074 0 30,745
Money market accounts 5,628 0 17,177
Certificates 9 0 297,241
Federal Home Loan Bank advances 5,000 0 101,053
------- ------ -------
Total interest-bearing
liabilities 20,711 0 464,248
------- ------ -------
Interest-earning assets less
interest-bearing liabilities 101,059 13,191 87,571
======= ====== =======
Cumulative interest-rate
sensitivity gap 74,380 87,571 87,571
======= ====== =======
Cumulative interest-rate gap as a
percentage of total assets at
June 30, 1996 13.40 15.78 15.78 %
======= ====== =======
Cumulative interest-rate gap as a
percentage of interest-earning assets
at December 31, 1995
Cumulative interest-rate gap as a
percentage of interest-earning assets
at December 31, 1994
<FN>
<F1> Schedule prepared based upon the earlier of contractual maturity or
repricing date, if applicable, adjusted for scheduled repayments of
principal and projected prepayments of principal based upon experience.
<F2> Loans receivable are presented net of loans in process and deferred loan
fees.
<F3> Construction and development loans are all one-to-four family loans and
therefore have been included in the fixed rate one-to-four family and
adjustable rate one-to-four family lines.
</FN>
15
<PAGE>
HMN FINANCIAL, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
Not applicable
ITEM 3. Defaults Upon Senior Securities.
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Second Annual Meeting of Stockholders of HMN Financial, Inc.
(hereinafter referred to as "the Company") was held on April 23,
1996, at 10:00 a.m. at the Best Western Apache Hotel, located at 1517
S.W. 16th Street, Rochester, Minnesota, pursuant to due notice.
According to the certified list of stockholders which was presented
at the Meeting, there were outstanding and entitled to vote at the
Meeting, 5,180,210 shares of Common Stock of the Company.
There were present at the Meeting in person or by proxy the holders
of 4,476,499 shares of Common Stock of the Company constituting a
quorum and more than a majority of the outstanding shares entitled to
vote.
The following is a record of the votes cast in the election of
directors of the Company:
Broker
For Vote Withheld Non-Votes
--------- ------------- ---------
James B. Gardner 4,433,957 42,542 ---
Timothy P. Geisler 4,429,477 47,022 ---
Accordingly, the individuals named above were declared to be duly
elected directors of the Company for terms to expire in 1999,
respectively.
The following is a record of votes cast in respect of the proposal to
ratify the appointment of KPMG Peat Marwick LLP as the Company's
auditors for the fiscal year ending December 31, 1996.
Percentage of Votes
Number Actually
of Votes Cast
---------- ------------------
FOR 4,456,230 99.5%
AGAINST 2,325 0.1%
ABSTAIN 17,944 0.4%
16
<PAGE>
Percentage of Votes
Number Actually
of Votes Cast
---------- ------------------
BROKER
NON-VOTES 0 0.0%
Accordingly, the proposal described above was declared to be duly
adopted by the stockholders of the Company.
ITEM 5. Other Information.
(a) Amendment #5 to the Home Federal Savings Bank 401(k) Plan.
(b) Amendment #6 to the Home Federal Savings Bank 401(k) Plan.
(c) Service Agreement for Home Federal Savings Bank Employee's
Savings and Profit Sharing Plan.
(d) Trust Agreement between Home Federal Savings Bank and Mellon
Bank, N.A.
(e) Adoption Agreement for Home Federal Savings Bank Employee's
Savings and Profit Sharing Plan and Trust.
(f) Service Agreement for Home Federal Savings Bank Employee Stock
Ownership Plan.
ITEM 6. Exhibits and Reports on Form 8-K, Form 10-C and Form 11-K.
(a) Exhibits. See Index to Exhibits on page 19 of this report.
(b) Reports on Form 10-C. A current report on Form 10-C was filed
on February 15, 1996, to report completion of the repurchase of
121,715 shares of HMN's common stock which occurred on February
14, 1996.
(c) Reports on Form 8-K. A current report on Form 8-K was filed on
May 3, 1996, to report the intent to repurchase 259,010 shares
of HMN's common stock.
(d) Reports on Form 10-C. A current report on Form 10-C was filed
on May 21, 1996, to report completion of the repurchase of
259,010 shares of HMN's common stock which occurred on May 20,
1996.
(e) Reports on Form 11-K. An annual report on Form 11-K was filed
on June 27, 1996, for the fiscal year ended December 31, 1995.
(f) Reports on Form 8-K. A current report on Form 8-K was filed on
June 27, 1996 to report the intent to repurchase 246,060 shares
of HMN's common stock.
(g) Reports on Form 10-C. A current report on Form 10-C was filed
on July 15, 1996, to report completion of the repurchase of
246,060 shares of HMN's common stock which occurred on July 11,
1996.
(h) Reports on Form 8-K. A current report on Form 8-K was filed on
July 18, 1996, to report the Company's second quarter, semi-
annual earnings.
17
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMN FINANCIAL, INC.
Registrant
Date: August 12, 1996 /s/ Roger P. Weise
-------------- ----------------------
Roger P. Weise,
Chairman and Chief Executive Officer
(Duly Authorized Officer)
Date: August 12, 1996 /s/ James B. Gardner
-------------- ----------------------
James B. Gardner,
Executive Vice President
(Chief Financial Officer)
18
<PAGE>
HMN FINANCIAL, INC.
INDEX TO EXHIBITS
FOR FORM 10-Q
</TABLE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ------------- ---------------
<S> <C> <C>
5a Amendment #5 to the Home Federal Savings Bank 401(k) Plan. 20
5b Amendment #6 to the Home Federal Savings Bank 401(k) Plan. 21
5c Service Agreement for Home Federal Savings Bank Employee's
Savings and Profit Sharing Plan. 22
5d Trust Agreement between Home Federal Savings Bank and
Mellon Bank, N.A. 23
5e Adoption Agreement for Home Federal Savings Bank Employee's
Savings and Profit Sharing Plan and Trust. 24
5f Service Agreement for Home Federal Savings Bank Employee
Stock Ownership Plan. 25
11 Computation of Earnings Per Common Share 26
27 Financial Data Schedule 27
</TABLE>
19
<PAGE>
Exhibit 5a
Amendment #5 to the Home Federal Savings Bank 401(k) Plan
20
<PAGE>
AMENDMENT #5
TO THE
HOME FEDERAL SAVINGS BANK 401(K) PLAN
WHEREAS, Home Federal Savings Bank (hereinafter referred to as the
"Employer") did establish a 401(K) Plan on the 1st day of January, 1992; and,
WHEREAS, Article VIII of said plan does allow for amendments to said
Plan;
NOW, THEREFORE, the Employer does hereby amend the Home Federal Savings
Bank 401(K) Plan, effective the 1st day of January, 1995, as follows:
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer, any other corporation or entity, whether an affiliate or subsidiary
or not, may adopt this Plan and all of the provisions hereof, and Participate
herein and be known as a Participating Employer, by a properly executed
document evidencing said intent and will of such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating Employers, as
well as all increments thereof. However, the assets of the Plan shall, on an
ongoing basis, be available to the Employer or Participating Employer who
contributed such assets.
(c) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and all
amounts credited to such Participant's Combined Account as well as his
accumulated service time with the transferor or predecessor, and his length of
participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of employment shall
inure only to the benefit of the Participants of the Employer or Participating
Employer by which the forfeiting Participant was employed, except if the
Forfeiture is for an Employee whose Employer is an Affiliated Employer then
said Forfeiture shall inure to the benefit of the Participants of those
Employers who are Affiliated Employers. Should an Employee of one ("First")
Employer be transferred to an associated ("Second") Employer which is an
Affiliated Employer, such transfer shall not cause his account balance
(generated while an Employer of "First" Employer) in any manner, or by any
amount to be forfeited. Such Employee's Participant Combined Account balance
for all purposes of the Plan, including length of service, shall be considered
as though he had always been employed by the "Second" Employer and as such had
received contributions, forfeitures, earnings or losses, and appreciation or
depreciation in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer or to
be borne by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to the
credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No
such transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer.
The Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke its
participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plans for its Employees, provided however, that
no such transfer shall be made if the result is the elimination or reduction of
any "Section 411(d)(6) protected benefits" in accordance with Section 8.1.
If no successor is designated, the Trustee shall retain such assets for the
Employees of said Participating Employer pursuant to the provisions of the
Trust, Article VII hereof. In no such event shall any part of the corpus or
income of the Trust as it relates to such Participating Employer be use for or
diverted to purposes other than for the exclusive benefit of the Employees of
such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all Participants,
to effectuate the purpose of this Article.
NOW, THEREFORE, the Bank and the Trustees of the Home Federal Savings Bank
401(k) Plan (the "Plan") do hereby adopt the following resolutions regarding
the Plan.
WHEREAS, Home Federal Savings Bank (the "Bank"), sponsors the Plan; and,
WHEREAS, the assets of the Plan have heretofore been invested in a group
annuity contract offered by Nationwide Life Insurance Company (the "Group
Annuity Contract"); and,
WHEREAS, the Group Annuity Contract has permitted Plan participants to
elect among investment alternatives, consisting of a Interest Bearing Fund,
Bond Fund, Balanced Fund, Stock Fund and Growth Stock Fund; and,
WHEREAS, the Trustees have determined to cancel the Group Annuity Contract
because the Group Annuity Contract does not have the administrative flexibility
to satisfy the needs of the Plan's participants, has difficulty meeting the
Plan's needs for liquidity, and otherwise no longer meets the needs of the Plan
and its participants; and,
WHEREAS, the payment of the early cancellation penalty has diminished the
investment return of the accounts of Plan participants in proportion to the
investment alternative(s) which they have selected, and has generally
diminished the accounts of rank and file employees more than the accounts of
highly compensated employees (as defined in Section 414 of the Internal Revenue
Code of 1986, as amended (the "Code"); and,
WHEREAS, the Trustees have determined that the payment of such early
cancellation penalties by the accounts of participants is detrimental to the
intended purpose of the Plan to provide retirement benefits to its employees,
and thus the Bank desires to make a special contribution to the Plan in order
to mitigate the effects of the early cancellation penalties; and,
WHEREAS, the Bank contributed to the Plan the sum of Nine Thousand Four
Hundred Ninety One and 37/100 Dollars ($9,491.37) which is approximately equal
to the total amount of the early cancellation penalties paid by the accounts of
Plan participants upon cancellation of the Group Annuity Contract; it is
RESOLVED, that such contribution shall be allocated to the accounts of
participants as provided in Schedule l, which is attached hereto and
incorporated by reference, in an amount equal to the early cancellation
penalties paid by each participant's separate investment account; and,
RESOLVED FURTHER, that, notwithstanding the foregoing, said special
contribution shall be reduced, and no special allocation to the account of a
participant shall be made, if and to the extent that such an allocation would
cause the "annual additions" to a participant's account to exceed the
limitation of Section 404 or Section 415 of the Code; and,
RESOLVED FURTHER, that such special contribution shall be invested as part
of the Participant's Elective Account, and, notwithstanding any other
provision of the Plan to the contrary, shall be fully (100%) vested at all
times; and,
RESOLVED FURTHER, that the President of the Bank, Roger Weise, is hereby
authorized and directed to take such other and further action in connection
with the foregoing, as shall be deemed necessary or helpful in connection with
the foregoing, including but not limited to the submission of the Plan, as
amended by the Written Action, to the Internal Revenue Service for a ruling as
to the Plan's continued qualification under the Code; and,
RESOLVED FURTHER, in the event that the Internal Revenue Service rules
that the allocation of the special contribution to the Plan contemplated by
this written action is in violation of Section 401(a)(4) or any other section
of the Code, then the special allocation contemplated herein shall be allocated
to the accounts of participants in the same proportion that each such
participant's Plan Compensation for the plan year bears to the total Plan
Compensation of all participants for such year.
Dated this 9th day of May, 1995.
Home Federal Savings Bank
By /s/ Roger P. Weise 5-9-95
------------------------ ------
Roger P. Weise DATE
TRUSTEES
/s/ Roger P. Weise 5-9-95
------------------------ ------
Roger P. Weise
/s/ James B. Gardner 5-9-95
------------------------ ------
James B. Gardner
/s/ Dwain C. Jorgensen 5-9-95
------------------------ ------
Dwain C. Jorgensen
<PAGE>
Exhibit 5b
Amendment #6 to the Home Federal Savings Bank 401(k) Plan
21
<PAGE>
AMENDMENT #6
TO THE
HOME FEDERAL SAVINGS BANK
401(K) PLAN
WHEREAS, Home Federal Savings Bank (hereinafter referred to as "Employer") did
establish a 401(k) Profit Sharing Plan on the 1st day of January, 1992; and,
WHEREAS, Article VIII of said plan does allow for amendments to said Plan;
NOW, THEREFORE, the Employer does hereby amend the Home Federal Savings Bank
401(k) Plan, effective the 1st day of January, 1995, as follows:
Roger P. Weise, James B. Gardner and Dwain C. Jorgensen are hereby removed
from the position of Plan Trustee.
First Banker's Trust Company, N.A. of Quincy, Illinois is here by instated
as Plan Trustee.
IN WITNESS WHEREOF, Home Federal Savings Bank has caused this Amendment to be
effective the 1st day of January, 1995.
Home Federal Savings Bank
By /s/ Roger P. Weise 6-10-96
EMPLOYER
/s/ Carmen Walch 6-14-96
TRUSTEE
<PAGE>
Exhibit 5c
Service Agreement for Home Federal Savings Bank
Employee's Savings and Profit Sharing Plan
22
<PAGE>
SERVICE AGREEMENT
FOR
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
<PAGE>
THIS AGREEMENT made as of ____June 17_____, 199__6__ by and between
Pentegra Services, Inc. ("Pentegra") and ____Home Federal Savings Bank____
(the "Employer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pentegra sponsors the Employees' Savings & Profit Sharing Plan
and the related Trust Agreement (collectively the "Plan"); and
WHEREAS, the Employer desires to adopt the Plan and contract with Pentegra
to provide certain administrative services.
NOW, THEREFORE, Pentegra, and the Employer agree as follows:
STANDARD SERVICES
- -Pentegra will provide the following services*:
- -Plan Document and related Adoption Agreement.
- -Summary Plan Description booklets.
- -Representatives to explain the Plan's features so that the Plan will meet
your benefit needs.
- -Assistance in preparing forms you will need to submit to the Internal Revenue
Service in order to request approval of your Plan as a tax-qualified plan and
trust under the Internal Revenue Code (the "Code").
- -Administrative manual and the forms and descriptive materials you will need to
ease administration of your Plan.
- -Initial enrollment/orientation meetings.
- -Toll-free number and business hour telephone support from your designated
Account Representative.
- -Explanation of legislative changes that impact your Plan.
- -Assistance with your annual government reporting requirements.
- -Processing of all enrollments and transactions for your members.
* PLEASE NOTE: IN THIS AGREEMENT, THE TERMS "YOU" AND "YOUR" MEAN THE
EMPLOYER. "WE", "US" OR "OUR" MEANS PENTEGRA SERVICES, INC.
1
<PAGE>
- -Preparation of all loan documents and calculation and recordkeeping of all
loan payments (note that the employee-member bears the cost of administering a
loan because 2% is deducted from the interest payments which are credited to
the employee-member's account, which 2% is used to offset the cost of
processing and recordkeeping with respect to the loan).
- -Coordination of all elections and distributions to your members from the
Trustee.
- -Descriptions of the investment funds selected.
- -Monthly and quarterly investment fund performance summaries.
- -Member benefit statements and monthly employer summary reports.
- -Preliminary (once per year) and year-end Code Section 401(m) and/or 401(k)
compliance testing and calculation of all required corrective distributions.
- -Performance of Top Heavy and Code Section 415 annual analyses for the Plan and
participation in the Financial Institutions Retirement Fund and Financial
Institutions Thrift Plan, if any.
OPTIONAL SERVICES
Pentegra can also provide for the following services, if you so elect:
- -Additional employee enrollment/orientation meetings.
- -Complete preparation of IRS Form(s) 5300, 5500 and/or 5500-C/R.
- -Code Section 401(m) and/or 401(k) preliminary compliance testing in excess of
once per year.
- -Performance of Top Heavy and Code Section 415 annual analyses for all
qualified plans adopted by the Employer.
- -Ongoing plan consultation.
- -Special services related to a transfer from an existing plan or recordkeeper.
STANDARD FEES
- -EMPLOYER-PAID ADMINISTRATION
The annual employer-paid administration fee of $1,500 plus $40 per
eligible employee covers all of the standard services described above.
Any special service requests related to your specific Plan not listed as
STANDARD will be priced in accordance with the optional service fees as
described below.
2
<PAGE>
The employer-paid administration fee shall be paid monthly based on
eligible employees as of the effective date, but subject to periodic
revisions so as to reflect any significant changes in employee count.
- -INVESTMENT FEES
Asset based fees range between 38 and 60 basis points.
OPTIONAL SERVICE FEES
Fees for optional services you elect will be billed at market rates in use at
the time the service is elected.
ELECTION OF SERVICES
The package of services governed by this Service Agreement will include the
following (choose 1 or 2):
1. ___ The standard package of services only; or
2. _X_ The standard package of services plus one or more of the following
(choose whichever shall apply):
(a) ___ Additional employee enrollment/orientation meetings.
(b) _X_ Complete preparation of IRS Form: (i)___ 5300
(ii)___ 5500
(iii)_X_ 5500-C/R
(c) ___ Code Section 401(m) and/or 401(k) preliminary compliance
testing in excess of once per year.
(d) ___ Performance of Top Heavy and Code Section 415 annual
analyses for all qualified plans adopted by the Employer.
(e) ___ Ongoing plan consultation.
(f) ___ Special services related to a transfer from an existing
plan or recordkeeper.
Note: The Employer may contract at a later date for Pentegra to provide any
of the above optional services.
PAYMENT METHODS
Payment of the fees for the employer-paid portion of the services selected
above will be made in accordance with the following (choose 1 or 2):
1. _X_ The monthly fee shall be paid directly by you.
3
<PAGE>
2. ___ The monthly fee shall be paid by you using, to the extent
permitted by law, forfeitures available under the Plan, and the
remaining fees shall be paid directly by you.
This Agreement will be effective (choose 1 or 2):
1. _X_ As of the later of: (i) the date executed below, or (ii) upon
receipt in our Office, unless you are otherwise notified within
60 days after our receipt that the Agreement is not acceptable;
or
2. ___ As revised, as of the later of: (i) the date executed below, or
(ii) upon receipt in our Office, unless you are otherwise
notified within 60 days after our receipt that the Agreement is
not acceptable.
PLEASE NOTE:
1. SERVICES NOT REFLECTED IN THIS AGREEMENT MAY BE PROVIDED UPON MUTUAL
CONSENT BETWEEN PENTEGRA AND THE EMPLOYER. THE SERVICES PROVIDED IN
ACCORDANCE WITH THIS AGREEMENT AND THE FEES AND EXPENSES ASSOCIATED
THEREWITH CAN BE MODIFIED OR TERMINATED UPON 60 DAYS WRITTEN NOTICE FROM
PENTEGRA TO THE EMPLOYER.
2. The agreement of Pentegra to provide the services described herein is
based on the Employer's adoption of the Plan. Our consultants will
prepare the Plan's Adoption Agreement and related documents for review and
execution by the Employer based on the Plan information furnished to us by
the Employer. We shall be entitled to rely upon the information provided
by the Employer in the preparation of the Adoption Agreement. The
Employer agrees to indemnify and hold Pentegra, the Financial Institutions
Retirement Fund ("FIRF") and any director, officer or employee of either
such entity harmless from any damages, liabilities or losses of whatever
kind which result from or arise in connection with any inaccurate or
incorrect information provided to us or any other action for which the
Employer is responsible.
3. The Employer acknowledges that neither Pentegra nor any director, officer
or employee thereof provides legal or tax advice to the Employer, any
affiliate of the Employer, or any employee thereof. Pentegra advises the
Employer to obtain its own legal or tax counsel for advice on the Plan
design and specifications appropriate for its situation as well as on
legal or tax issues which may arise during the operation of the Plan. The
Employer acknowledges that it is solely responsible for certain functions
under the Plan, including, but not limited to:
a) EMPLOYER AND EMPLOYEE CONTRIBUTIONS. The Employer shall be
responsible for implementing pre-tax and after-tax payroll
contributions to the Plan for each member and any Employer
contribution requirements, and transmitting all such contributions to
the Trustee at such times and in such manner as mutually agreed
between the parties.
b) INFORMATION. The Employer shall be responsible for providing to
Pentegra, on a timely basis, all member enrollment information and
such other information relating to member accounts as Pentegra may
require, including any amendments made to such information by a
member.
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<PAGE>
c) INTERPRETATION OF THE PLAN. The Employer shall be responsible
generally for resolving questions relating to any interpretation of
the Plan's terms and conditions.
d) PARTICIPANT CLAIMS. The Employer shall be responsible for handling
claims of members relating to the Plan and their accounts established
thereunder.
e) PLAN QUALIFICATION. The Employer shall be responsible for
maintaining the qualification of the Plan, both in its terms and
conditions and in its operation pursuant to the Code, the Employee
Retirement Income Security Act of 1974 ("ERISA") and all other
applicable federal or state laws.
f) INVESTMENT DECISIONS. The Employer shall be responsible for
selecting and monitoring the Investment Funds made available to
members under the Plan and for complying with any applicable Federal
or state securities laws.
4. If Pentegra is taking over administration from a prior plan administration
firm, we are not responsible for losses resulting from a prior firm's
administration, or which are incurred as a result of actions or decisions
which were undertaken or made by the prior firm. Pentegra is under no
obligation to review prior plan administration work or related tax
filings. Where we are retained to provide services during a Plan Year, we
shall not be required to verify the accuracy or correctness of work
performed in the prior portion of the Plan Year. The Employer agrees to
indemnify and hold Pentegra, FIRF and any director, officer or employee of
either such entity harmless from any and all liabilities, losses or
damages which are the result of or which may arise in connection with any
plan administration work performed prior to its retention.
This Agreement terminates on the earlier of (i) the date we receive in our
Office a revised Agreement which is accepted by us, or (ii) the date which is
the first day of the month immediately following 60 days after we receive in
our Office a written notice of termination of the Agreement from the Employer.
PENTEGRA SERVICES, INC. HOME FEDERAL SAVINGS BANK
By: /s/ Herbert C. Grove Jr. By: /s/ Roger P. Weise
----------------------- ----------------------
Name: Herbert C. Grove Jr. Name: Roger P. Weise
----------------------- ----------------------
Title: Senior Vice President Title: President & CEO
------------------------ ----------------------
Date of Execution: July 26, 1996 Date of Execution: June 17, 1996
------------- --------------
8/30/95 5
<PAGE>
Exhibit 5d
Trust Agreement between Home Federal Savings Bank
and Mellon Bank, N.A.
23
<PAGE>
TRUST AGREEMENT
between
HOME FEDERAL SAVINGS BANK
and
MELLON BANK, N.A.
Dated as of July 24, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Establishment of Master Trust 1
1.1 The Master Trust 1
1.2 Establishment of Separate Funds 2
1.3 Company as Agent 2
1.4 Title to Assets 2
1.5 Acceptance of Trust 2
1.6 Master Trustee Responsibilities 2
SECTION 2. Investment of Master Fund 2
2.1 Appointment of Investment Managers
and Investment Committee 2
2.2 Directed Funds 3
2.3 (a) Permitted Investments 3
2.4 (b) Orders placed with the Master Trustee 4
(c) Brokerage Commissions 4
(d) Investment Instructions 4
2.3 Discretionary Funds 5
2.4 Settlement of Securities Transactions 5
2.5 Cash Balances 5
2.6 Appointment of TPA 5
2.7 Transfer Among Funds 5
2.8 Transfers to Collective Trusts 6
2.9 Insurance Contracts 6
(a) Procuring and Holding Contracts 6
(b) Exercising Rights under Contracts 7
(c) Payment of Premiums 7
(d) Payments under Contracts 7
(e) Liability of Master Trustee;
Indemnification 7
2.10 Loans to Participants 8
SECTION 3. Powers of Master Trustee 8
3.1 In General 9
3.2 At Direction of Named Fiduciary 10
3.3 With Respect to Participant-Directed Funds 10
3.4 Administrative Powers 10
SECTION 4. Company Securities 12
4.1 Registration of Company Securities 12
4.2 Voting of Company Securities 12
4.3 Tenders for Company Securities 13
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SECTION 5. Accounts to be Maintained by the Master Trustee;
Payments from the Master Trust 15
5.1 Accounts 15
5.2 No Separate Recordkeeping 15
5.3 Payments; Disputes 15
5.4 Direct Deposit of Payments 15
5.5 Responsibility of TPA 15
5.6 Returned and Uncashed Payments 16
5.7 No Liability for Contributions 16
SECTION 6. Valuation of the Master Fund 16
6.1 Valuation 16
6.2 Units 16
SECTION 7. Administrative Expenses, Taxes and
Master Trustee's Compensation 17
7.1 In General 17
7.2 Fees of Investment Managers 17
SECTION 8. Master Trustee's Liability; No Duty
to Review; Indemnification 17
8.1 Liability of Master Trustee 17
8.2 No Duty to Review 18
8.3 Reliance on Certain Appraisals 18
8.4 Indemnification of Master Trustee 18
8.5 Limitation of Indemnity 19
8.6 Indemnification of Successor Trustee 19
SECTION 9. Settlement of Master Trustee's Accounts 19
9.1 Annual Accounting 19
9.2 Other Accountings 20
9.3 Settlement of Accounts 20
SECTION 10. Segregation of Parts of the Master Trust 20
10.1 Segregation 20
10.2 Segregated Property 20
SECTION 11. Resignation and Removal of Master Trustee 21
SECTION 12. Evidence of Action by Company, Investment
Managers, Investment Committee and TPA, and
of Appointment of Named Fiduciary,
Investment Managers, Investment and
Committee and TPA 21
ii
<PAGE>
SECTION 13. Amendment of Agreement, Termination of
Trust, Termination of Plan 22
13.1 Amendment of Agreement 22
13.2 Termination of Master Trust 22
13.3 Termination of the Plan 22
13.4 Exclusive Benefit 23
SECTION 14. Inalienability of Benefits and Interests 23
SECTION 15. No Merger, Consolidation or Transfer of
Plan Assets or Liabilities 23
SECTION 16. Governing Law 24
iii
<PAGE>
TRUST AGREEMENT
THIS AGREEMENT made as of July 24, 1996 by and between HOME FEDERAL
SAVINGS BANK ("Company"), and MELLON BANK, N.A., a national banking association
("Master Trustee"),
WITNESSETH:
WHEREAS, the Company and certain of its subsidiaries and affiliates have
heretofore adopted or may hereafter adopt a qualified deferred compensation
plan for the benefit of its or their employees (such plan, as amended from time
to time, is referred to as the "Plan", and the Company and any such subsidiary
or affiliate are referred to as the "Employer"); and
WHEREAS, the Employer has adopted the Plan as part of certain qualified
plan services offered by Pentegra Services, Inc. ("Pentegra") including 401 (k)
plan design and administrative services and investment options (the "PSI
Program"); and
WHEREAS, the Plan provides, among other things, for the financing by
means of a trust fund of all or a part of the benefits to be paid pursuant to
the Plan to certain employees ("Participants") of the Employer and their
beneficiaries ("Beneficiaries"); and
WHEREAS, the Company now wishes to appoint Mellon Bank, N.A. as Master
Trustee in accordance with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
NOW, THEREFORE, the Company and the Master Trustee agree as follows:
SECTION 1. ESTABLISHMENT OF MASTER TRUST.
1.1 THE MASTER TRUST. The Company hereby establishes with the Master
Trustee a trust (hereinafter referred to as the "Master Trust") which shall
comprise all of the funds and other assets deposited herewith, together with
such other sums of money and such property acceptable to the Master Trustee as
shall from time to time be paid or delivered to the Master Trustee hereafter,
all investments made therewith and proceeds thereof and the earnings and
profits thereon. "Property" as used herein shall not include any direct
interest in real property, leaseholds or mineral interests. All such funds and
property, together with such investments, proceeds, earnings and profits, less
the payments or other distributions which, at the time of reference, shall have
been made by the Master Trustee as authorized herein, are referred to as the
"Master Fund". Any Company Securities (as defined in Section 4.1) deposited to
the Master Fund or which the Master Trustee is directed to purchase for the
Master Fund must satisfy the requirements of Section 407(d) of ERISA. The
Master Trustee shall have no duty for any property until it is received and
accepted by the Master Trustee.
<PAGE>
1.2 ESTABLISHMENT OF SEPARATE FUNDS The Master Fund shall consist
initially of a single fund. At any time and from time to time the Master
Trustee shall, if so directed by the Company, the party that under the terms of
the Plan is the named fiduciary with respect to control or management of the
assets thereof (hereinafter referred to as the "Named Fiduciary"), establish
within the Master Fund one or more investment funds, each of which shall be
invested or reinvested as provided in Section 2. The term "Fund", as used
herein, shall mean the initial fund or any other investment fund so
established, depending upon the fund to which such provision is being applied
at the time, and the term "Master Fund" shall refer to all such funds in the
aggregate. The functions of the Named Fiduciary may be divided among more than
one person or persons (in which case the term "Named Fiduciary" shall refer to
any such person or persons, as the context requires), and the same person or
persons may serve as the Named Fiduciary and the Investment Committee. The
Master Trustee shall hold, manage, administer, value, make purchases and sales
for, distribute, account for, and otherwise deal with each Fund separately.
1.3 COMPANY AS AGENT. Each subsidiary or affiliate of the Company
adopting the Plan appoints the Company as its agent for purposes of this
Agreement and agrees that it shall be bound by the decisions, actions and
directions of the Company, the Named Fiduciary and any Investment Manager,
Investment Committee (as defined in Section 2.1) or TPA (as defined in Section
2.6) under this Agreement and that the Master Trustee shall be fully protected
in relying upon such decisions, actions and directions and shall in no event be
required to give notice to or otherwise deal with such subsidiary or affiliate
except by dealing with the Company as agent of such subsidiary or affiliate.
1.4 TITLE TO ASSETS. Neither the Plan nor the Participants or their
Beneficiaries shall have any right, title or interest in or to any specific
assets of the Master Fund, but shall have an undivided beneficial interest in
the Master Fund valued in accordance with Section 6 hereof. Ownership of all
the individual assets of the Master Fund shall be by the Master Trustee. The
Master Trustee shall not issue any certificate or other documentation
representing any interest in the Master Fund or part thereof.
1.5 ACCEPTANCE OF TRUST. The Master Trustee hereby accepts the Master
Trust created by this Agreement on the terms and conditions herein set forth.
1.6 MASTER TRUSTEE RESPONSIBILITIES. The Master Trustee is not a
party to, and has no duties or responsibilities under, the Plan other than
those that may be expressly contained in the Trust Agreement. In any case in
which a provision of the Trust Agreement conflicts with any provision in the
Plan, this Agreement shall control as to the duties and responsibilities of the
Master Trustee. The Master Trustee shall have no duties, responsibilities or
liability with respect to the acts or omissions of any prior trustee.
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<PAGE>
SECTION 2. INVESTMENT OF MASTER FUND.
2.1 APPOINTMENT OF INVESTMENT MANAGERS AND INVESTMENT COMMITTEE. At
the time each Fund is established, and from time to time thereafter, the
Company shall determine and advise the Master Trustee whether the investment of
such Fund is to be managed (a) by the Master Trustee in its sole discretion,
(b) by an investment manager who (i) is duly appointed by the Named Fiduciary,
and (ii) qualifies as an investment manager under Section 3(38)(B) of the Act
(an "Investment Manager"), or (c) by an Investment Committee appointed by the
Named Fiduciary (the "Investment Committee"). Any Fund that is managed by the
Master Trustee is hereinafter referred to as a "Discretionary Fund", and any
Fund that is managed by an Investment Manager or Investment Committee is
hereinafter referred to as a "Directed Fund". In the event that the Plan
provides for allocation of Trust Fund assets to the Funds at the direction of
Participants, the Funds in which Participants may direct their investments,
whether or not otherwise constituting Directed Funds or Discretionary Funds,
shall be referred to herein as "Participant-Directed Funds".
In the event the Investment Manager of any Directed Fund resigns
or is removed, the Named Fiduciary shall promptly notify the Master Trustee of
such resignation or removal and of the appointment of a successor to such
Investment Manager. Upon resignation or removal of an Investment Manager, the
Master Trustee shall not have or be deemed to have any responsibility to manage
and control any asset held in the Directed Fund of such former Investment
Manager, except as set out in the sentence immediately following. If an
Investment Committee has been appointed, the Master Trustee shall treat such
Fund as managed by the Investment Committee pending notification from the Named
Fiduciary of the appointment of a different successor to the former Investment
Manager; if no Investment Committee has been appointed and if no notification
of the appointment of such a successor is received within seven days of
notification to the Master Trustee of the former Investment Manager's
resignation or removal, the Master Trustee shall thereafter treat such Directed
Fund as managed by the Company unless and until it receives other instructions
from the Named Fiduciary as to the investment of such Fund.
2.2 DIRECTED FUNDS.
(a) PERMITTED INVESTMENTS. Each Directed Fund shall be invested and
reinvested, within the parameters of the PSI Program, without distinction
between principal and income, in such property as the Master Trustee may be
directed by an Investment Manager or the Investment Committee with respect to
any Funds managed by such Investment Manager or Committee, including without
limitation: any and all common stocks, preferred stocks, bonds, debentures,
mortgages on personal property wherever situated, equipment trust certificates,
notes or other evidence of indebtedness, or any other securities, certificates
of deposit, demand or time deposits (including any such deposits, demand or
time deposits which pay a reasonable rate of interest with the Employer and any
such deposits, demand or time deposits with the Master Trustee or an
affiliate), shares of investment companies and mutual funds (including
affiliates of the Master Trustee), interests in partnerships and trusts,
insurance policies and contracts, repurchase agreements, and any other property
or joint or other part interest in property
3
<PAGE>
(including, without limitation, part interests in bonds and mortgages or notes
and mortgages), United States or foreign, whither situated within or outside
the United States (provided that, except as provided in Section 3.4 hereof, the
indicia of ownership thereof are not maintained outside the jurisdiction of the
district courts of the United States), and of any kind, class or character, and
irrespective in any case of whether the Master Trustee, an affiliate thereof or
another, individually or as trustee or agent, is acting as participator of any
part interest in property that may be acquired. Such investment and
reinvestment shall not be restricted to property authorized for investment by
trustees under any present or future law. A Discretionary Fund may be invested
and reinvested whether or not the property acquired is productive of income, is
marketable or constitutes a wasting asset. Without limiting the generality of
the foregoing, a Directed Fund may be invested in stocks of any classification,
bonds or other securities issued or guaranteed by the Company, or by any
subsidiary or affiliate thereof, which shall be deemed to purport to authorize
any investment or reinvestment in violation of the requirements or ERISA.
(b) ORDERS PLACED WITH THE MASTER TRUSTEE. An Investment Manager or
Investment Committee may direct the Master Trustee to have its trading desk
issue orders to a broker for the purchase or sale of securities for any
Directed Fund that such Investment Manager or Investment Committee manages.
Such directions shall include instructions as to whether such order is to be
placed "at market" or for a specific price (including a grand of prices). The
Master Trustee shall not be liable for any claim, liability, loss, damage or
expense attributable to its inability to place an order at a specific price,
whether due to the timing of such order or otherwise, unless the inability to
place such order is due to the Master Trustee's own negligence, bad faith or
willful misconduct.
(c) BROKERAGE COMMISSIONS. In placing securities transactions for a
Directed Fund, the Master Trustee's primary objective will be to obtain the
most favorable net results, taking into account such factors as the best net
price available, the size of and diffuclty in executing the order, and the
reliability, efficiency and financial responsibility of the broker or dealer.
When it can be done consistently with this goal, the Master Trustee may
allocate orders of the Securities Exchange Act of 1934). The Company
understands that such brokerage and research generated through commissions paid
by such other accounts may be useful in connection with a Discretionary Fund.
(d) INVESTMENT INSTRUCTIONS. An Investment Manager or the Investment
Committee at any time and from time to time may issue orders directly to a
broker for the purchase or sale of securities for any Directed Fund that it
manages. The Investment Manager or Investment Committee will promptly give or
cause to be given to the Master Trustee notice of the issuance of such order
and the broker will confirm such order or cause it to be confirmed to the
Master Trustee. Such notice and confirmation may be given in writing, by
telecopy or by any other electronic means using a code for the authentication
of messages, and may include Trade Reports issued by the Institutional Delivery
System of Depository Trust Company. Receipt of a
4
<PAGE>
matching notice and confirmation or of such a Trade Report shall be authority
for the Master Trustee to settle such trade. Except as provided in Section 2.
1, in the absence of directions or authorization from the Investment Manager or
Investment Committee, the Master Trustee shall have no power, duty or authority
to invest any Directed Fund.
2.3 DISCRETIONARY FUND [Reserved]
2.4 SETTLEMENT OF SECURITIES TRANSACTIONS. When the Master Trustee is
instructed to deliver property against payment, delivery of the property and
receipt of payment may not be simultaneous. The risk of non-receipt of payment
shall be the Master Trust's and the Master Trustee shall have no liability
therefor. All credits to the Master Trust of the anticipated proceeds of sales
and redemptions of property and of anticipated income from property shall be
conditional upon receipt by the Master Trustee of final payment and may be
reversed to the extent final payment is not received. At the discretion of the
Master Trustee, the Master Trust may make use of such conditional credits. To
the extent such credits do not become unconditional by receipt of final
payment, the Master Trust shall reimburse the Master Trustee upon demand for
the amount of such conditional credits so used. When the Master Trustee is
instructed to receive property, it is authorized to accept documents in lieu of
such property as long as such documents contain the agreement of the issuer
thereof to hold such property subject to the Master Trustee's sole order. The
Master Trustee may, in its discretion, advance funds to the Master Trust to
facilitate the settlement of any trade. In the event of such an advance, the
Master Trust shall immediately reimburse the Master Trustee for the amount
thereof.
2.5 CASH BALANCES. The Master Trustee may invest all or any portion of
any cash balances in any Discretionary Fund, and an Investment Manager or the
Investment Committee may, with the prior written acceptance of the Master
Trustee, by written authorization delegate to the Master Trustee authority to
invest all or any portion of any cash balances in any Directed Fund, in the
Master Trustee's sole discretion, including, without limitation, investments in
part interests in obligations, irrespective of whether the Master Trustee or
another, individually or as trustee or agent, is acting as a participator. The
Master Trustee shall not be liable for interest on any cash balances in any
Directed Fund that it holds uninvested pending receipt of directions from the
Investment Manager or the Investment Committee, in the absence of authorization
from the latter to invest the same in the Master Trustee's sole discretion, nor
liable for interest on any cash balances it may be authorized to invest in its
sole discretion, and may hold uninvested as it deems to be in the best
interests of the Master Fund.
2.6 APPOINTMENT OF TPA. The Named Fiduciary hereby certifies to the
Master Trustee that Pentegra is the third party administrator (the "TPA")
appointed by it or the Company to receive, cumulate and communicate investment
and distribution directions with respect to Participant-Directed Funds from
Plan Participants, and the Named Fiduciary has delegated such responsibility
and authority to Pentegra as specified in this Agreement and as it shall
communicate to the Master Trustee from time to time. For the purposes of this
Agreement, such TPA shall be a delegee of the Named Fiduciary in accordance
with Section 405(c)(1)(B) of the Act. The Master Trustee may rely on such
certification and delegation until notified in writing to the contrary by the
Named Fiduciary.
5
<PAGE>
2.7 TRANSFER AMONG FUNDS. The TPA shall direct the Master Trustee with
respect to the allocation of assets to the Funds and with respect to transfers
among the Funds. The Master Trustee shall have no duty to invest, and shall not
be liable for interest on, any such assets it holds uninvested pending receipt
of directions from the TPA to allocate contributions among the Funds.
2.8 TRANSFERS TO COLLECTIVE TRUSTS. Notwithstanding any provision of
the Plan or of this Agreement to the contrary, the Master Trustee may, in its
sole discretion with respect to any Discretionary Fund and, if authorized or
directed by the Investment Manager or Investment Committee of any Directed
Fund, with respect to such Directed Fund, transfer all or any part of the
assets of such Fund to, or withdraw the same from, any collective investment
trust that shall be or shall have been created and administered by the Master
Trustee or any collective investment trust maintained by any other bank
(including affiliates of the Master Trustee) for the collective investment of
the property of employee benefit trusts, provided that such trust is qualified
under the provisions of Section 401(a) of the Internal Revenue Code ("Code")
and exempt under the provisions of Section 501(a) of the Code. To that end, the
Master Trustee is hereby expressly authorized to permit the commingling of any
or all of the assets of such Fund with the assets of other trusts eligible to
participate in such collective investment trusts. The Master Trustee shall have
no responsibility for the custody or safekeeping of assets transferred to any
collective investment trust not established and maintained by the Master
Trustee. To the extent that property of the Master Fund is invested in any
collective investment trust as provided above, the declaration of trust
pertaining thereto, as amended from time to time, and the trust thereby
created, shall be a part of this Agreement. The Master Trustee shall have, with
respect to the interest of such Fund in such collective investment trust, the
powers conferred by this Agreement to the extent that such powers are not
inconsistent with the provisions of such declaration of trust. For purposes of
any valuation of the Master Fund or any valuation of the interest or of the
account of any Participant or Beneficiary under the Plan, the interest of the
Master Trust in such collective investment trust shall be valued at the times
and in the manner prescribed by the declaration by which such trust was
created. The Named Fiduciary expressly understands and agrees that any such
collective investment fund may provide for the lending of its securities by the
collective investment fund trustee and that such collective investment fund
trustee will receive compensation for the lending of securities that is
separate from any compensation of the Master Trustee hereunder, or any
compensation of the collective investment fund trustee for the management of
such fund. A copy of the declaration of trust as presently in effect of any
collective investment trust to which the assets of the Plan are transferred
pursuant to this Section 2.8 shall be provided to the Named Fiduciary and
copies of amendments thereto shall be forwarded to the Named Fiduciary promptly
after their adoption.
2.9 INSURANCE CONTRACTS.
(a) PROCURING AND HOLDING CONTRACTS. The Master Trustee, upon written
direction of the Named Fiduciary or an Investment Manager, shall pay from the
Master Trust such sums to such insurance company or companies as the Named
Fiduciary or an Investment Manager may direct for the purpose of procuring
individual or group annuity contracts or other
6
<PAGE>
insurance contracts (hereinafter referred to as "Contracts"). The Named
Fiduciary or an Investment Manager shall prepare, or cause to be prepared in
such form as it shall prescribe, the application for any Contract to be applied
for. The Master Trustee shall receive and hold in the Master Trust, subject to
the provisions hereinafter set forth in this Section, all Contracts obtained,
the proceeds of any sale, assignment or surrender of any such Contract and any
and all dividends and other payments of any kind received with respect to any
such Contract.
(b) EXERCISING RIGHTS UNDER CONTRACTS. The Master Trustee shall be the
complete and absolute owner of Contracts held in the Master Trust, provided
that the Named Fiduciary or an Investment Manager shall have power to direct
the Master Trustee to exercise any and all of rights, options, or privileges
that belong to the Master Trustee as such absolute owner or that are granted by
the terms of any such Contract or by the terms of this Agreement, and the
Master Trustee shall not exercise any of the foregoing powers or take any other
action permitted by any such Contract other than upon the written direction of
the Named Fiduciary or an Investment Manager. The Master Trustee shall have no
duty to exercise any of such power or to take any such action unless and until
it shall have received such direction. The Master Trustee, upon the written
direction of the Named Fiduciary or an Investment Manager, shall deliver any
Contract held in the Master Trust to such person or persons as may be specified
in the direction.
(c) PAYMENT OF PREMIUMS. Upon the written direction of the Named
Fiduciary or an Investment Manager, the Master Trustee shall pay from the
Master Trust premiums, assessments, dues, charges and interest, if any, upon
any Contract held in the Master Trust. The Master Trustee shall have no duty to
make any such payment unless and until it shall have received such direction.
(d) PAYMENTS UNDER CONTRACTS. Any sums paid out by any insurance company
under the terms of a Contract held in the Master Trust either to the Master
Trustee, or, in accordance with its direction, to any other person or persons
designated as payees in such Contract shall be a full and complete discharge of
the liability to pay such sums, and the insurance company shall have no
obligation to look to the disposition of any sums so paid. No insurance company
shall be required to look into the terms of this Agreement, or to question any
action of the Master Trustee or to see that any action of the Master Trustee is
authorized by the terms of this Agreement.
(e) LIABILITY OF MASTER TRUSTEE; INDEMNIFICATION. Anything contained
herein to the contrary notwithstanding, to the extent permitted by law, the
Master Trustee shall not be liable for the refusal of any insurance company to
issue or change any Contract or take any other action requested by the Master
Trustee; for any assets invested in a Contract at the direction of the Named
Fiduciary or an Investment Manager; for the form, terms, genuineness, validity,
sufficiency or effect of any Contract held in the Master Trust; for the act of
any person or persons that may render any such Contract null and void; for the
failure of any insurance company to pay the proceeds of any such Contract as
and when the same shall become due and payable; for any delay in payment
resulting from any provision contained in any such Contract nor for the fact
that for any reason whatsoever (other than the Master Trustee's own negligence,
bad faith or
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willful misconduct) any Contract shall lapse or otherwise become uncollectible.
The Company hereby agrees to indemnify the Master Trustee and to hold it
harmless from and against any claim, liability, loss, damage or expense that
may be asserted against the Master Trustee by reason of any action taken or
omitted by the Master Trustee in connection with any Contract at the direction
of the Named Fiduciary or an Investment Manager other than such claims,
liabilities, losses, damages or expenses that are attributable to the Master
Trustee's own negligence, bad faith or willful misconduct in performing duties
specifically undertaken herein.
2.10 LOANS TO PARTICIPANTS.
(a) On the direction of the TPA, the Master Trustee shall make loans
from the assets of the Trust Funds to Participants in the Plan. All promissory
notes evidencing such loans shall constitute assets of the trust estate, shall
be held in a separate Fund known as the "Loan Fund" and, except as otherwise
provided herein, shall be held by the Master Trustee. The Master Trustee shall
have no responsibility with respect to the holding, investment or
administration of the Loan Fund, except as specified in the written directions
of the TPA with respect thereto.
(b) Each such loan shall bear a reasonable rate of interest (within the
meaning of Regulation Section 2550.408(b)(1) promulgated by the Department of
Labor) as determined by the Investment Committee and shall be secured by the
Participant's account balance in the Trust Fund. Unless otherwise instructed in
writing by the Named Fiduciary, the Master Trustee shall not file a UCC-1 form
or take other action in order to perfect its security interest in the accounts
of a Participant to whom a loan is made.
(c) The Named Fiduciary or the TPA will provide the Master Trustee with
such information as may from time to time be required for the Master Trustee to
exercise its rights under the documents relating to plan loans including,
without limitation, the occurrence of events of default by Participants.
(d) The TPA (or, if the Named Fiduciary so directs, the Investment
Committee,) is hereby appointed as custodian for the Master Trustee of all
original promissory notes and security agreements which shall be held subject
to the order of the Master Trustee. In the event that the Master Trustee or the
TPA terminates such custodianship (which either may do on written notice to the
other), the Named Fiduciary shall retain the originals of all promissory notes
and security agreements as custodian for the Master Trustee.
(e) In addition to all other indemnities provided to the Master Trustee
in this Agreement, the Company hereby indemnifies the Master Trustee and its
directors, officers and employees, and holds it and them harmless from and
against any claim, liability, loss, damage or expense (including reasonable
attorneys' fees) which it may incur by reason of its not filing or otherwise
perfecting a security interest granted to the Master Trustee with respect to a
loan to a Participant and in connection with the TPA or Named Fiduciary acting
as custodian of promissory notes pursuant to paragraph (d) above.
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SECTION 3. POWERS OF MASTER TRUSTEE.
3.1 IN GENERAL. The Master Trustee is authorized and empowered, in its
discretion with respect to a Discretionary Fund, and at the direction of an
Investment Manager or the Investment Committee with respect to a Directed Fund
managed by such Investment Manager or Committee:
(1) to sell, exchange, convey, transfer or otherwise dispose of any
property, real or personal, at any time held by the Master Trustee, by private
contract or at public auction, for cash or on credit, (in the case of a
Directed Fund, upon such conditions, at such prices and in such manner as the
Investment Manager or Investment Committee shall direct), and no person dealing
with the Master Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency or propriety of any
such sale or other disposition;
(2) to grant options to purchase securities held in the Fund ("covered
call options") and other property held in the Fund and options to sell
securities and other property to the Fund, as well as combinations of such
options to purchase and such options to sell; and to acquire options to
purchase securities and other property for the Fund and options to sell
securities and other property held in the Fund, as well as combinations of such
options to purchase and such options to sell;
(3) to sell or exercise any conversion privileges, subscription rights,
warrants or other options and to make any payments incidental thereto, and to
consent to or otherwise participate in corporate reorganizations, mergers,
consolidations or other changes affecting corporate securities and to delegate
discretionary powers and to pay any assessments or charges in connection
therewith; but the Company understands that, where warrants, options, tenders
or other rights have fixed expiration dates, in order for the Master Trustee to
act with respect to a Directed Fund, it must receive instructions at its
offices, addressed as the Master Trustee may from time to time request, by no
later than noon (Eastern Time) at least one business day prior to the last
scheduled date to act with respect thereto (or such earlier date or time as the
Master Trustee may direct);
(4) to compromise, compound, settle or arbitrate any claim, debt or
obligation due to or from it as Master Trustee and to reduce the rate of
interest on, extend or otherwise modify, or to foreclose upon default or
otherwise enforce any such obligation, and, in the case of a Discretionary
Fund, to abandon any property determined by it to be worthless;
(5) to vote upon any stocks, bonds or other securities and to give general
or special proxies or powers of attorney with or without power of substitution,
provided that, in the case of Company Securities (as defined in Section 4.1),
the provisions of Section 4.2 shall apply and, provided further that, in the
case of a Directed Fund (other than one holding Company Securities), unless the
Master Trustee is
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instructed otherwise, all proxies and proxy materials relating to securities
held in the Master Fund shall be signed by the Master Trustee without
indication of voting preference, and forwarded to the Investment Manager or
Investment Committee for the making of all decisions with respect thereto; and
to enter into any voting trust or similar agreement;
(6) for the purposes of the Master Trust, to engage in transactions
involving financial futures, including but not limited to stock index futures,
and options on financial futures; and in carrying out such transactions to open
accounts to trade in and to make or take delivery of financial futures, to
provide original, variation, maintenance and other required margin in the form
of moneys, securities, or otherwise, and to exercise options; and
(7) generally to exercise any of the powers of an owner with respect to
stocks, bonds, securities or other property held in any Fund.
3.2 AT DIRECTION OF NAMED FIDUCIARY. The Master Trustee is authorized
and empowered, with the approval of the Named Fiduciary with respect to any
Fund:
(1) for the purposes of the Master Trust, to borrow money from any person
or persons, including the Master Trustee or an affiliate, to issue the Master
Trust's promissory note or notes therefor, and to secure the repayment thereof
by pledging,
mortgaging or otherwise encumbering any property in its possession;
(2) to designate the Master Trustee or an affiliate to act on its behalf
in lending securities held in the Master Fund to brokers, dealers, banks or
other financial institutions, on such terms as are consistent with the Act; and
(3) to transfer all or any portion of the Master Fund to another trustee
of the Plan which may include the Employer, and, following such transfer, the
Master Trustee shall have no responsibility whatsoever with respect to assets
so transferred.
3.3 WITH RESPECT TO PARTICIPANT-DIRECTED FUNDS. The Master Trustee is
authorized and empowered, at the direction of the TPA (which direction may
include standing instructions) with respect to any Participant-Directed Fund,
to sell, or to purchase, any property held in such Funds, as appropriate to
effectuate transfers among Funds in accordance with Section 2.7, and/or
distributions from Funds in accordance with Section 2.10 or 5.3.
3.4 ADMINISTRATIVE POWERS. The Master Trustee is authorized and
empowered in its sole administrative discretion with respect to both
Discretionary and Directed Funds:
(1) to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers granted herein;
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(2) to collect all interest, dividends and other income payable with
respect to property in the Master Fund, and to surrender securities at maturity
or when advised of earlier call for redemption, provided that the Master
Trustee shall not be liable for failure to surrender any security in a Directed
Fund for redemption prior to maturity or take other action if notice of such
redemption or other action was not provided to the Master Trustee by the
issuer, the Investment Manager, the Investment Committee or one of the
nationally recognized bond or corporate action services to which the Master
Trustee subscribes;
(3) to exchange securities in temporary form for securities in definitive
form, and to effect an exchange of shares where the par value of stock is
changed;
(4) to hold property in its or an affiliate's vaults, at a domestic or (to
the extent permitted by regulations issued by the Secretary of Labor under
Section 404(b) of the Act) foreign central depository or clearing corporation,
in non-certificated form with the issuer, on Federal Book Entry at the Federal
Reserve Bank of New York, with a custodian appointed pursuant to clause (5)
below, or, with the approval of the Named Fiduciary, at any other location;
(5) to appoint another bank as custodian for any foreign securities or
other foreign assets constituting part of the Master Fund, and to arrange for
the custody of such securities or assets and the indicia of ownership thereof
to be held outside the jurisdiction of the district courts of the United States
by such other bank and/or its agents, to the extent permitted by regulations
issued by the Secretary of Labor under Section 404(b) of the Act, and to pay
the reasonable expenses and compensation of such bank from the Master Fund;
(6) to hold property of the Master Trust in its own name or in the name of
a nominee, including the nominee of any central depository (including an
affiliate of the Master Trustee), clearing corporation or custodian with which
securities of the Master Trust may be deposited (and the Company agrees to hold
the Master Trustee and any such nominee harmless from any liability as a holder
of record), and to hold any investment in bearer form, but the books and
records of the Master Trustee shall at all times show that all such investments
are part of the Master Trust;
(7) to form corporations and to create trusts under the laws of any state
for the purpose of acquiring and holding title to any securities or other
property, all on such terms and conditions as it deems advisable;
(8) to employ suitable agents, including auditors and legal counsel (who
may be counsel to the Company or to the Master Trustee in its corporate
capacity) or other advisers, without liability for any loss occasioned by any
such agent selected with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the
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conduct of an enterprise of a like character with like aims, and to pay their
reasonable expenses and compensation from the Master Fund;
(9) to take any action with respect to the Master Fund that it deems
necessary in carrying out the purposes of this Agreement.
SECTION 4. COMPANY SECURITIES.
4.1 REGISTRATION OF COMPANY SECURITIES. In the event that the property
initially delivered to the Master Trustee hereunder includes any stocks of any
classification, bonds or other marketable obligations or securities issued or
guaranteed by the Company, or by any subsidiary or affiliate thereof ("Company
Securities"), or that the Master Trustee purchases for any Discretionary Fund
or an Investment Manager or the Investment Committee directs the purchase for
any Directed Fund of any such securities, and the Master Trustee should
thereafter determine (with respect to a Discretionary Fund) or the Investment
Manager or Investment Committee should thereafter direct the Master Trustee
(with respect to a Directed Fund) to dispose of any such securities under
circumstances which, in the opinion of the Master Trustee, require registration
of such securities under the Securities Act of 1933 and/or qualification of
such securities under the Blue Sky laws of any state or states, then the
Company, at its own expense, will promptly take or cause to be taken any and
all action necessary or appropriate to effect such registration and/or
qualification; in such event, the Master Trustee shall not be required to
dispose of such securities until such registration and/or qualification are
complete and effective, and the Master Trustee shall not be liable for any loss
or depreciation of the Fund resulting from any delay attributable thereto. The
Company will indemnify and hold the Master Trustee and its officers and
directors harmless with respect to any claim, liability, loss damage or expense
(except any such claims, liabilities, losses, damages or expenses that are
attributable to the Master Trustee's own negligence, bad faith or willful
misconduct with respect to any duties specifically undertaken herein) incurred
as a result of such registration or qualification or as a result of any
information in connection therewith furnished by the Company or as a result of
any failure by the Company to furnish any such information.
4.2 VOTING OF COMPANY SECURITIES. Notwithstanding any other provision
of this Agreement to the contrary, the Master Trustee will have no discretion
or authority to vote Company Securities held in the Master Trust by the Master
Trustee on any matter presented for a vote by stockholders of the Company
except in accordance with the timely directions received by the Master Trustee
from Participants who have Company Securities allocated to their individual
accounts under the Plan. Each Participant who has been allocated Company
Securities will, as a named fiduciary, direct the Master Trustee with respect
to the vote of Company Securities allocated to the Participant's individual
account. Such directions will be given by the Participants acting in their
capacity as named fiduciaries with respect to such Company Securities and, upon
timely receipt of such instructions, the Master Trustee will vote the Company
Securities held in the Master Trust, pursuant to the direction of Participants
giving instructions to the Master Trustee. The Master Trustee will vote any
Company Securities for
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which timely instructions are not received from Participants in proportion with
such instructions as are received on a timely basis.
The Company and the Master Trustee shall not improperly interfere in any
manner with the decision of any Participant regarding the directions of the
Participant with respect to the vote of Company Securities allocated to the
Participant's individual account, and the Master Trustee shall arrange for such
voting to take place on a confidential basis. The Master Trustee will
adequately communicate or cause to be communicated to all Participants the
provisions of this Agreement relating to the right of Participants to direct
the Master Trustee with respect to the voting of Company Securities allocated
to their individual accounts under the Plan. The Company will provide the
Trustee with such information and assistance as the Master Trustee may
reasonably request in connection with any communications or distributions to
Participants.
The Company will distribute or cause to be distributed to Participants
entitled to direct the Master Trustee as to the voting of any Company
Securities hereunder and all materials and communications which it provides to
other stockholders of the Company in connection with such vote. The Master
Trustee may rely on the Company for such distribution and will not be liable
for the Company's failure to provide such materials and communications to any
Participant.
4.3 TENDERS FOR COMPANY SECURITIES. Notwithstanding any other
provision of this Agreement to the contrary, in the event an offer to acquire
any shares of Company Securities held in the Master Trust (an "Offer") shall be
received by the Master Trustee, the Master Trustee will have no discretion or
authority to sell, exchange or transfer any shares of Company Securities held
by the Trustee in the Master Trust pursuant to such Offer except to the extent,
and only to the extent, that the Master Trustee is timely directed to do so in
writing by each Participant to whose individual account any of such Company
Securities is allocated, as named fiduciary.
Upon timely receipt of instructions, the Master Trustee will sell,
exchange or transfer pursuant to such Offer such shares, and only such shares,
as to which instructions were given. The failure of any Participant, as named
fiduciary, to provide in a timely manner instructions to the Master Trustee
with respect to Company Securities allocated to the Participant's individual
account will be deemed to constitute instructions to the Master Trustee not to
sell, transfer or exchange any of such Company Securities, and the Master
Trustee will communicate or cause to be communicated to each Participant the
consequences of any failure to provide timely instructions to the Master
Trustee.
In the event that, under the terms of an Offer to acquire Company
Securities or otherwise, any shares of Company Securities tendered for sale,
exchange or transfer pursuant to such Offer may be withdrawn from such Offer,
the Master Trustee will follow such instructions respecting the withdrawal of
such securities from such Offer in the same manner as shall be timely received
by the Master Trustee from the Participants entitled under this paragraph to
direct the Master Trustee as to the sale, exchange or transfer of securities
pursuant to such Offer.
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In the event that an Offer for fewer than all of the shares of Company
Securities held by the Master Trustee in the Master Trust shall be received by
the Master Trustee, each Participant who has allocated to an individual account
in the Plan Company Securities subject to such Offer shall be entitled to
direct the Master Trustee as to the acceptance or rejection of such Offer (as
provided above) with respect to the largest portion of such Company Securities
as may be possible given the total number or amount of shares of Company
Securities the Master Trustee may sell, exchange or transfer pursuant to the
Offer based upon the instructions received by the Master Trustee from all other
Participants who shall timely instruct the Master Trustee pursuant to this
Section to sell, exchange or transfer such shares pursuant to an Offer, each on
a pro rata basis in accordance with the number or amount of shares allocated to
their individual accounts.
In the event that an Offer shall be received by the Master Trustee and
instructions shall be solicited from Participants pursuant to this Section
regarding such Offer, and prior to the termination of such Offer, another Offer
is received by the Master Trustee for securities subject to the first Offer,
the Master Trustee shall, if practicable make a reasonable effort under the
circumstances to solicit instructions from the Participants to the Master
Trustee (i) with respect to securities tendered for sale, exchange or transfer
pursuant to the first Offer, whether to withdraw such tender, if possible, and,
if withdrawn, whether to tender any securities so withdrawn for sale, exchange
or transfer pursuant to the second Offer and (ii) with respect to securities
not tendered for sale, exchange, or transfer pursuant to the first Offer,
whether to tender or not to tender such securities for sale, exchange or
transfer pursuant to the second Offer. The Master Trustee will follow all
instructions received in a timely manner from Participants in the same manner
as provided in this Section 4.3 above. With respect to any Offer (including
successive Offers from one or more existing offers), the Master Trustee shall
act in the same manner described above.
In the event an Offer for any Company Securities held by the Master
Trustee in the Master Trust shall be received by the Master Trustee and the
Participants shall be entitled to determine to accept, reject or withdraw an
acceptance of such Offer pursuant to this Section 4.3, (i) the Company and the
Master Trustee shall not improperly interfere in any manner with the decision
of any Participant regarding the action of the Participant with respect to such
Offer (hereinafter referred to as the "Investment Decision"), and the Master
Trustee shall arrange for such Investment Decision to be made on a confidential
basis; and (ii) the Master Trustee will adequately communicate or cause to be
communicated to all Participants the provisions of this Agreement relating to
the rights of the Participants to direct the Master Trustee with respect to the
Company Securities subject to such Offer and the Master Trustee's obligation to
follow such directions. The Company will provide the Master Trustee with such
information and assistance as the Master Trustee may reasonably request in
connection with any communications or distributions to Participants.
The Company will distribute or cause to be distributed to Participants any
and all communications distributed to other stockholders of the Company in
connection with the Offer. The Master Trustee may rely on the Company for such
distribution and will not be liable
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for the Company's failure to provide or cause to be provided such
communications to any Participants.
Notwithstanding anything elsewhere in this Agreement to the contrary,
unless otherwise directed by the Investment Committee, any proceeds received by
the Master Trustee as a result of the sale, exchange or transfer of Company
Securities pursuant to an Offer shall be reinvested in Company Securities the
Master Trustee if such security is available for purchase.
SECTION 5. ACCOUNTS TO BE MAINTAINED BY THE MASTER TRUSTEE: PAYMENTS FROM
THE MASTER TRUST.
5.1 ACCOUNTS. The Master Trustee may maintain one or more accounts for
the purpose of making disbursements at the direction of the TPA and such other
purposes, if any, as may be reasonably required for the convenient
administration of the Plan or of the Master Trust.
5.2 NO SEPARATE RECORDKEEPING. The Master Trustee shall not be
required to maintain any separate records or accounts with respect to the
Participants (or their Beneficiaries), and any such records or accounts
required to be maintained pursuant to the terms of the Plan shall be maintained
by the Employer or by the TPA.
5.3 PAYMENTS: DISPUTES. The Master Trustee, from time to time, upon
receipt of a written order from the TPA, shall make payments from the Master
Fund to such persons and in such amounts as the Investment Committee or the TPA
shall direct, and amounts paid pursuant to such direction thereafter no longer
shall constitute a part of the Master Trust. Orders from the TPA need not
specify the purpose of the payments so ordered, and the Master Trustee shall
not be responsible in any way respecting the purpose or propriety of such
payments or for the administration of the Plan. Any such order shall constitute
a certification that the payment directed is one which the TPA is authorized to
direct, and the Master Trustee need make no further investigation. Payments by
the Master Trustee may be made (i) by its check to the order of the payee and
mailed to the payee at the address last furnished to the Master Trustee by the
TPA or by the payee, or if no such address has been so furnished, to the payee
in care of the Company, or (ii) by direct deposit to an account of the payee in
accordance with Section 5.4. If a dispute arises as to who is entitled to or
should receive any benefit or payment, the Master Trustee may withhold or cause
to be withheld such payment until the dispute has been resolved.
5.4 DIRECT DEPOSIT OF PAYMENTS. At the request of any Participant or
Beneficiary, the Master Trustee shall deposit periodic payments directly into
the bank account of such person, provided that such person and its depository
bank shall have entered into a depository agreement with the Master Trustee
that is satisfactory to the Master Trustee. The Company hereby agrees to
indemnify the Master Trustee and to hold it harmless from and against any
claim, liability, loss, damage or expense that may be asserted against it as a
result of making any such deposit other than any such claims, liabilities,
losses, damages or expenses that are attributable to the Master Trustee's own
negligence, bad faith or willful misconduct.
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5.5 RESPONSIBILITY OF TPA. In directing the Master Trustee to make
payments out of the Master Trust, the TPA shall follow the provisions of the
Plan, so that it shall be impossible, either during the existence or upon the
discontinuance of the Plan, for any part of the Master Fund to be used for or
diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries, at any time prior to the satisfaction of all
liabilities with respect to the Participants and their Beneficiaries, or for
any part thereof to be paid or applied to the use of any Employer except, upon
the termination of the Plan, to the extent of any surplus resulting from an
actuarial error.
5.6 RETURNED AND UNCASHED PAYMENTS. In the event that any payment
ordered by the TPA shall be distributed by the Master Trustee in accordance
with Section 5.3 or Section 5.4 and (i) such payment shall be returned to the
Master Trustee because the payee or the payee's account cannot be located at
such address, or (ii) any check so mailed shall not be presented for payment
within six months of the date thereof, the Master Trustee shall promptly notify
the TPA of such return or failure to present. Upon the expiration of 60 days
after such notification such payment order shall become void, and unless and
until a further order of such TPA is received by the Master Trustee with
respect to such payment, the Master Trustee shall return such payment to the
Master Trust and continue to administer the Master Trust as if such order had
not been made. The Master Trustee shall not be obligated to search for or
ascertain the whereabouts of any such person (or his duly appointed
representative).
5.7 NO LIABILITY FOR CONTRIBUTIONS. The Master Trustee shall be under
no duty to enforce payment of any contribution and shall not be responsible for
the adequacy of the Master Trust to meet and discharge any liabilities under
the Plan.
SECTION 6. VALUATION OF THE MASTER FUND.
6. l VALUATION. As of the inception of the Master Fund, as of the
close of the last business day of each month thereafter, and as of such other
time or times as the Master Trustee may deem appropriate (the "Valuation
Date"), the Master Trustee shall determine the market value of the Master Fund.
Such determination may be made either by the Master Trustee itself or by such
person or persons believed by the Master Trustee to be competent to make such
determination as the Master Trustee may select, but in accordance with a method
consistently followed and uniformly applied. The Master Trustee's determination
of the value of the Master Fund shall be conclusive and binding upon the Plan,
each Employer, the Named Fiduciary, the Investment Committee, the TPA, and the
Participants and their Beneficiaries.
6.2 UNITS. At the direction of the TPA, the Master Trustee shall
express the market value of any Fund in whole and fractional units which shall
be equal undivided interests in such Fund without priority or preference one
over the other. The original unit of participation in a Fund shall be specified
by the TPA at the inception of the Fund. As of each Valuation Date the Master
Trustee shall determine the value per unit in the Fund by dividing the value of
the Fund as determined in accordance with this Section by the number of
existing units in the Fund. Transfers of cash and/or property to or from a Fund
shall be made only as of a Valuation Date
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and shall be based upon the value of a unit as of such Date, and the number of
units charged or credited to a Fund shall be adjusted accordingly.
SECTION 7. ADMINISTRATIVE EXPENSES. TAXES AND MASTER TRUSTEE'S COMPENSATION.
7. l IN GENERAL. All brokerage costs and transfer taxes incurred in
connection with the investment and reinvestment of any Fund, all income taxes
or other taxes of any kind whatsoever which may be levied or assessed under
existing or future laws upon or in respect of such Fund, all expenses incurred
in connection with the acquisition or holding of property, any interest therein
or mortgage thereon, all other administrative expenses incurred by the Master
Trustee in the performance of its duties, including fees for legal services and
third party appraisal services rendered to the Master Trustee and fees incurred
in the solicitation of directions with respect to voting and tendering Company
Securities, and all other proper charges and disbursements of the Master
Trustee, shall be paid by the Fund, and, until paid, shall constitute a charge
upon the Fund.
7.2 FEES OF INVESTMENT MANAGERS. The Named Fiduciary may direct the
Master Trustee to pay from the Master Fund the fees of any Investment Manager
and the administrative expenses of the Plan, including but not limited to
actuarial fees.
SECTION 8. MASTER TRUSTEE'S LIABILITY: NO DUTY TO REVIEW;
INDEMNIFICATION.
8. l LIABILITY OF MASTER TRUSTEE. With respect to a Discretionary
Fund, the Master Trustee shall not be liable for any loss to or diminution of
the Discretionary Fund resulting from any action taken or omitted by the Master
Trustee except if due to any failure of the Master Trustee to act in accordance
with the requirements of Part 4 of Title I of ERISA or if due to the Master
Trustee's own negligence, bad faith or willful misconduct. With respect to any
Directed Fund hereunder, the Master Trustee shall not be liable for the making,
retention or sale of any investment or reinvestment made or received by it at
the direction of an Investment Manager, the Investment Committee or the TPA, as
herein provided, nor for any loss to or diminution of the Fund resulting from
any action taken, or from any act omitted, by the Master Trustee at the
direction of an Investment Manager, the Investment Committee or the TPA as
herein provided, except if due to the Master Trustee's negligence, bad faith or
willful misconduct. The Master Trustee shall not be liable for any loss to or
diminution of the Fund resulting from any action taken or omitted by the Master
Trustee, other than at the direction of an Investment Manager, the Investment
Committee or the TPA, except if due to any failure of the Master Trustee to act
in accordance with the requirements of Part 4 of Title I of ERISA or if due to
the Master Trustee's own negligence, bad faith or willful misconduct. The
Master Trustee shall not be responsible for the adequacy of any funding policy
of the Plan of which it is advised pursuant to Section 2.2(c) or the
diversification of the investments of the Plan. Responsibility for monitoring
adherence to funding policies and for investment diversification, and for
advising the Master Trustee accordingly with respect to any Discretionary Fund
and advising the Investment Manager or
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Investment Committee accordingly with respect to any Directed Fund, shall rest
solely with the Named Fiduciary.
The Master Trustee may from time to time consult with legal counsel, who
may be counsel to the Company or to the Master Trustee in its corporate
capacity, and shall be fully protected in acting upon the advice of counsel.
To protect the Master Trust from expenses which might otherwise be
incurred, the Company shall have sole authority to enforce this Agreement on
behalf of all persons claiming any interest in the Master Trust or under the
Plan, and no other person may institute or maintain any action or proceeding
against the Master Trustee or the Master Trust in the absence of written
authority from the Company or a judgment of a court of competent jurisdiction
that in refusing authority the Company acted fraudulently or in bad faith.
8.2 NO DUTY TO REVIEW. Supervision of Investment Managers and the
Investment Committee shall be the exclusive responsibility of the Named
Fiduciary. The Master Trustee shall be under no duty or obligation to review
any investment or reinvestment made or received at the direction of an
Investment Manager or the Investment Committee nor to make any recommendation
as to the disposition or continued retention thereof. Without limiting the
generality of the foregoing, in the case of any transaction which is both
directed by and executed by or through an Investment Manager or the Investment
Committee, the Investment Manager or Investment Committee shall have entire
responsibility for assuring that the transaction does not violate the
prohibitions of any applicable state or federal law, including Sections 406 and
407 or ERISA.
8.3 RELIANCE ON CERTAIN APPRAISALS. To the extent that the Master Trustee
shall be required to value the assets of the Master Fund for any purpose,
including without limitation any valuation pursuant to Section 6, any
accounting pursuant to Section 9 and any segregation of assets pursuant to
Section 10 hereof, the Master Trustee may rely for all purposes of this
Agreement upon any certified appraisal or other form of valuation submitted to
it by any Investment Manager, the Investment Committee or the TPA and, with
respect to any insurance contract referred to in Section 2.9 hereof, by the
insurance company issuing such contract, and with respect to an interest in any
venture capital organization, by the manager of such organization and, with
respect to any mutual funds held in the Master Fund, by the servicing agent of
such mutual fund, and, with respect to an interest of the Master Trust in any
collective investment trust (other than a collective investment trust
established and maintained by Mellon Bank, N.A. or an affiliate), by the
trustee or investment manager of such collective investment trust.
8.4 INDEMNIFICATION OF MASTER TRUSTEE. The Company recognizes that a
burden of litigation may be imposed upon the Master Trustee, as the result of
some act or transaction for which it has no responsibility or over which it has
no control under this Agreement. Accordingly, the Company hereby agrees to
indemnify the Master Trustee, individually and as Master Trustee under this
Agreement, and its directors, officers and employees, and to hold it and them
harmless from and against any claim, liability, loss, damage or expense which
may be
18
<PAGE>
asserted against it or them by reason of any action taken or omitted by or on
behalf of the Master Trustee at the direction of any Investment Manager or
Investment Committee, the Named Fiduciary, the TPA, or by virtue of being the
holder of the Master Trust except for such claims, liabilities, losses, damages
or expenses attributable to the Master Trustee's own negligence, bad faith or
willful misconduct.
8.5 LIMITATION OF INDEMNITY. Nothing herein is intended to or shall be
construed to relieve the Master Trustee from any responsibility or liability it
may have under Part 4 of Title I of ERISA.
8.6 INDEMNIFICATION OF SUCCESSOR TRUSTEE. If Mellon Bank, N.A. is acting
as a successor trustee or succeeds to responsibilities hereunder for management
of plan assets with respect to the Master Fund (or any portion thereof), the
Company hereby agrees to hold Mellon Bank, N.A. harmless from and against any
tax, claim, liability, loss, damage or expense incurred by or assessed against
it as such successor as a direct or indirect result of any act or omission of a
predecessor trustee or any other person charged under any agreement affecting
Master Fund assets with investment responsibility with respect to such assets,
except for such taxes, claims, liabilities, losses, damages or expenses
attributable to the negligence, bad faith or willful misconduct of Mellon Bank,
N.A. or its affiliates.
SECTION 9. SETTLEMENT OF MASTER TRUSTEE'S ACCOUNTS.
9.1 ANNUAL ACCOUNTING. The Master Trustee shall keep accurate and
detailed accounts of all investments, receipts, disbursements and other
transactions hereunder, accounting separately for each Fund (in a manner
mutually agreeable to Pentegra and the Master Trustee), and all accounts, books
and records relating thereto shall be open to inspection and audit at all
reasonable times by any person designated by the Company or the Named
Fiduciary. Within 90 days after the close of each fiscal year of the Master
Trust (or such other date as may be agreed upon in writing between the Company
and the Master Trustee), and within 120 days after the effective date of the
removal or resignation of the Master Trustee as provided in Section 11 hereof,
the Master Trustee shall file with the Company a written account, setting forth
all investments, receipts, disbursements and other transactions effected by it
during the year ending on such date (but not including any part of such year
for which such an account has previously been filed) and certified as to the
accuracy of the information set forth therein. Such account may incorporate by
reference any and all schedules and other statements setting forth investments,
receipts disbursements and other transactions effected during the period for
which such account is rendered which the Master Trustee has furnished to the
Company prior to the filing of such account. Each account so filed (and copies
of any schedules and statements incorporated therein be reference as
aforesaid)shall be open to inspection at the offices of the Company during its
regular business hours by the Named Fiduciary, by any person designated by the
Company or the Named Fiduciary, by Participants and Beneficiaries of the Plan,
by the TPA or Investment Committee, or by any Investment Manager affected
thereby, for a period of 60 days immediately following the date on which the
account is filed with the Company. If for any reason an account required of
the Master Trustee hereunder shall not be filed within the
19
<PAGE>
applicable time specified in the preceding sentence, such account may be filed
by the Master Trustee after the expiration of such time, provided such account
otherwise complies with the requirements of this Agreement, and such account so
filed shall be open to inspection as aforesaid by any of the parties
aforementioned for a period of 90 days immediately following the date on which
the account is filed. In the event that any assets of the Fund have been
transferred to a collective investment trust pursuant to Section 2.8 hereof,
such account shall include a copy of the latest annual written account of such
collective investment trust.
9.2 OTHER ACCOUNTINGS. The Master Trustee shall provide to the Company
from time to time such other reports as may be agreed upon between the Master
Trustee and the Company. The Company agrees to examine each such report
promptly and to file any exceptions thereto within 90 days of the date thereof.
9.3 SETTLEMENT OF ACCOUNTS. Upon the expiration of the 60-day or 90-day
period, as the case may be, referred to in Section 9.1 or 9.2, the Master
Trustee shall be forever released and discharged from all liability and
accountability to anyone with respect to the account or report, including,
without limitation, all acts and omissions of the Master Trustee shown or
reflected in such account or report, except with respect to any acts or
omissions as to which the Company, the Named Fiduciary or the TPA shall have
filed written objections with the Master Trustee within such 60-day or 90-day
period, as the case may be. Nothing herein contained shall impair the right of
the Master Trustee to a judicial settlement of any account of proceedings
rendered by it. In any proceeding for such judicial settlement the only
necessary parties shall be the Master Trustee, the Company, the Named Fiduciary
and any other party or parties whose participation is required by law, and any
judgment, decree or final order entered therein shall be conclusive on all
persons having or claiming an interest in the Master Trust or the Plan.
SECTION 10. SEGREGATION OF PARTS OF THE MASTER TRUST.
10.1 SEGREGATION. The equitable share in the Master Trust of any part of
the Plan or the proportionate share of any Participant or group of Participants
and their Beneficiaries may be segregated and withdrawn from the Master Trust
upon the direction of the Named Fiduciary setting forth the portion of the
Plan's equitable share to be so treated or the Participants and Beneficiaries
for whose accounts such segregation and withdrawal are to be carried out. The
Master Trustee may condition its transfer or distribution of any assets upon
the Master Trustee's receiving assurances satisfactory to it that the approval
of appropriate governmental or other authorities has been secured and that all
notice and other procedures required by applicable law have been complied with.
Unless otherwise directed by the Named Fiduciary pursuant to the preceding
paragraph, the Master Trustee shall hold, invest and administer the Master
Trust as a single fund without identification of any part of the Master Fund
with or allocation of any part of the Master Fund to the Company or to any
subsidiary or affiliate of the Company designated by it as a participating
company under the Plan or to any Participant or group of Participants or their
Beneficiaries.
20
<PAGE>
10.2 SEGREGATED PROPERTY. Segregation and withdrawal of the equitable share of
a Participant or group of Participants shall be made as of the Valuation Date
immediately following the date of the notice or instruction referred to in
Section 10.1. The selection of the particular assets to be segregated pursuant
to Section 10.1 shall be made by the Named Fiduciary. Such property shall be
held as a separate trust fund for the exclusive benefit of the withdrawing
Participant or group of Participants and their Beneficiaries, under a separate
agreement of trust substantially identical to this Agreement.
SECTION 11. RESIGNATION AND REMOVAL OF MASTER TRUSTEE.
The Master Trustee may resign at any time upon 60 days' notice in writing
to the Company and the Named Fiduciary. The Master Trustee may be removed by
the Company at any time upon 60 days' notice in writing to the Master Trustee
and the Named Fiduciary. If within such 60-day period a successor to the Master
Trustee shall not have been appointed, the resigning or removed Master Trustee
may apply to any court of competent jurisdiction for the appointment of such
successor. Any successor trustee shall have the same powers and duties as
those conferred upon the Master Trustee hereunder (other than those relating to
any collective investment trust of Mellon Bank, N.A. or an affiliate) and
subject to receipt by the Master Trustee of written acceptance of such
appointment by the successor trustee, the Master Trustee shall assign, transfer
and pay over to such successor trustee the moneys and properties then
constituting the Master Fund, withdrawing any part of any Fund then held in any
collective investment trust of Mellon Bank, N.A. or an affiliate. The Master
Trustee may reserve such sum of money as it may deem advisable for payment of
its reasonable fees and expenses in connection with the settlement of its
account or otherwise. Payment of such fees and expenses may be withdrawn from
such reserve. Any balance of such reserve remaining after the payment of such
fees and expenses shall be paid over to the successor trustee. If such reserve
shall be insufficient to pay such changes, such resigning or removed Master
Trustee shall be entitled to recover the amount of any deficiency from the
Company or from the successor trustee or from both the Company and the
successor trustee. All provisions of this Agreement shall apply to any
successor trustee appointed as aforesaid with the same force and effect as if
such successor had been originally named herein as the Master Trustee.
SECTION 12. EVIDENCE OF ACTION BY COMPANY, INVESTMENT MANAGERS,
INVESTMENT COMMITTEE AND TPA, AND OF APPOINTMENT OF NAMED FIDUCIARY, INVESTMENT
MANAGERS, INVESTMENT AND COMMITTEE AND TPA.
Except as otherwise herein provided, any action by the Company pursuant to
any of the provisions of this Agreement shall be evidenced by a resolution of
its Board of Directors (which may include a resolution authorizing one or more
officers to act on its behalf) certified by the Secretary or any Assistant
Secretary of the Company, and the Master Trustee shall be fully protected in
acting in accordance with such resolution so certified to it. The Company shall
furnish the Master Trustee from time to time with certified copies of
resolutions of its Board of
21
<PAGE>
Directors or of other corporate action appointing and terminating the office of
the Named Fiduciary, and appointing and terminating any Investment Committee,
and appointing successors. The Named Fiduciary shall furnish the Master
Trustee with a copy of the instrument duly appointing and terminating the TPA,
and appointing and terminating successors thereto and shall certify to the
Master Trustee the responsibilities and authorities which the Named Fiduciary
has delegated to such TPA. The Named Fiduciary shall furnish the Master
Trustee with a copy of the instrument duly appointing and terminating any
Investment Committee, and appointing and terminating successors thereto. The
Named Fiduciary shall file with the Master Trustee a copy of each Investment
Manager's written acceptance of his appointment and acknowledgement that he is
a "fiduciary" with respect to the Plan within the meaning of Section 3(21) of
ERISA. Any such appointment shall continue to be effective until receipt by
the Master Trustee of written notice to the contrary from the Named Fiduciary.
Each Investment Manager and the TPA and the Investment Committee shall furnish
the Master Trustee from time to time with a certificate setting forth the name
and specimen signature of each person authorized to act on its behalf. Unless
otherwise provided in a certificate from the Named Fiduciary, all orders,
requests and instructions to the Master Trustee from the Named Fiduciary shall
be in writing or by telecopy signed by two authorized persons, and all orders,
requests and instructions to the Master Trustee from an Investment Manager, the
TPA, or the Investment Committee shall be in writing, by telecopy or by any
other electronic means using a code for the authentication of messages, and
signed or transmitted by an authorized representative of the Investment
Manager, TPA, or Investment Committee, and the Master Trustee shall be fully
protected in acting in accordance with any such order, request, or instruction.
The Master Trustee shall have the right to rely on and shall be fully protected
in acting in accordance with any resolution, order, request or instruction
which it believes to be genuine and which purports to have been signed or
transmitted in accordance with this section.
SECTION 13. AMENDMENT OF AGREEMENT, TERMINATION OF TRUST, TERMINATION
OF PLAN
13.1 AMENDMENT OF AGREEMENT. Subject to the restrictions set forth
below, the Company and the Master Trustee may mutually agree at any time and
from time to time to modify, amend or terminate, in whole or in part, any or
all of the provisions of this Agreement.
13.2 TERMINATION OF MASTER TRUST. In the event of the termination of the
Master Trust, the Master Trustee shall continue to administer the Master Trust
as hereinabove provided until all of the purposes for which is has been
established have been accomplished or the Master Trustee has disposed of the
Master Fund after the payment of or other provision for all expenses incurred
in the administration of the Master Trust (including any compensation to which
the Master Trustee may be entitled), all in accordance with the written order
of the Company or any successor thereto. Until the final distribution of the
Master Fund, the Master Trustee shall continue to have and may exercise all of
the powers and discretion conferred upon it by this Agreement. Upon any such
termination, or the resignation or removal of the Master Trustee under Section
11 hereof, Section 7.1 and all indemnities herein, including without limitation
those set forth in Sections 2.9(e), 2.10(e), 3.4(6), 4, 5.4, 8.3, 8.4 and 8.6
hereof, shall remain in full force and effect.
22
<PAGE>
13.3 TERMINATION OF THE PLAN. Upon receipt of notice from the Company that
the Plan is terminated in whole or in part, with respect to all or any group of
Participants and their Beneficiaries, the Master Fund, or the portion thereof
with respect to which the Plan is terminated, shall, subject to the provisions
of Section 7 hereof, be segregated in accordance with Section 10 and held
and/or disposed of by the Master Trustee in accordance with the written order
of the Named Fiduciary. The Master Trustee may condition its delivery,
transfer or distribution of any assets upon the Master Trustee's receiving
assurances satisfactory to it that the approval of appropriate governmental or
other authorities has been secured and that all notice and other procedures
required by applicable law have been complied with.
13.4 EXCLUSIVE BENEFIT. Anything in this Agreement to the contrary
notwithstanding, at no time prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries shall any part of the
Master Fund be used for or diverted to purposes other than for the exclusive
benefit of the Participants and their Beneficiaries and defraying reasonable
expenses of administering the Plan; provided, however, that nothing herein
contained shall preclude the return to an Employer of any contribution whose
return is permitted by Section 403(c) of the Act or successor legislation.
SECTION 14. INALIENABILITY OF BENEFITS AND INTERESTS
No distribution or payment under this Agreement to any Participant or
Beneficiary shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and no attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be valid or recognized by the Master
Trustee, nor shall any such distribution or payment be in any way liable for or
subject to the debts, contracts, liabilities, engagements or torts of any
person entitled to such distribution or payment, except in the case of any
voluntary and revocable assignment of any benefit payment permitted by law and
except to such extent as may otherwise be required by law. If the Master
Trustee is notified by the Named Fiduciary that any such Participant or
Beneficiary has been adjudicated bankrupt or has purported to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any such
distribution or payment, voluntarily or involuntarily, the Master Trustee
shall, if so directed by the TPA, hold or apply such distribution or payment or
any part thereof to or for the benefit of such Participant or Beneficiary in
such manner as the TPA shall direct.
SECTION 15. NO MERGER CONSOLIDATION OR TRANSFER OF PLAN ASSETS OR
LIABILITIES
Anything herein to the contrary notwithstanding, the Master Trust shall
under no circumstances be so operated as to permit, and nothing herein
contained shall be deemed to authorize, any merger, consolidation, or transfer
of the assets or liabilities or the Plan with or to any other plan except in
compliance with the provisions of the Act and the Code which are applicable to
such mergers, consolidations, or transfers, including without limitation
Sections
23
<PAGE>
208 and 4043(b)(8) of the Act and Sections 401(a)(12), 414(1), and 6058(b) of
the Code, and Regulations promulgated pursuant to the foregoing Sections.
SECTION 16. GOVERNING LAW.
This Agreement shall be administered and construed according to the
internal substantive laws (and not the choice of law provisions) of the
Commonwealth of Pennsylvania, except as may otherwise be required by Section
514 of ERISA. The invalidity, illegality or lack of enforceability of any
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision. The Master Trust shall at all times be
maintained as a domestic trust in the United States.
IN WITNESS WHEREOF, this Agreement has been executed, attested and sealed,
as of the date first above written, by the duly authorized officers of the
Company and Mellon Bank, N.A..
HOME FEDERAL SAVINGS BANK
By: /s/ Roger P. Weise
Name: Roger P. Weise
Title: President
MELLON BANK, N.A.
By: /s/ D. C. Crawford
Name: David C. Crawford
Title: FVP
24
<PAGE>
Exhibit 5e
Adoption Agreement for Home Federal Savings Bank
Employee's Savings and Profit Sharing Plan and Trust
24
<PAGE>
ADOPTION AGREEMENT
FOR
HOME FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
Name of Employer: Home Federal Savings Bank
-----------------------------------------------------
Address: 101 North Broadway, Spring Valley, MN 55975
-----------------------------------------------------
Phone No.: 507-346-7345
-----------------------------------------------------
Contact Person: Susan Thompson, Assistant Secretary
-----------------------------------------------------
Name of Plan: Home Federal Savings Bank Employees' Savings & Profit
Sharing Plan and Trust
-----------------------------------------------------
THIS ADOPTION AGREEMENT, upon execution by the Employer and the Trustee, and
subsequent approval by a duly authorized representative of Pentegra Services,
Inc. (the "Sponsor"), together with the Sponsor's Employees' Savings & Profit
Sharing Plan and Trust Agreement (the "Agreement"), shall constitute the HOME
FEDERAL SAVINGS BANK Employees' Savings & Profit Sharing Plan and Trust (the
"Plan"). The terms and provisions of the Agreement are hereby incorporated
herein by this reference; provided, however, that if there is any conflict
between the Adoption Agreement and the Agreement, this Adoption Agreement shall
control.
The elections hereinafter made by the Employer in this Adoption Agreement may
be changed by the Employer from time to time by written instrument executed by
a duly authorized representative thereof; but if any other provision hereof or
any provision of the Agreement is changed by the Employer other than to satisfy
the requirements of Section 415 or 416 of the Internal Revenue Code of 1986, as
amended (the "Code"), because of the required aggregation of multiple plans, or
if as a result of any change by the Employer the Plan fails to obtain or retain
its tax-qualified status under Section 401(a) of the Code, the Employer shall
be deemed to have amended the Plan evidenced hereby and by the Agreement into
an individually designed plan, in which event the Sponsor shall thereafter have
no further responsibility for the tax-qualified status of the Plan. However,
the Sponsor may amend any term, provision or definition of this Adoption
Agreement or the Agreement in such manner as the Sponsor may deem necessary or
advisable from time to time and the Employer and the Trustee, by execution
hereof, acknowledge and consent thereto. Notwithstanding the foregoing, no
amendment of this Adoption Agreement or of the Agreement shall increase the
duties or responsibilities of the Trustee without the written consent thereof.
1
<PAGE>
I. EFFECT OF EXECUTION OF ADOPTION AGREEMENT
The Employer, upon execution of this Adoption Agreement by a duly
authorized representative thereof, (choose 1 or 2):
1. / / Establishes as a new plan the HOME FEDERAL SAVINGS BANK
Employees' Savings & Profit Sharing Plan and Trust,
effective , 19 .
2. /x/ Amends its existing defined contribution plan and trust
(Home Federal Savings Bank 401(k) Plan) dated
-------------------------------------
January 2, 19 92 , in its entirety into the Home
--------- --
Federal Savings Bank Employees' Savings & Profit Sharing
Plan and Trust, effective August 1, 19 96,
-------- --
except as otherwise provided herein or in the Agreement.
II. DEFINITIONS
A. "Contribution Determination Period" for purposes of determining and
allocating Employer profit sharing contributions means (choose 1,2, 3
or 4):
1. /X/ The Plan Year.
2. / / The Employer's Fiscal Year (defined as the Plan's
"limitation year") being the twelve (12) consecutive month
period commencing ___ (month/day) and ending
month/day).
3. / / The three (3) consecutive monthly periods that comprise
each of the Plan Year quarters.
4. / / The three (3) consecutive monthly periods that comprise
each of the Employer's Fiscal Year quarters. (Employer's
Fiscal Year is the twelve (12) consecutive month period
commencing _____________________ (month/day) and ending
_____________________ (month/day).)
B. "Effective Date" means August 1, 19 96.
-------- ---
C. Employer
1. "Employer," for purposes of the Plan, shall mean:
HOME FEDERAL SAVINGS BANK
--------------------------
2. The Employer is (choose whichever may apply):
(a) / / A member of a controlled group of corporations under
Section 414(b) of the Code.
(b) / / A member of a group of entities under common control
under Section 414(c) of the Code.
(c) / / A member of an affiliated service group under Section
414(m) of the Code.
2
<PAGE>
(d) /x/ A corporation.
(e) / / A sole proprietorship or partnership.
(f) / / A Subchapter S corporation.
3. Employer's Taxable Year Ends on 12/31 .
-----
4. Employer's Federal Taxpayer Identification Number is
41 - 0318319.
------------
5. Employer's Plan Number is (enter 3-digit number) 004 .
----
D. "Entry Date" means the first day of the (choose 1 or 2):
1. /x/ Calendar month coinciding with or next following the date
the Employee satisfies the Eligibility requirements
described in Section III.
2. / / Calendar quarter coinciding with or next following the date
the Employee satisfies the Eligibility requirements
described in Section III.
E. "Member" means an Employee enrolled in the membership of the Plan.
F. "Normal Retirement Age" means (choose 1 or 2):
1. /x/ Attainment of age 65 (select an age not less than 55
------
and not greater than 65).
2. / / Later of: (i) attainment of age 65 or (ii) the fifth
anniversary of the date the Member commenced participation
in the Plan.
G. "Normal Retirement Date" means the first day of the first calendar
month coincident with or next following the date upon which a Member
attains his or her Normal Retirement Age.
H. "Plan Year" means the twelve (12) consecutive month period beginning
on each January 1.
I. "Salary" for benefit purposes under the Plan means (choose 1, 2 or
3):
1. / / Basic Salary only.
2. / / Basic Salary plus one or more of the following (if 2 is
chosen, then choose (a), (b) or (c), whichever shall
apply):
(a) / / Commissions not in excess of $__________ .
(b) / / Overtime
(c) / / Overtime and bonuses
3
<PAGE>
3. /x/ Total taxable compensation as reported on form W-2
(exclusive of any compensation deferred from a prior year
and Exclusive of any RRP compensation.)
Note: Member pre-tax elective deferrals, if any, are always
included in Plan Salary.
J. "Salary" shall not include:
/ / Member pre-tax contributions to a Code Section 125 cafeteria
plan.
III. ELIGIBILITY REQUIREMENTS
A. All Employees shall be eligible to participate in the Plan in
accordance with the provisions of Article II of the Plan, except the
following Employees shall be excluded (choose whichever shall apply):
1. /x/ Employees who have not attained age 21.
2. /x/ Employees who have not, during the 12 consecutive
---
month period (1-11, 12 or 24) beginning with an Employee's
Date of Employment, Date of Reemployment or any anniversary
thereof, completed 1,000 number of
------
Hours of Service (determined by multiplying the number of
months above by 83 1/3).
Note: Employers which permit Members to make pre-tax
elective deferrals to the Plan (see V.A.3.) may
not elect a 24 month eligibility period.
3. / / Employees included in a unit of Employees covered by a
collective bargaining agreement, if retirement benefits
were the subject of good faith bargaining between the
Employer and Employee representatives.
4. / / Employees who are nonresident aliens and who receive no
earned income from the Employer which constitutes income
from sources within the United States.
5. / / Employees included in the following job classifications:
(a) / / Hourly Employees
(b) / / Salaried Employees
6. / / Employees of the following employers which are aggregated
under Section 414(b), 414(c) or 414(m) of the Code:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
4
<PAGE>
Note: If no entries are made above, all Employees shall be
eligible to participate in the Plan on the later of:
(i) the Effective Date or (ii) the first day of the
calendar month or calendar quarter (as designated by
the Employer in Section II.D.) coinciding with or
immediately following the Employee's Date of
Employment or, as applicable, Date of Reemployment.
B. Such Eligibility Computation Period established above shall be
applicable to (choose 1 or 2):
1. /x/ Both present and future Employees.
2. / / Future Employees only.
C. Such Eligibility requirements established above shall be (choose 1 or
2):
1. /x/ Applied to the designated Employee group on and after the
Effective Date of the Plan.
2. / / Waived for the ____ consecutive monthly period (may not
exceed 12) beginning on the Effective Date of the Plan.
IV. HOURS OF EMPLOYMENT AND PRIOR EMPLOYMENT CREDIT
A. The number of Hours of Employment with which an Employee or Member is
credited shall be (choose 1 or 2):
1. /x/ The actual number of Hours of Employment. (Hour of Service
Method)
2. / / 83 1/3 Hours of Employment for every month of Employment.
(Elapsed Time Method)
B. Prior Employment Credit:
/ / Employment with the following entity or entities shall be
included for eligibility and vesting purposes:
Note: If this Plan is a continuation of a Predecessor Plan,
service under the Predecessor Plan shall be counted as
Employment under this Plan.
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
V. CONTRIBUTIONS
Note: Annual Member pre-tax elective deferrals, Employer matching
contributions, Employer basic contributions, Employer
supplemental contributions, Employer profit sharing
contributions and Employer Qualified Non-Elective contributions,
in the aggregate, may not exceed 15% of all Members' Salary
(excluding from
5
<PAGE>
Salary Member pre-tax elective deferrals).
A. Employee Contributions (choose 1 or 2; 3 or 4; 5 and/or 6):
1. / / A Member may make after-tax contributions to the Plan,
based on multiples of 1% of monthly Salary.
2. /x/ A Member may not make after-tax contributions to the Plan.
3. /x/ A Member may make pre-tax elective deferrals to the Plan,
based on multiples of 1% of monthly Salary.
4. / / A Member may not make pre-tax elective deferrals to the
Plan.
5. /x/ The maximum amount of monthly contributions a Member may
make to the Plan is 12 % (1-20) of the Member's monthly
---
Salary.
6. /x/ An Employee may allocate a rollover contribution to the
Plan prior to satisfying the Eligibility requirements
described above.
B. A Member may change his or her contribution rate (choose 1 or 2):
1. /x/ 1 time per calendar month.
2. / / 1 time per calendar quarter.
C. Employer Matching Contributions (choose 1, 2, 3 or 4; and fill in 5
if applicable):
1. / / No Employer matching contributions will be made to the
Plan.
2. /x/ The Employer shall allocate to each contributing Member's
Account an amount equal to 25% (based on 5% increments not
to exceed 200%) of the Member's contributions for that
month.
3. / / The Employer shall allocate to each contributing Member's
Account an amount determined in accordance with the
following schedule:
Years of Employment Matching %
------------------- ----------
Less than 3 50%
At least 3, but less than 5 75%
5 or more 100%
4. / / The Employer shall allocate to each contributing Member's
Account an amount determined in accordance with the
following schedule:
Years of Employment Matching %
------------------ ----------
Less than 3 100%
At least 3, but less than 5 150%
5 or more 200%
6
<PAGE>
5. The Employer matching contributions under 2, 3 or 4 above shall
be based on the Member's contributions not in excess of 8%
----
(1-20 but not in excess of the percentage specified in A.5.
above) of the Member's Salary.
D. Employer Basic Contributions (choose 1 or 2):
1. /x/ No Employer basic contributions will be made to the Plan.
2. / / The Employer shall allocate an amount equal to % (based
on 1% increments not to exceed 15%) of Member's Salary for
the month to (choose (a) or (b)):
(a) / / The Accounts of all Members
(b) / / The Accounts of all Members who were employed
with the Employer on the last day of such month.
E. Employer Supplemental Contributions:
The Employer may make supplemental contributions for any Plan Year in
accordance with Section 3.7 of the Plan.
F. Employer Profit Sharing Contributions (Choose 1, 2, 3, 4, or 5):
1. /x/ No Employer Profit Sharing Contributions will be made to
the Plan.
NON-INTEGRATED FORMULA
2. / / Profit sharing contributions shall be allocated to each
Member in the same ratio as each Member's Salary during
such Contribution Determination Period bears to the total
of such Salary of all Members.
3. / / Profit sharing contributions shall be allocated to each
Member in the same ratio as each Member's Salary for the
portion of the Contribution Determination Period during
which the Member satisfied the Employer's eligibility
requirement(s) bears to the total of such Salary of all
Members.
INTEGRATED FORMULA
4. / / Profit sharing contributions shall be allocated to each
Member's Account in a uniform percentage (specified by the
Employer as %) of each Member's Salary during the
Contribution Determination Period up to the Social Security
Taxable Wage Base as defined in Section of the Plan
("Base Salary") for the Plan Year that includes such
Contribution Determination Period , plus a uniform
percentage(specified by the Employer as %) of each
Member's Salary for the Contribution Determination Period
in excess of the Social Security Taxable Wage Base ("Excess
Salary") for the Plan Year that includes such Contribution
Determination Period, in accordance with Article III of the
Plan.
7
<PAGE>
5. / / Profit sharing contributions shall be allocated to each
Member's Account in a uniform percentage (specified by the
Employer as %) of each Member's Salary for the portion
of the Contribution Determination Period during which the
Member satisfied the Employer's eligibility requirement(s),
if any, up to the Base Salary for the Plan Year that
includes such Contribution Determination Period, plus a
uniform percentage (specified by the Employer as ____ %) of
each Member's Excess Salary for the portion of the
Contribution Determination Period during which the Member
satisfied the Employer's eligibility requirement(s) in
accordance with Article III of the Plan.
G. Allocation of Employer Profit Sharing Contributions:
In accordance with Section V, G above, a Member shall be eligible to
share in Employer Profit Sharing Contributions, if any, as follows
(choose 1 or 2):
1. / / A Member shall be eligible for an allocation of Employer
Profit Sharing Contributions for a Contribution
Determination Period in all events.
2. / / A Member shall be eligible for an allocation of Employer
Profit Sharing Contributions for a Contribution
Determination Period only if he or she (choose (a), (b) or
(c) whichever shall apply):
(a) / / is employed on the last day of the Contribution
Determination Period or retired, died or became
totally and permanently disabled prior to the last day
of the Contribution Determination Period.
(b) / / completed 1,000 Hours of Employment if the
Contribution Determination Period is a period of 12
months (250 Hours of Employment if the Contribution
Determination Period is a period of 3 months) or
retired, died or became totally and permanently
disabled prior to the last day of the Contribution
Determination Period.
(c) / / is employed on the last day of the Contribution
Determination Period and, if such period is 12 months,
completed 1,000 Hours of Employment (250 Hours of
Employment if the Contribution Determination Period is
a period of 3 months) or retired, died or became
totally and permanently disabled prior to the last day
of the Contribution Determination Period.
H. Employer Qualified Nonelective Contributions:
The Employer may make qualified nonelective contributions for any
Plan Year in accordance with Section 3.9 of the Plan.
8
<PAGE>
VI. INVESTMENT FUNDS
The Employer hereby selects the following Investment Funds to be made
available under the Plan (choose whichever shall apply). The Employer
agrees and acknowledges that the selection of Investment Funds made in
this Section VI is solely its responsibility, and no other person,
including the Sponsor, has any discretionary authority or control with
respect to such selection process.
1. /x/ 500 Stock Index Fund
2. /x/ Stable Value Fund
3. /x/ MidCap 400 Stock Index Fund
4. /x/ Government Money Market Fund
5. /x/ Bond Index Fund
6. /x/ Employer Stock Fund
VII. EMPLOYER SECURITIES
A. If the Employer makes available an Employer Stock Fund pursuant to
Section VI of this Adoption Agreement, then voting and tender offer
rights with respect to Employer Stock shall be delegated and
exercised as follows (choose 1 or 2):
1. / / The Plan Administrator shall direct the Trustee as to the
voting of all Employer Stock and as to all rights in the
event of a tender offer involving such Employer Stock.
2. /x/ Each Member shall be entitled to direct the Plan
Administrator as to the voting and tender offer rights
involving Employer Stock held in such Member's Account, and
the Plan Administrator shall follow or cause the Trustee
to follow such directions. If a Member fails to provide
the Plan Administrator with directions as to voting or
tender offer rights, the Plan Administrator shall exercise
those rights as it determines in its discretion and shall
direct the Trustee accordingly.
VIII. INVESTMENT DIRECTION
A. Members shall be entitled to designate what percentage of employee
contributions and employer contributions made on their behalf will be
invested in the various Investment Funds offered by the Employer as
specified in Section VI of this Adoption Agreement; provided,
however, that the following portions of a Member's Account must be
invested in the Employer Stock Fund (choose whichever shall apply):
9
<PAGE>
1. / / Employer Profit Sharing Contributions
2. / / Employer Matching Contributions
3. / / Employer Basic Contributions
4. / / Employer Supplemental Contributions
5. / / Employer Qualified Nonelective Contributions
6. /x/ No requirements
B. A Member may change his or her investment direction (choose 1 or 2):
1. / / 1 time per calendar month.
2. / / 1 time per calendar quarter.
3. /x/ No restrictions.
C. If a Member fails to make an effective investment direction, the
Member's contributions and Employer contributions made on the
Member's behalf shall be invested in GOVERNMENT MONEY MARKET FUND
(insert one of the Investment Funds selected in Section VI of this
Adoption Agreement).
IX. VESTING SCHEDULES; YEARS OF EMPLOYMENT FOR VESTING PURPOSES
A. (Choose 1, 2, 3, 4, 5, 6 or 7)
Schedule Years of Employment Vested %
--------- ------------------- --------
1. /x/ Immediate Upon Enrollment 100%
2. / / 2-6 Year Graded Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
3. / / 5-Year Cliff Less than 5 0%
5 or more 100%
4. / / 3-Year Cliff Less than 3 0%
3 or more 100%
5. / / 4-Year Graded Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
10
<PAGE>
Schedule Years of Employment Vested %
--------- ------------------- --------
6. / / 3-7 Year Graded Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
7. / / Other Less than ___ 0%
___ but less than ___ ____%
___ but less than ___ ____%
___ but less than ___ ____%
___ but less than ___ ____%
___ or more 100%
B. With respect to the schedules listed above, the Employer elects
(choose 1, 2, 3 and 4; or 5):
1. Schedule / / solely with respect to Employer matching
contributions.
2. Schedule / / solely with respect to Employer basic
contributions.
3. Schedule / / solely with respect to Employer supplemental
contributions.
4. Schedule / / solely with respect to Employer profit sharing
contributions.
5. Schedule /1/ with respect to all Employer contributions.
NOTE: Notwithstanding any election by the Employer to the
contrary, each Member shall acquire a 100% vested
interest in his Account attributable to all Employer
contributions made to the Plan upon the earlier of (i)
attainment of Normal Retirement Age, (ii) approval for
disability or (iii) death. In addition, a Member
shall at all times have a 100% vested interest in the
Employer Qualified Non-Elective Contributions, if any,
and in the pre-tax elective deferrals and
nondeductible after-tax Member Contributions.
C. Years of Employment Excluded for Vesting Purposes
The following Years of Employment shall be disregarded for vesting
purposes (choose whichever shall apply):
1. / / Years of Employment during any period in which neither the
Plan nor any predecessor plan was maintained by the
Employer.
2. / / Years of Employment of a Member prior to attaining age 18.
11
<PAGE>
X. WITHDRAWAL PROVISIONS
A. The following portions of a Member's Account will be eligible for in-
service withdrawals, subject to the provisions of Article VII of the
Plan (choose whichever shall apply):
1. / / Employee after-tax contributions and the earnings
thereon.
2. / / Employee pre-tax elective deferrals and the earnings
thereon.
3. / / Employee rollover contributions and the earnings thereon.
4. / / Employer matching contributions and the earnings thereon.
5. / / Employer basic contributions and the earnings thereon.
6. / / Employer supplemental contributions and the earnings
thereon.
7. / / Employer profit sharing contributions and the earnings
thereon.
8. / / Employer qualified nonelective contributions and earnings
thereon.
9. /x/ In-service withdrawals permitted only in the event of
(choose (a) and/or (b)):
(a) /x/ Hardship.
(b) / / Attainment of age 59 1/2.
10./ / No in-service withdrawals shall be allowed.
B. Notwithstanding any elections made in Subsection A of this Section X
above, the following portions of a Member's Account shall be excluded
from eligibility for in-service withdrawals (choose whichever shall
apply):
1. / / Employer contributions, and the earnings thereon, credited
to the Employer Stock Fund.
2. /x/ All contributions and/or deferrals, and the earnings
thereon, credited to the Employer Stock Fund.
3. / / Other:____________________________________________
XI. DISTRIBUTION OPTION (CHOOSE 1 OR 2)
1. / / Lump Sum and partial lump sum payments only.
2. /x/ Lump Sum and partial lump sum payments plus one or more of
the following (choose (a) and /or (b)):
12
<PAGE>
(a) /x/ Installment payments.
(b) / / Annuity payments.
XII. LOAN PROGRAM (CHOOSE 1, 2 OR 3)
1. / / No loans will be permitted from the Plan.
2. /x/ Loans will be permitted from the Member's Account.
3. / / Loans will be permitted from the Member's Account,
excluding (choose whichever shall apply):
(a)/ / Employer Profit sharing contributions and the earnings
thereon.
(b)/ / Employer matching contributions and the earnings
thereon.
(c)/ / Employer basic contributions and the earnings thereon.
(d)/ / Employer supplemental contributions and the earnings
thereon.
(e)/ / Employee after-tax contributions and the earnings
thereon.
(f)/ / Employee pre-tax elective deferrals and the earnings
thereon.
(g)/ / Employee rollover contributions and the earnings
thereon.
(h)/ / Employer qualified nonelective contributions and the
earnings thereon.
(I)/ / Any amounts to the extent invested in the Employer
stock fund.
XIII. ADDITIONAL INFORMATION
If additional space is needed to select or describe an elective
feature of the Plan, the Employer should attach additional pages and
use the following format:
The following is hereby made a part of Section --- of the Adoption
Agreement and is thus incorporated into and made a part of the Home
Federal Savings Bank
Signature of Employer's Authorized Representative
_________________________________________________
Signature of Trustee
_________________________________________________
Supplementary Page -- of [total number of pages].
XIV. PLAN ADMINISTRATOR
The Named Plan Administrator under the Plan shall be the (choose
1, 2, 3 or 4):
Note: Pentegra Services, Inc. may not be appointed Plan
Administrator.
13
<PAGE>
1. /x/ Employer
2. / / Employer's Board of Directors
3. / / Plan's Administrative Committee
4. / / Other (if chosen, then provide the following information)
Name:_______________________________________
Address:____________________________________
Tel No.:____________________________________
Contact:____________________________________
NOTE: IF NO NAMED PLAN ADMINISTRATOR IS DESIGNATED ABOVE, THE
EMPLOYER SHALL BE DEEMED THE NAMED PLAN ADMINISTRATOR.
XV. TRUSTEE
The Employer hereby appoints the following person or entity to serve
as Trustee under the Plan:
Name: Mellon Bank, NA
----------------
Address: 1 Mellon Bank Center, Pittsburgh, PA 15258
------------------------------------------
Tel No:
------------------
Contact: Allen Murray
-------------
The person or entity named above hereby accepts the appointment as Trustee of
the trust created as part of the Plan and agrees to be bound by the terms and
conditions of the Plan.
MELLON TRUST
Dated: August 1, 1996 By: /s/ Robert D. Alin
-------------- ----------------------
Name: Robert D. Alin
Title: Senior Vice President-
Legal & Secretary
14
<PAGE>
EXECUTION OF ADOPTION AGREEMENT
By execution of this Adoption Agreement by a duly authorized representative of
the Employer, the Employer acknowledges that it has established or, as the case
may be, amended a tax-qualified retirement plan into the HOME FEDERAL SAVINGS
BANK Employees' Savings & Profit Sharing Plan and Trust (the "Plan"). The
Employer hereby represents and agrees that it will assume full fiduciary
responsibility for the operation of the Plan and for complying with all duties
and requirements imposed under applicable law, including, but not limited to,
the Employee Retirement Income Security Act of 1974, as amended, and the
Internal Revenue Code of 1986, as amended. In addition, the Employer
represents and agrees that it will accept full responsibility of complying with
any applicable requirements of federal or state securities law as such laws may
apply to the Plan and to any investments thereunder. The Employer further
acknowledges that any opinion letter issued with respect to the Adoption
Agreement and the Agreement by the Internal Revenue Service ("IRS") to Pentegra
Services, Inc., as sponsor of the Employees' Savings & Profit Sharing Plan,
does not constitute a ruling or a determination with respect to the tax-
qualified status of the Plan and that the appropriate application must be
submitted to the IRS in order to obtain such a ruling or determination with
respect to the Plan.
THE FAILURE TO PROPERLY COMPLETE THE ADOPTION AGREEMENT MAY RESULT IN
DISQUALIFICATION OF THE PLAN AND TRUST EVIDENCED THEREBY.
The Sponsor will inform the Employer of any amendments to the Plan or Trust
Agreement or of the discontinuance or abandonment of the Plan or Trust.
Any inquiries regarding the adoption of the Plan should be directed to the
Sponsor as follows:
Pentegra Services, Inc.
108 Corporate Park Drive
White Plains, New York 10604
(914) 694-1300
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed by its duly authorized officer this 17th day of June ,
----- -------
19 96 .
---
HOME FEDERAL SAVINGS BANK
By: /s/ Roger P. Weise
---------------------
Name: Roger P. Weise
---------------------
Title: President and CEO
---------------------
15
<PAGE>
Exhibit 5f
Service Agreement for Home Federal Savings Bank
Employee Stock Ownership Plan
25
<PAGE>
SERVICE AGREEMENT
FOR
HOME FEDERAL SAVINGS BANK
EMPLOYEES' STOCK OWNERSHIP PLAN
<PAGE>
THIS AGREEMENT made as of June 17 , 199 6 by and between Pentegra
-------- ----
Services, Inc. ("Pentegra") and Home Federal Savings Bank (the
-------------------------
"Employer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employer sponsors the HOME FEDERAL SAVINGS BANK
--------------------------
Employees' Stock Ownership Plan and the related Trust Agreement
(collectively the "Plan"); and
WHEREAS, the Employer desires to contract with Pentegra to provide certain
administrative services.
NOW, THEREFORE, Pentegra, and the Employer agree as follows:
STANDARD SERVICES
Pentegra will provide the following services*:
- -Administrative manual and the forms and descriptive materials you will need to
ease administration of your Plan.
- -Participant and transaction recordkeeping.
- -Contribution and share allocation processing.
- -Earnings allocations.
- -Annual participant benefit statements.
- -Calculation of distributions and tax data for Trustee.
- -Compliance testing for ESOP and other qualified plans administered by
Pentegra.
- -Toll-free telephone support from designated Account Representative.
- -Assistance with annual government reporting requirements.
OPTIONAL SERVICES
Pentegra can also provide for additional elective services, such as the
following:
- -Preparation of IRS Form(s) 5300, 5500 and/or 5500-C/R.
- -Combined compliance testing for all IRS Qualified plans.
- -Legislative and administrative consulting.
* PLEASE NOTE: IN THIS AGREEMENT, THE TERMS "YOU" AND "YOUR" MEAN THE
EMPLOYER. "WE", "US" OR "OUR" MEANS PENTEGRA SERVICES, INC.
1
<PAGE>
STANDARD FEES
The employer-paid administration fee of $1,000 plus $10 per eligible employee
covers all of the standard services described above. Any special service
requests related to your specific Plan not listed as STANDARD will be priced in
accordance with the optional services fees schedule.
OPTIONAL SERVICE FEES
Fees for optional services you elect will be billed at the rate in effect at
the time the service is contracted for. An employer may contract at a later
date for any optional services.
CONVERSION SERVICE FEES
Where Pentegra is being retained to assume the recordkeeping for an existing
ESOP, there will also be a one-time fee for plan set-up and conversion. The
fees for this service are based on the following schedule:
$25.00 per participant, with a minimum fee of $500.00 and a maximum fee of
$2,000.00.
PAYMENT METHODS
Payment of the fees for services selected shall be paid directly by you.
This Agreement will be effective as of the later of: (I) the date executed
below, or (ii) upon receipt in our Office, unless you are otherwise notified
within 60 days after our receipt that the Agreement is not acceptable.
PLEASE NOTE:
1. SERVICES NOT REFLECTED IN THIS AGREEMENT MAY BE PROVIDED UPON MUTUAL
CONSENT BETWEEN PENTEGRA AND THE EMPLOYER. THE SERVICES PROVIDED IN
ACCORDANCE WITH THIS AGREEMENT AND THE FEES AND EXPENSES ASSOCIATED
THEREWITH CAN BE MODIFIED OR TERMINATED UPON 60 DAYS WRITTEN NOTICE FROM
PENTEGRA TO THE EMPLOYER.
2. Pentegras' agreement to provide the services described herein is based on
the Employer's adoption of the Service Agreement. We shall be entitled to
rely upon the information provided by the Employer in the interpretation
of the Plan. The Employer agrees to indemnify and hold Pentegra, the
Financial Institutions Retirement Fund ("FIRF") and any director, officer
or employee of either such entity harmless from any damages, liabilities
or losses of whatever kind which result from or arise in connection with
any inaccurate or incorrect information provided to us or any other action
for which the Employer is responsible.
3. The Employer acknowledges that neither Pentegra nor any director, officer
or employee thereof provides legal or tax advice to the Employer, any
affiliate of the Employer, or any employee thereof. Pentegra advises the
Employer to obtain its own legal or tax counsel for advice on the Plan
design and specifications appropriate for its situation as well as on
legal or tax issues which may arise during the operation of the Plan. The
Employer acknowledges that it is solely responsible for certain functions
under the Plan, including, but not limited to:
2
<PAGE>
a) INFORMATION. The Employer shall be responsible for providing to
Pentegra, on a timely basis, all member enrollment information and
such other information relating to member accounts as Pentegra may
require, including any amendments made to such information by a
member.
b) INTERPRETATION OF THE PLAN. The Employer shall be responsible
generally for resolving questions relating to any interpretation of
the Plan's terms and conditions.
c) PARTICIPANT CLAIMS. The Employer shall be responsible for handling
claims of members relating to the Plan and their accounts established
thereunder.
d) PLAN QUALIFICATION. The Employer shall be responsible for
maintaining the qualification of the Plan, both in its terms and
conditions and in its operation pursuant to the Code, the Employee
Retirement Income Security Act of 1974 ("ERISA") and all other
applicable Federal or state laws.
e) INVESTMENT DECISIONS. The Employer is responsible for monitoring
the Investments in the Trust and for complying with any and all
applicable federal and/or state securities laws.
4. If Pentegra is taking over recordkeeping from a prior plan administration
firm, we are not responsible for losses resulting from a prior firm's
administration, or which are incurred as a result of actions or decisions
which were undertaken or made by the prior firm. Pentegra is under no
obligation to review prior plan administration work or related tax
filings. Where we are retained to provide services during a Plan Year, we
shall not be required to verify the accuracy or correctness of work
performed in the prior portion of the Plan Year. The Employer agrees to
indemnify and hold Pentegra, FIRF and any director, officer or employee of
either such entity harmless from any and all liabilities, losses or
damages which are the result of or which may arise in connection with any
plan administration work performed prior to its retention.
This Agreement may be mutually terminated on the date which is the first day of
the month immediately following 60 days after receipt of a written notice of
termination of the Agreement from either party.
PENTEGRA SERVICES, INC. HOME FEDERAL SAVINGS BANK
By: /s/ Robert D. Alin By: /s/ Roger P. Weise
- ------------------------ ------------------------
Name: Robert D. Alin Name: Roger P. Weise
Title: Senior Vice President Title: President & CEO
-Legal & Secretary
Date of Execution: August 1, 1996 Date of Execution: June 17, 1996
-------------- --------------
3
<PAGE>
Exhibit 11
Computation of Earnings Per Common Share
26
<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
HMN Financial, Inc.
Computation of Earnings Per Common Share
(Unaudited)
<TABLE>
<CAPTION>
Computation of Earnings Per
Common Share for Statements
of Operations: Three Months Ended
June 30,
1996 1995
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Net income $ 1,533,084 1,405,472
---------- ----------
Weighted average number of common
share and common share equivalents:
Weighted average common shares
outstanding 4,524,242 5,234,242
Dilutive effect of stock option
plans after application of
treasury stock method 56,550
--------- ----------
4,580,792 5,234,242
--------- ----------
Earnings per common share and
common share equivalents $ 0.34 0.27
========= ==========
Computation of Fully Diluted Earnings Per
Common Share and Common Share Equivalent<F1>
- -----------------------------------------
Net income $ 1,533,084 1,405,472
--------- ----------
Weighted average number of common share
and common share equivalents:
Weighted average common shares
outstanding 4,524,242 5,234,242
Dilutive effect of stock option plans
after application of treasury
stock method 76,734
--------- ---------
4,600,976 5,234,242
--------- ---------
Earnings per common share and
common share equivalents $ 0.33 0.27
========= =========
<CAPTION>
Computation of Earnings Per Six Months Ended
Common Share for Statements June 30,
of Operations: 1996 1995
- --------------------------------------- ---------- ---------
<S> <C> <C>
Net income 3,119,775 2,768,897
---------- ----------
Weighted average number of common
share and common share equivalents:
Weighted average common shares
outstanding 4,621,008 5,348,554
Dilutive effect of stock option plans
after application of treasury
stock method 52,498
---------- ----------
4,673,506 5,348,554
---------- ----------
Earnings per common share and
common share equivalents 0.67 0.52
========== ==========
Computation of Fully Diluted Earnings Per
Common Share and Common Share Equivalent<F1>
- ----------------------------------------
Net income 3,119,775 2,768,897
--------- ---------
Weighted average number of common share
and common share equivalents:
Weighted average common shares
outstanding 4,621,008 5,348,554
Dilutive effect of stock option plans
after application of treasury
stock method 76,734
--------- ---------
4,697,742 5,348,554
--------- ---------
Earnings per common share and
common share equivalents 0.66 0.52
========= =========
<FN>
<F1> This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 of paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</FN>
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND DECEMBER 31, 1995 AND
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000921183
<NAME> HMN FINANCIAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 828
<INT-BEARING-DEPOSITS> 5115
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189147
<INVESTMENTS-CARRYING> 14834
<INVESTMENTS-MARKET> 14949
<LOANS> 333989
<ALLOWANCE> 2339
<TOTAL-ASSETS> 554979
<DEPOSITS> 363195
<SHORT-TERM> 64429
<LIABILITIES-OTHER> 3469
<LONG-TERM> 36624
0
0
<COMMON> 61
<OTHER-SE> 87202
<TOTAL-LIABILITIES-AND-EQUITY> 554979
<INTEREST-LOAN> 12548
<INTEREST-INVEST> 6887
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 19739
<INTEREST-DEPOSIT> 9539
<INTEREST-EXPENSE> 11829
<INTEREST-INCOME-NET> 7910
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 769
<EXPENSE-OTHER> 3967
<INCOME-PRETAX> 4980
<INCOME-PRE-EXTRAORDINARY> 3120
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3120
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
<YIELD-ACTUAL> 7.42
<LOANS-NON> 315
<LOANS-PAST> 0
<LOANS-TROUBLED> 35
<LOANS-PROBLEM> 189
<ALLOWANCE-OPEN> 2190
<CHARGE-OFFS> 1
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2339
<ALLOWANCE-DOMESTIC> 1305
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1034
</TABLE>
