<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
HMN FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
HMN FINANCIAL, INC.
101 NORTH BROADWAY
SPRING VALLEY, MINNESOTA 55975-0231
(507) 346-1100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1998
Notice is hereby given that the Annual Meeting of Stockholders of HMN
Financial, Inc. (the "Company") will be held at the Best Western Apache Hotel,
located at 1517 S.W. 16th Street, Rochester, Minnesota, at 10:00 a.m., local
time, on April 28, 1998.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. the election of two directors of the Company;
2. an amendment to the Company's Certificate of Incorporation, increasing
the number of authorized shares of Common Stock from 7.0 million to 11.0
million;
3. the ratification of the appointment of KPMG Peat Marwick LLP as the
auditors of the Company for the fiscal year ending December 31, 1998; and
such other matters as may properly come before the Meeting, or any
adjournments or postponements thereof. As of the date of this Notice, the
Board of Directors is not aware of any other business to come before the
Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. Stockholders of record at the close of business on
April 1, 1998 are the stockholders entitled to receive notice of and to vote
at the Meeting and any adjournments or postponements thereof.
A complete list of stockholders entitled to vote at the Meeting is available
for examination by any stockholder, for any purpose germane to the Meeting,
between 9:00 a.m. and 5:00 p.m., at Home Federal Bank, 1110 6th Street NW,
Rochester, Minnesota 55901 for a period of ten days prior to the Meeting.
You are requested to complete and sign the enclosed WHITE Proxy Card, which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. If you attend the Meeting, you may vote either in person or
by your Proxy Card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROGER P. WEISE
Roger P. Weise
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Spring Valley, Minnesota
[ , 1998]
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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<PAGE>
HMN FINANCIAL, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1998
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of HMN Financial, Inc. (the "Company") of
proxies to be used at the Annual Meeting of Stockholders (the "Meeting"), which
will be held at the Best Western Apache Hotel, located at 1517 S.W. 16th Street,
Rochester, Minnesota, on April 28, 1998 at 10:00 a.m., local time, and any
adjournments or postponements of the Meeting. The accompanying Notice of Annual
Meeting and this Proxy Statement are first being mailed to stockholders on or
about [ , 1998].
At the Meeting, stockholders of the Company are being asked to consider and
vote upon the following:
1. the election of two directors of the Company;
2. an amendment to the Company's Certificate of Incorporation, increasing
the number of authorized shares of Common Stock from 7.0 million to 11.0
million;
3. the ratification of the appointment of KPMG Peat Marwick LLP as auditors
for the Company for the fiscal year ending December 31, 1998; and
such other matters as may properly come before the Meeting, or any
adjournments or postponements thereof. As of the date of this Notice, the
Board of Directors is not aware of any other business to come before the
Meeting.
Certain information provided herein relates to Home Federal Savings Bank
("Home Federal" or the "Bank"), a wholly-owned subsidiary of the Company.
VOTE REQUIRED AND PROXY INFORMATION
All shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies, duly
returned to the Secretary of the Company prior to or at the Meeting, and not
revoked, will be voted at the Meeting in accordance with the instructions
specified on the proxies. If no instructions are indicated, properly executed
proxies will be voted for the proposals set forth in this Proxy Statement. As of
the date of this Proxy Statement, the Board of Directors of the Company does not
know of any matters, other than those described in the Notice of Annual Meeting
and this Proxy Statement, that are to come before the Meeting. If any other
matters are properly presented at the Meeting for action, the persons named in
the enclosed form of proxy and acting thereunder will have the discretion to
vote on such matters in accordance with their best judgment.
Provided a quorum is present at the Meeting, (i) directors shall be elected
by a plurality of the votes cast at the Meeting; (ii) the affirmative vote of
the holders of a majority of the shares of Common Stock outstanding and entitled
to vote shall be required to approve the proposed amendment to the Company's
Certificate of Incorporation; and (iii) a majority of the votes cast shall be
the act of the stockholders with respect to all other matters considered at the
Meeting. Proxies marked to abstain with respect to the proposed amendment to the
Company's Certificate of Incorporation have the same effect as votes against
such proposal. Broker non-votes are not considered as votes for or against a
proposal, but will have the same effect as a vote against the proposal to amend
the Company's Certificate of Incorporation.
A majority of the shares of the Common Stock of the Company outstanding
and entitled to vote shall constitute a quorum for purposes of the Meeting.
Abstentions and broker non-votes are counted for purposes of determining a
quorum at the Meeting. If a quorum is not present at the Meeting, the
stockholders present, by vote
<PAGE>
of a majority of the votes cast by stockholders present in person or
represented by proxy and entitled to vote, may adjourn the Meeting, and at
any such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the Meeting as originally
called.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with Roxanne M.
Hellickson, the Secretary of the Company, at or before the Meeting a written
notice of revocation bearing a later date than the proxy or (ii) duly executing
a proxy dated a later date than the earlier proxy and relating to the same
shares and delivering it to the Secretary of the Company at or before the
Meeting.
VOTING SECURITIES AND SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
The Common Stock of the Company is the only authorized and outstanding
voting security of the Company. Stockholders of record as of the close of
business on April 1, 1998 will be entitled to one vote for each share of Common
Stock then held. As of that date, the Company had 4,144,368 shares of Common
Stock issued and outstanding. The number of issued and outstanding shares
excludes 1,941,407 shares held in the treasury of the Company. The following
table sets forth information, based on filings with the Securities and Exchange
Commission as of March 3, 1998 or known to the Company, regarding share
ownership of: (i) those persons or entities known by management to beneficially
own more than five percent of the Common Stock, (ii) the Company's Chief
Executive Officer and each executive officer who made in excess of $100,000
during 1997 (the "Named Officers"), and (iii) all directors, director nominees
and executive officers of the Company as a group. Unless otherwise indicated in
the footnotes to this table, the listed beneficial owner has sole voting power
and investment power with respect to the shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY
OWNED AT MARCH 3, PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER 1998 CLASS
- ------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
PRINCIPAL OWNERS
HMN Financial, Inc. Employee Stock Ownership Plan ................................... 642,790 15.5%
101 North Broadway
Spring Valley, Minnesota 55975-0231(1)
LaSalle Financial Partners Limited Partnership ...................................... 403,600 9.7
259 E. Michigan Avenue, Suite 405
Kalamazoo, Michigan 49007(2)
Heartland Advisors, Inc. ............................................................ 283,500 6.8
790 North Milwaukee Street
Milwaukee, Wisconsin 53202(3)
NAMED OFFICERS, DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS AS A GROUP
Roger P. Weise, Chairman, President and Chief Executive Officer(4)................... 90,596 2.2
James B. Gardner, Executive Vice President and Chief Financial Officer(5)............ 60,418 1.4
Directors, director nominees and executive officers of the Company and the Bank as a 285,288 6.7
group (10 persons)(6)..............................................................
</TABLE>
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-2-
<PAGE>
* Less than 1%
(1) The amount reported represents shares of Common Stock held by the HMN
Financial, Inc. Employee Stock Ownership Plan (the "ESOP"), 153,149 of which
have been allocated to accounts of participants. First Bankers Trust
Company, Quincy, Illinois, the trustee of the ESOP, may be deemed to
beneficially own the shares of Common Stock held by the ESOP. First Bankers
Trust expressly disclaims beneficial ownership of such shares. Participants
in the ESOP are entitled to instruct the trustee as to the voting of shares
of Common Stock allocated to their accounts under the ESOP. Unallocated
shares or allocated shares for which no voting instructions are received are
voted by the trustee in the same proportion as allocated shares for which
instructions have been received from participants. The trustee also has
authority under the HMN Financial, Inc. 1995 Recognition and Retention Plan
to vote, in its sole discretion, 50,760 restricted shares of Common Stock.
The trustee has no dispositive power with respect to such shares.
(2) As reported on a Schedule 13D/A filed on January 31, 1998 by a group
consisting of LaSalle Financial Partners Limited Partnership ("LaSalle"),
Richard J. Nelson and Peter T. Kross.
(3) Heartland Advisors, Inc. ("Heartland") is an investment adviser. The amount
reported represents shares of Common Stock held in various advisory
accounts, including the Heartland Value Fund, Inc., a registered investment
company that holds more than 5% of the outstanding shares of Common Stock.
Heartland exercises sole voting and dispositive power with respect to all
the shares reported.
(4) Includes 17,400 shares of Common Stock held directly, 20,818 shares of
Common Stock held in a fiduciary capacity, 1,400 shares of Common Stock held
by Mr. Weise's spouse's IRA, 9,483 shares of Common Stock allocated to Mr.
Weise's account under the ESOP, 3,955 shares of Common Stock held under the
Bank's 401(k) Plan and 37,540 shares of Common Stock covered by options
which are currently exercisable or exercisable within 60 days of March 3,
1998.
(5) Includes 23,300 shares of Common Stock held directly, 2,500 shares of Common
Stock held by Mr. Gardner's spouse's IRA, 7,126 shares of Common Stock
allocated to Mr. Gardner's ESOP account, 2,540 shares of Common Stock held
under the Bank's 401(k) Plan and 24,952 shares of Common Stock covered by
options which are currently exercisable or exercisable within 60 days of
March 3, 1998.
(6) Includes shares of Common Stock held directly, as well as shares of Common
Stock held jointly with family members, shares of Common Stock held in
retirement accounts, shares of Common Stock held by such individuals in
their accounts under the Bank's 401(k) Plan, shares of Common Stock
allocated to the ESOP accounts of the group members, shares of Common Stock
held in a fiduciary capacity or by certain family members and shares covered
by options which are currently exercisable or exercisable within 60 days of
March 3, 1998, with respect to which shares the group members may be
deemed to have sole or shared voting and/or investment power.
-3-
<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides that the Company's Board
of Directors shall fix the number of directors from time to time. On March 23,
1994, the Board of Directors adopted a resolution fixing the current number of
members of the Board of Directors at six members. Each director of the Company
is also currently a director of the Bank. The Board of Directors is divided into
three classes, and directors of one class are elected each year to a term of
three years or until their respective successors shall have been elected and
shall qualify.
The following table sets forth certain information regarding the Company's
Board of Directors. It is intended that the proxies solicited on behalf of the
Board of Directors (other than proxies in which the vote is withheld as to one
or more nominees) will be voted at the Meeting for the election of the nominees
identified in the table. If any nominee is unable to serve, the shares of Common
Stock represented by all such proxies will be voted for the election of such
substitute as the Board of Directors may recommend. At this time, the Board of
Directors knows of no reason why either of the nominees, if elected, might be
unable to serve. Except as described herein, there are no arrangements or
understandings between any director or nominee and any other person pursuant to
which such director or nominee was selected.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
TERM BENEFICIALLY
DIRECTOR SCHEDULED OWNED AT PERCENT OF
NAME AGE POSITION(S) HELD SINCE(1) TO EXPIRE MARCH 3, 1998 CLASS
- -------------------------- --- ----------------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NOMINEES
M.F. Schumann............. 71 Director 1979 2001 19,286(2) *
Roger P. Weise............ 63 Chairman, President, Chief 1977 2001 90,596(3) 2.2%
Executive Officer and
Director
DIRECTORS CONTINUING IN OFFICE
James B. Gardner.......... 57 Executive Vice President, 1993 1999 60,418(4) 1.4
Chief Financial Officer and
Director
Timothy R. Geisler........ 46 Director 1996 1999 200 *
Duane D. Benson........... 52 Director 1997 2000 5,500(5) *
Irma R. Rathbun........... 66 Director 1988 2000 9,119(6) *
</TABLE>
- ------------------------
* Less than 1%
(1) Includes service as a director of the Bank.
(2) Includes 11,886 shares of Common Stock held directly and 6,086 shares of
Common Stock covered by options which are currently exercisable or
exercisable within 60 days of March 3, 1998. Also includes 3,600 shares of
Common Stock owned by Mr. Schumann's spouse and 1,900 shares owned by her
IRA, of which 5,500 shares Mr. Schumann disclaims beneficial ownership.
(3) Includes 17,400 shares of Common Stock held directly, 20,818 shares of
Common Stock held in a fiduciary capacity, 1,400 shares of Common Stock held
by Mr. Weise's spouse's IRA, 9,483 shares of Common Stock allocated to Mr.
Weise's account under the ESOP, 3,955 shares of Common Stock held under the
Bank's 401(k) Plan and 37,540 shares of Common Stock covered by options
which are currently exercisable or exercisable within 60 days of March 3,
1998.
(4) Includes 23,300 shares of Common Stock held directly, 2,500 shares of Common
Stock held by Mr. Gardner's spouse's IRA, 7,126 shares of Common Stock
allocated to Mr. Gardner's ESOP account, 2,540 shares of Common Stock held
under the Bank's 401(k) Plan and 24,952 shares of Common Stock covered by
options which are currently exercisable or exercisable within 60 days of
March 3, 1998.
(5) Includes 2,400 shares of Common Stock covered by options which are
currently exercisable or exercisable within 60 days of March 3, 1998.
-4-
<PAGE>
(6) Includes 2,692 shares of Common Stock held directly, 341 shares of Common
Stock held by Mrs. Rathbun's spouse's IRA and 6,086 shares of Common Stock
covered by options which are currently exercisable or exercisable within 60
days of March 3, 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEES
LISTED ABOVE.
The business experience of each director and director nominee is set forth
below. All directors, except Messrs. Benson and Geisler, and all officers of the
Company have held their positions with the Company since its incorporation in
March 1994. Mr. Geisler was elected to the Board of Directors in 1996 and Mr.
Benson was elected to the Board of Directors in 1997.
ROGER P. WEISE. Mr. Weise is Chairman, President and Chief Executive
Officer of the Company. Mr. Weise has served as President and Chief Executive
Officer of the Bank since 1989 and was elected Chairman in 1996. Mr. Weise began
his employment with the Bank in 1958.
M. F. SCHUMANN. Mr. Schumann has been a public accountant since 1945 and
currently works at the accounting firm of Schumann, Granahan, Hesse & Wilson,
Ltd., in Rochester, Minnesota, where prior to his semi-retirement in 1991, he
was a partner. During his career in public accounting, he has served as a
consultant to many corporations, including banks located in Minnesota and Iowa.
JAMES B. GARDNER. Mr. Gardner was appointed to his position as Executive
Vice President of the Company and the Bank in 1994 and 1993, respectively. Mr.
Gardner is also the Chief Financial Officer of the Company and the Bank. From
1989 to 1993, Mr. Gardner served as Secretary and Treasurer of the Bank. Mr.
Gardner joined the Bank in 1981 and served as the Bank's Treasurer and
Controller from 1985 to 1989.
TIMOTHY R. GEISLER. Mr. Geisler has been the tax manager for the Mayo
Foundation since 1986. Mr. Geisler has been a certified public accountant since
1976. The Mayo Foundation provides medical care and education in clinical
medicine and medical sciences and conducts medical research through hospitals
and clinics in Rochester, Minnesota; Jacksonville, Florida; Scottsdale, Arizona
and other cities in the United States.
DUANE D. BENSON. Mr. Benson has been the executive director of the
Minnesota Business Partnership, a non-profit foundation comprised of 105 member
companies, since September 1994. Mr. Benson's primary responsibilities include
the management of governmental and public affairs for that organization. Mr.
Benson served as a member of the Minnesota Legislature for 14 years prior to
assuming his duties at the Minnesota Business Partnership.
IRMA R. RATHBUN. Mrs. Rathbun served as the Bank's Vice President until her
retirement in 1988. Mrs. Rathbun began her career with the Bank in 1948.
On January 27, 1998, LaSalle Financial Partners, L.P. ("LaSalle"), who
has reported that it beneficially owns 9.7% of the outstanding Common Stock,
notified the Company that it intends to nominate Thomas A. Burton for
election to the Board of Directors at the Meeting. The holders of the WHITE
proxy solicited hereby do not intend (unless otherwise instructed) to vote
any shares for the election of any person other than the nominees of the
Company set forth above. For additional information regarding Mr. Burton
which was furnished to the Company by LaSalle, see Annex B attached hereto.
DIRECTORS EMERITUS
In 1996, the Board of Directors of the Company established a Directors
Emeritus program. Any retiring director who has served as a director of the
Company or the Bank for 12 or more years may be invited by the Board of
Directors to be a director emeritus. Directors emeritus are appointed annually,
and may not serve for more than five years. A director emeritus attends and
participates in regular meetings of the Board of Directors of the Company, but
may not vote. In consideration for serving as a director emeritus, such
individual is paid a fee equal
-5-
<PAGE>
to the fee they received during such individual's last year of service to the
Company or the Bank as a director (excluding any fees paid for serving on any
committee of the Board of Directors of the Company or the Bank). Since 1996,
Charles R. Reps and Robert B. Jahn have served as directors emeritus and
since 1997, Keith A. Hagen has served as a director emeritus.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
BOARD AND COMMITTEE MEETINGS OF THE COMPANY. Meetings of the Company's
Board of Directors are generally held on a monthly basis. The Board of Directors
of the Company held 12 meetings during the year ended December 31, 1997. No
incumbent director attended fewer than 92% of the total number of meetings held
by the Board of Directors and by all committees of the Board of Directors on
which such director served during the year.
The Board of Directors of the Company has standing Audit, Compensation,
Executive and Nominating Committees.
The Audit Committee of the Company reviews audit reports and related matters
to ensure effective compliance by the Company with internal policies and
procedures, including but not limited to (i) recommending to the Board of
Directors the independent public accountants to act as the Company's independent
auditors, (ii) discussing with representatives of management and the independent
auditors the scope and procedures used in auditing the records of the Company,
and (iii) reviewing the financial statements of the Company. Directors Benson,
Geisler, Rathbun and Schumann are members of this committee. The Audit Committee
met three times during 1997.
The Compensation Committee reviews and reports to the Board of Directors on
matters concerning compensation plans, the compensation of certain executives as
well as administration of the Company's 1995 Stock Option and Incentive Plan
(the "Stock Option Plan") and the 1995 Recognition and Retention Plan (the
"RRP"). The current members of the Compensation Committee are Directors Geisler,
Rathbun and Schumann. This committee met once during 1997.
The Executive Committee of the Company acts on issues arising between
regular Board of Directors' meetings. The Executive Committee possesses the
powers of the full Board of Directors of the Company between meetings of the
Company's Board of Directors. The Executive Committee is currently comprised of
Directors Gardner, Schumann and Weise. Directors Geisler and Rathbun serve as
alternates on this committee. The Executive Committee did not meet during 1997.
The entire Board of Directors acts as the Nominating Committee of the
Company and meets annually to nominate eligible persons to serve on the
Company's Board of Directors and on the Bank's Board of Directors. The
Company's By-laws require that directors have their primary domicile in a
county in which the Bank has a full-service branch. While the Board of
Directors will consider nominees recommended by stockholders, this committee
has not actively solicited such nominations. In January 1998, the Board of
Directors determined to nominate Messrs. Weise and Schumann for re-election
as directors of the Company. Pursuant to the Company's By-laws, nominations
by stockholders must generally be delivered in writing to the Secretary of
the Company at least 90 days before the date of the meeting. LaSalle provided
the Company with notice on January 27, 1998 of its intent to nominate Mr.
Burton for election to the Board of Directors.
BOARD AND COMMITTEE MEETINGS OF THE BANK. Meetings of the Bank's Board of
Directors have generally coincided with those of the Company. During the year
ended December 31, 1997, the Board of Directors of the Bank held 12 meetings. No
director attended fewer than 92% of the total meetings of the Board of Directors
of the Bank and committees on which such Board member served during this period.
The Board of Directors of the Bank has standing Asset Classification, Audit,
Executive, Investment/Asset-Liability, Loan, Merger and Acquisition and Salary
Administration Committees.
The Asset Classification Committee meets at least quarterly to review the
classification of all assets held by the Bank. The committee establishes the
loan loss reserves and prepares the asset classification report which is
-6-
<PAGE>
given to the Bank's Board of Directors on a quarterly basis. Members of the
committee are Director Gardner and Officers Dwain Jorgensen and George
Libera. This committee met four times in 1997.
The Audit Committee reviews audit reports of the Bank and related matters to
ensure effective compliance with regulations and internal policies and
procedures. This committee also approves the accounting firm selected by
management of the Bank to perform the Bank's annual audit and acts as the
liaison between the auditors and the Board of Directors of the Bank. Directors
Benson, Geisler, Rathbun and Schumann currently comprise this committee. This
committee met three times in 1997.
The Executive Committee meets on an as-needed basis to act on matters that
arise between regular meetings of the Board of Directors of the Bank. The
Executive Committee possesses the powers of the full Board of Directors of the
Bank between meetings of the Bank's Board of Directors. The current members of
the Executive Committee are Directors Gardner, Schumann and Weise. Directors
Geisler and Rathbun serve as alternates on this committee. This committee met
twice in 1997.
The Investment/Asset-Liability Committee consists of Directors Gardner and
Weise and Officers Timothy Johnson and Jorgensen. The committee meets at least
quarterly to discuss current and potential investments, to ensure that all
investment activities are consistent with the Bank's Board of Directors'
policies and to review short- and long-range asset and liability objectives of
the Bank. This committee met seven times in 1997.
The Loan Committee meets on an as-needed basis, but at least monthly, to
approve in advance all loans in excess of the FNMA and FHLMC conforming loan
amounts in accordance with the underwriting guidelines of the Bank, perform all
second reviews, and approve, deny or ratify exceptions to lending policies,
recommend changes in loan policies, and approve changes in loan products. The
Loan Committee consists of Directors Gardner and Weise and Officers Roxanne
Hellickson and Susan Kolling.
The Merger and Acquisition Committee meets at least quarterly to research,
review, and evaluate possible mergers and acquisitions. This committee
coordinates a merger and acquisition team when needed and makes all
presentations and recommendations to the Board of Directors. The members of this
committee are Directors Gardner and Weise and Officers Hellickson, Jorgensen,
Johnson and Kolling.
The Salary Administration Committee meets to review salaries and the
performance of officers and employees, and recommends compensation adjustments
and promotions. This committee is currently comprised of Directors Geisler,
Schumann and Weise. The Salary Administration Committee met twice during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Bank's Salary Administration Committee (which functions as
the Bank's compensation committee) was comprised of Directors Geisler, Schumann
and Weise. Mr. Weise is the President and Chief Executive Officer of the Company
and the Bank. No other interlocking relationship exists between the Company's
Board of Directors or Salary Administration Committee and the board of directors
or compensation committee of any other company.
DIRECTOR COMPENSATION
CASH COMPENSATION. Each non-employee member of the Board of Directors of
the Company is paid $300 per month. Non-employee directors of the Bank are paid
a fee of $600 per month and receive $100 for each regular or special meeting
attended. In addition, non-employee directors who are members of the Audit
Committee of the Company receive $100 per month. No fees are paid for being a
member of or attending any meetings of any other committee of the Company or the
Bank. The Company allows each member of the Board of Directors to elect to defer
receipt of his or her fees until January 30 of the calendar year immediately
following the date in which such member ceases to serve as a member of the Board
of Directors. The deferred fees earn interest at an interest rate equal to the
Bank's cost of funds on November 30 of each year. A director who is an officer
or employee of the Company or the Bank receives no separate compensation for
service as a director of the Company or the Bank.
-7-
<PAGE>
STOCK BENEFIT PLANS. The Stock Option Plan provides that upon election by
the stockholders of the Company to serve on the Board of Directors, each new
non-employee director will receive an option to purchase 12,000 shares of Common
Stock under the Stock Option Plan. In accordance with the terms of the RRP, each
new non-employee director is also granted a restricted stock award for 2,000
shares of Common Stock effective upon election to the Board of Directors. The
options and awards vest over a five-year period from the date of grant. Pursuant
to the terms of Mr. Geisler's employment with the Mayo Foundation, Mr. Geisler
declined to accept any award of options under the Stock Option Plan or
restricted stock under the RRP upon his election to the Board of Directors in
1996. A director who is an officer or employee of the Company or the Bank
receives no separate stock benefit grant or award for service as a director.
EXECUTIVE COMPENSATION
The Company has not paid any compensation to its executive officers since
its formation. The Company does not presently anticipate paying any compensation
to such persons until it becomes actively involved in the operation or
acquisition of businesses other than the Bank.
The following table sets forth the compensation paid or accrued by the Bank
during the fiscal years indicated for services rendered by the Named Officers.
No executive officers of the Bank other than Messrs. Weise and Gardner received
cash compensation in excess of $100,000 during 1997.
-8-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
AWARDS
---------------------- ------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARD(S) OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#)(3) ($)(4)
- ---------------------------------------------- --------- --------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger P. Weise ............................... 1997 165,300 150 -- -- 81,266
Chairman, President, Chief Executive Officer 1996 158,100 150 -- -- 47,848
and Director 1995 156,000 150 207,150 98,893 44,460
James B. Gardner ............................. 1997 120,600 150 -- -- 62,217
Executive Vice President, Chief Financial 1996 114,600 300 -- -- 37,685
Officer and Director 1995 112,500 150 138,100 62,379 34,249
</TABLE>
- ------------------------
(1) During 1997, 1996 and 1995, neither Mr. Weise nor Mr. Gardner received any
benefits or perquisites that, in the aggregate, exceeded 10% of his salary
and bonus or $50,000.
(2) Pursuant to the RRP, the Company granted to Messrs. Weise and Gardner 15,000
and 10,000 restricted shares of Common Stock, respectively, during 1995. The
market values of the restricted shares of Common Stock as of December 31,
1997 were $487,500 and $325,000 for Messrs. Weise and Gardner, respectively.
On every June 21 from 1998 through the year 2000, 3,000 of the shares of
Common Stock awarded to Mr. Weise will vest and 2,000 of the shares of
Common Stock awarded to Mr. Gardner will vest. Dividends, if any, will be
paid on the restricted shares following vesting of such shares.
(3) During 1995, the Company granted to Messrs. Weise and Gardner options to
purchase 98,893 and 62,379 shares of Common Stock, respectively, pursuant to
the Stock Option Plan at an exercise price of $13.81 per share. The option
price was equal to the market value per share of Common Stock on the date of
grant. Each option becomes exercisable with respect to one-fifth of the
shares of Common Stock covered thereby on each anniversary of the date of
grant.
(4) The amounts for 1995 represent the Bank's contribution of $2,030 and $2,250
to the accounts of Messrs. Weise and Gardner, respectively, under the Bank's
401(k) Plan and $41,200 and $30,688, the value of shares allocated to the
ESOP accounts of Messrs. Weise and Gardner, respectively, based upon a
market value of $16.00 per share of Common Stock on December 31, 1995. The
amounts for 1995 also include $1,230 and $1,311, the travel expenses paid by
the Bank for the spouses of Messrs. Weise and Gardner, respectively. The
amounts for 1996 represent contributions by the Bank in the amount of $2,312
and $2,092 to the accounts of Messrs. Weise and Gardner, respectively, under
the Bank's 401(k) Plan and $44,703 and $34,242, the value of shares of
Common Stock allocated to the ESOP accounts of Messrs. Weise and Gardner,
respectively, based upon a market value of $18.125 per share of Common Stock
on December 31, 1996. The amounts for 1996 also include $833 and $1,351, the
travel expenses paid by the Bank for the spouses of Messrs. Weise and
Gardner, respectively. The amounts for 1997 represent contributions by the
Bank in the amount of $2,375 to the accounts of both Messrs. Weise and
Gardner under the Bank's 401(k) Plan and $76,700 and $57,883, the value of
shares of Common Stock allocated to the ESOP accounts of Messrs. Weise and
Gardner, respectively, based upon a market value of $32.50 per share of
Common Stock on December 31, 1997. The amounts for 1997 also include $2,191
and $1,959, the travel expenses paid by the Bank for the spouses of Messrs.
Weise and Gardner, respectively.
-9-
<PAGE>
STOCK OPTIONS
No individual grants of stock options were made to the Named Officers during
1997.
The following table shows, as to the Named Officers, information concerning
stock options exercised and the value of options held by such persons at the end
of 1997.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
VALUE OPTIONS/SARS AT FISCAL AT FISCAL YEAR-END
SHARES ACQUIRED REALIZED YEAR-END (#)(2) ($)(3)
NAME ON EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ----------------- ------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Roger P. Weise.............. 2,018 25,383 37,540 59,335 701,623 1,108,971
James B. Gardner............ -- -- 24,952 37,427 466,353 699,511
</TABLE>
- ------------------------
(1) Represents market value of underlying securities on date of exercise less
the exercise price.
(2) Includes options exercisable within 60 days of fiscal year end.
Approximately 20% of the options vest on each anniversary of the date of
grant. All options were granted at fair market value and have a term of ten
years. Generally, all of the options will become fully exercisable upon
approval by the Company's stockholders of a merger, plan of exchange, sale
of substantially all of the Company's assets or plan of liquidation.
(3) Represents market value of underlying securities at year end of $32.50 per
share less the exercise price.
EMPLOYMENT AGREEMENTS
The Bank has entered into employment agreements with Messrs. Weise and
Gardner. These agreements are designed to assist the Bank in maintaining a
stable and competent management team. Each agreement has a three year term
which automatically extends on a daily basis unless either the Bank or the
applicable employee gives contrary written notice to the other party. The
Bank may terminate either agreement at any time. Each agreement also will
terminate upon death or disability of the employee or upon the occurrence of
certain events specified in the Office of Thrift Supervision regulations. In
addition, either employee may terminate his agreement upon 90 days' notice to
the Bank. In the event that either agreement is terminated by the Bank, other
than for cause or by reason of death or disability of the employee, the
employee will continue to receive his salary and the same insurance benefits
as he was receiving before the date of termination through the remaining term
of the agreement.
In the event the employee is terminated in connection with, or within 12
months after, a change of control or the employee voluntarily terminates his
employment in connection with, or within 12 months after, a change in control
that was opposed by the Bank's Board of Directors at any time within one year of
the change in control, the employment agreements provide for payment to the
employee of his salary for the remainder of the term of the agreement and an
additional payment of up to 299% of the employee's "base amount" of
compensation, as defined in Section 280G of the Internal Revenue Code of 1986,
as amended ("Section 280G"); provided, however, that the total amount payable in
the event of a change in control may not exceed three times the employee's
annual compensation or be non-deductible by the Bank for federal income tax
purposes pursuant to Section 280G. For the purposes of the employment
agreements, a "change in control" is defined as any event which would require
the filing of an application for acquisition of control or notice of change in
control pursuant to 12 C.F.R. Section 574.3. Such events may be triggered by,
among other things, an acquisition of more than 10% of the Company's Common
Stock under certain circumstances or the acquisition of proxies representing
more than 25% of the Company's
-10-
<PAGE>
Common Stock that would enable the acquiror to elect one-third or more of the
directors. Based on their current salaries, if the employment of Messrs.
Weise and Gardner had been terminated as of December 31, 1997 under
circumstances giving rise to severance pay as described above, such
individuals would have been entitled to receive maximum lump-sum cash
payments of approximately $454,000 and $314,000, respectively.
These employment agreements also provide, among other things, for
participation in an equitable manner in employee benefits applicable to
executive personnel. The agreements further provide that, for a period of one
year after termination of employment for any reason, the employee will not
manage, operate, or control any financial institution having an office within
ten miles of any office of the Bank.
BENEFIT PLANS
GENERAL. The Bank currently provides insurance benefits to its employees,
including health, life, accidental death and dismemberment and long-term
disability and major medical insurance, subject to certain deductibles and
copayments by employees, and offers participation in the Bank's 401(k) Savings
Plan.
PENSION PLAN. The Bank's employees are included in the Financial
Institutions Retirement Fund, a multi-employer comprehensive pension plan (the
"Pension Plan"). This non-contributory defined benefit retirement plan covers
all employees who have met minimum service requirements. Employees become 100%
vested in the Pension Plan after five years of eligible service (as defined in
the Pension Plan). The Bank's policy is to fund the maximum amount that can be
deducted for federal income tax purposes. No contribution was made to the
Pension Plan during 1997 because the Pension Plan was fully funded.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------------------
AVERAGE ANNUAL COMPENSATION 10 15 20 25 30 35 40
---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 40,000............................. $ 4,000 $ 6,000 $ 8,000 $ 10,000 $ 12,000 $ 14,000 $ 16,000
60,000............................. 6,000 9,000 12,000 15,000 18,000 21,000 24,000
80,000............................. 8,000 12,000 16,000 20,000 24,000 28,000 32,000
100,000............................. 10,000 15,000 20,000 25,000 30,000 35,000 40,000
120,000............................. 12,000 18,000 24,000 30,000 36,000 42,000 48,000
140,000............................. 14,000 21,000 28,000 35,000 42,000 49,000 56,000
160,000............................. 16,000 24,000 32,000 40,000 48,000 56,000 64,000
180,000............................. 18,000 27,000 36,000 45,000 54,000 63,000 72,000
</TABLE>
The above table illustrates annual pension benefits payable upon retirement,
which are not subject to offset for Social Security payments, based on various
levels of compensation and years of service and assuming payment in the form of
a straight-line annuity. Benefits payable under the Pension Plan are based upon
1% of the average cash remuneration for the highest five consecutive calendar
years multiplied by the number of years of service of the employee. At December
31, 1997, Messrs. Weise and Gardner had 38.5 and 15.5 years of credited service
under the Pension Plan, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN. The Company and the Bank have adopted the
ESOP, which invests primarily in the Company's Common Stock. The ESOP is
designed to qualify as a stock bonus plan under Section 401(a) of the Code and
also to meet the requirements of Section 4975(e)(7) of the Code and Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The ESOP was capitalized with a loan from the Company. The Bank
intends to make annual contributions to the ESOP in an amount to be determined
annually by the Board of Directors of the Bank, but not less than the amount
needed to pay any currently maturing obligations under loans made to the ESOP.
All employees of the Bank are eligible to participate in the ESOP after they
attain age 21 and complete one year of service in which they worked at least
1,000 hours. Employees will be credited for years of service to the Bank prior
to the adoption of the ESOP for participation and vesting purposes. The Bank's
annual contribution to the ESOP is allocated among participants on the basis of
compensation. Each participant's account
-11-
<PAGE>
will be credited with cash and shares of Common Stock based upon compensation
earned during the year with respect to which the contribution is made. Once a
participant has completed a total of five years of service, contributions
credited to participant's accounts are fully vested. ESOP participants are
entitled to receive distributions from their ESOP accounts only upon
termination of service. Distributions will be made in cash and in whole
shares of Common Stock. Fractional shares will be paid in cash. Participants
will not incur a tax liability until a distribution is made.
Participating employees are entitled to instruct the trustee of the ESOP as
to how to vote the shares of Common Stock held in their account. The trustee
will vote unallocated shares and allocated shares for which no instructions are
received, in the same proportion as those shares voted in connection with
participant's instructions. The trustee, who has dispositive power over the
shares in the Plan, is not affiliated with the Company or the Bank.
The ESOP may be amended by the Board of Directors of the Company, except
that no amendment may be made which would reduce the interest of any participant
in the ESOP trust fund or divert any of the assets of the ESOP trust fund to
purposes other than the benefit of participants or their beneficiaries.
Contributions to the ESOP on behalf of Messrs. Weise and Gardner are included in
the Summary Compensation Table.
STOCK OPTION PLAN. The Stock Option Plan provides for awards in the form
of stock options, stock appreciation rights ("SARs") and limited stock
appreciation rights ("Limited SARs"). Each award is granted on such terms and
conditions as the Compensation Committee may determine. As of December 31,
1997, options exercisable for 60,036 shares of Common Stock were available
for awards under the Stock Option Plan.
The terms of stock options granted under the Stock Option Plan may not
exceed ten years from the date of grant. Options may either qualify as incentive
stock options as defined under Section 422 of the Code or stock options not
intended to qualify as such. Subject to extensions in certain cases of death or
disability, an option generally will terminate upon the earlier of the
expiration of its term or three months from the date the holder ceases to
maintain continuous service (as defined in the Stock Option Plan) to the Company
or one of its affiliates. An option automatically terminates if a holder is
terminated for cause. The exercise price for the purchase of shares subject to a
stock option at the date of grant may not be less than 100% of the market value
of the shares covered by the option on such date.
Under the terms of the Stock Option Plan, SARs may be granted at any time,
whether or not the holder then holds stock options. SARs permit the holder to
receive the excess of the market value of the shares of Common Stock represented
by the SARs on the date exercised over the exercise price. If granted in tandem
with a stock option, the exercise of an SAR or stock option will reduce to that
extent the number of shares represented by the other. Limited SARs may only be
granted in connection with the grant of a stock option or SAR. The exercise of
one will reduce to that extent the number of shares represented by the others.
Limited SARs will be exercisable only for a limited period in the event of a
tender or exchange offer for shares of the Company's Common Stock.
Options, SARs, and Limited SARs are subject to adjustment in the event of
any merger, consolidation reorganization, recapitalization, stock dividend,
stock split or other change in the corporate structure of the Company. Certain
restrictions and other terms of options, SARs and Limited SARs are subject to
adjustment in the event of a change of control (as defined in the Stock Option
Plan) or offer for the Company.
The Stock Option Plan may be amended, suspended or terminated by the Board
of Directors of the Company, at any time, subject in certain circumstances to
prior approval of the stockholders. No such amendment, suspension or termination
may impair the rights of any holder of an option, SAR or Limited SAR granted
under the Stock Option Plan. Options granted under the Stock Option Plan to
Messrs. Weise and Gardner are included in the Summary Compensation Table.
THE RECOGNITION AND RETENTION PLAN. The Company has reserved 121,715 shares
of Common Stock for issuance under the terms of the RRP, of which 37,109 shares
are unallocated. The Company adopted the RRP as a method of providing key
officers and directors with a proprietary interest in the Company in a manner
designed to encourage such individuals to remain with the Company. Awards of
restricted shares pursuant to the terms of the
-12-
<PAGE>
RRP are subject to forfeiture if the recipient fails to remain in continuous
service (as defined in the RRP) as an employee, officer or director of the
Company or the Bank for a stipulated period. In the event of a recipient's
death or disability, such restrictions are waived. For Company directors, the
vesting of restricted shares awarded pursuant to the RRP is also subject to
the Bank meeting its fully phased-in capital requirements. Vested shares are
distributed to recipients as soon as practicable following the date on which
they are earned. The recipient of restricted stock has all of the rights of a
stockholder, including the right to receive dividends (following vesting) and
the right to vote the shares (following vesting). The holders may not,
however, sell, assign, transfer, pledge or otherwise encumber any of the
restricted stock during the restricted period. The restricted period will
lapse in the event a recipient is terminated at any time within 18 months of
a change in control (as defined in the RRP) of the Company.
The RRP may be amended, suspended or terminated by the Board of Directors
of the Company, at any time, subject in certain circumstances to prior
approval of the stockholders. No such amendment, suspension or termination
shall impair the rights of any recipient of restricted stock under the RRP.
Options granted under the RRP to Messrs. Weise and Gardner are included in
the Summary Compensation Table.
COMPENSATION COMMITTEE AND SALARY ADMINISTRATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
COMPENSATION POLICY. The Compensation Committee of the Company works with
the Salary Administration Committee of the Bank to recommend to the full Board
of Directors of each entity the compensation of all employees, including
executive officers and directors.
The Salary Administration Committee of the Bank has designed the
compensation and benefit plans for all employees, executive officers and
directors in order to attract and retain individuals who have the skills,
experience and work ethic to provide a coordinated work force that will
effectively and efficiently carry out the policies adopted by the Board of
Directors and to manage the Company and its subsidiaries to meet the Company's
mission, goals and objectives.
To determine the compensation and benefit plans for employees, executive
officers and directors, the Salary Administration Committee sets salary ranges
for every position and fees for the Board of Directors. It then reviews along
with the Compensation Committee of the Company (i) the financial performance of
the Bank over the most recently completed fiscal year (principally return on
assets, general and administrative expense, CAMELS rating, compliance rating and
quality of assets) compared to results at comparable companies within the
banking industry, and (ii) the responsibilities and performance of each
individual employee, executive officer and director and the compensation levels
of such personnel with the compensation of personnel with similar
responsibilities at other comparable companies within the banking industry. The
Compensation Committee and the Salary Administration Committee evaluate all
factors subjectively in the sense that they do not attempt to tie any factors to
a specific level of compensation. The Salary Administration Committee also
reviews salary ranges, health insurance plans and tax-qualified retirement
plans.
All employees and executive officers participate on an equal,
nondiscriminatory basis in the Bank's medical insurance plan, medical
reimbursement plan, child care plan, long-term disability plan and group life
insurance plan. The Bank also provides to all employees and executive officers
on a nondiscriminatory basis participation in the Pension Plan, a 401(k) Plan
and an ESOP. Nondiscretionary cash bonuses (up to a maximum of $150) are awarded
annually to all employees based upon years of service, with an additional
nondiscretionary cash bonus awarded to employees every five years of service. To
date the Company has not paid any discretionary bonus awards to its executive
officers.
The Salary Administration Committee of the Bank recommends all compensation
and benefit plans to the full Board for the Board's approval. Although President
Weise was a member of the Salary Administration Committee of the Bank during
1997, Mr. Weise did not participate in discussions related to his compensation
at either the committee or Board of Directors levels.
STOCK OPTION PLAN AND RESTRICTED STOCK AWARD PLAN. The Stock Option Plan
and the RRP were designed to reward Board members and executive officers for the
future long term performance of the Company, based on
-13-
<PAGE>
the responsibilities of the Board and of the executive officers and other
senior managers to manage the Bank and the Company. The Salary Administration
Committee has not recommended and the Compensation Committee has not made any
awards to executive officers under either plan since 1995 because both
committees believe that the 1995 awards provide adequate incentive to such
employees.
REPORT ON EXECUTIVE OFFICER COMPENSATION. As discussed above, the Salary
Administration Committee of the Bank and the Compensation Committee of the
Company establish the salary ranges to be paid for every position. The Chief
Executive Officer's compensation is based on the same factors as those
applied to all employees and executive officers. There are no special
programs designed especially for the Chief Executive Officer. As shown in the
table set forth under "Security Ownership of Principal Stockholders and
Management" above, the Chief Executive Officer holds a significant interest
in the Company's Common Stock. It is the philosophy of the Compensation
Committee that the financial rewards and incentives for the Chief Executive
Officer should come in large part from increases in the value of the
Company's Common Stock. Consistent with that philosophy, the Compensation
Committee set the salary of the Chief Executive Officer for 1997 at
approximately the same level as 1996. The bonus paid to the Chief Executive
Officer was paid under the Company's general employee bonus program. The
other compensation paid to the Chief Executive Officer was pursuant to the
terms of plans generally applicable to all other employees.
THE COMPENSATION COMMITTEE
TIMOTHY R. GEISLER IRMA R. RATHBUN M.F. SCHUMANN
AND
THE SALARY ADMINISTRATION COMMITTEE
TIMOTHY R. GEISLER M.F. SCHUMANN ROGER P. WEISE
-14-
<PAGE>
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The following graph compares the cumulative total stockholder return on the
Company's Common Stock to the Nasdaq U.S. Stock Index ("Nasdaq-U.S."), which
includes all Nasdaq traded stocks of U.S. companies, and the SNL Securities
Midwest Asset Size Index (the "Peer Index"), which includes publicly traded
financial institutions located in selected Midwestern states with assets of $500
million to $1 billion, for the period of June 29, 1994 through December 31,
1997. The graph assumes that $100 was invested on June 29, 1994 and that all
dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[GRAPHIC OMITTED - information from the omitted line chart is presented in the
table below]
<TABLE>
<CAPTION>
PERIOD ENDING
-------------
INDEX 6/29/94 12/31/94 12/31/95 12/31/96 12/31/97
----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HMN Financial, Inc. 100.00 87.38 124.27 140.78 252.43
Nasdaq - Total US 100.00 107.04 151.39 186.20 228.49
HMN Peer Group 100.00 100.12 139.95 163.96 273.15
</TABLE>
The HMN Peer Group consists of all publicly traded thrifts with total assets
between $500 million and $1 billion located in the states of Illinois, Indiana,
Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota,
Ohio, South Dakota and Wisconsin. Last year the HMN Peer Group included publicly
traded thrifts located in the same states that had total assets between $250
million and $500 million. The change is a result of the growth in the Company's
assets to approximately $700 million, primarily as a result of the acquisition
of Marshalltown Savings Bank.
CERTAIN TRANSACTIONS
The Bank follows a policy of granting loans to eligible directors,
officers, employees and members of their immediate families for the financing
of their personal residences and for consumer purposes. Historically, the
Bank has made residential mortgage and consumer loans to nonexecutive
officers and other employees utilizing an employee rate that was generally 1%
below the then current rate offered to the general public. Prior to 1997
Regulation O required that all loans to directors, executive officers and
members of their families be made in the ordinary course of business and on
the same terms, including collateral and interest rates, as those prevailing
at the time for comparable transactions and that the loans not involve more
than the normal risk of collectibility at the time of origination. As a
result of changes in Regulation O the Board of Directors changed its loan
policy during 1997 to allow directors and executive officers to obtain loans
at the employee rate. At December 31, 1997, the Bank's loan to directors,
officers, and employees totaled approximately $4.8 million or 5.7% of
stockholders' equity. All of these loans were current at December 31, 1997.
Of the $4.8 million in loans to directors, officers and employees, $752,000
represents loans to directors and executive officers that (a) were made in
the ordinary course of business, (b) were made on substantially the same
terms, including collateral, as those prevailing at the time for comparable
transactions with other persons, except for the employee interest rate, and
(c) did not involve more than the normal risk of collectibility or other
unfavorable features.
-15-
<PAGE>
PROPOSAL II--INCREASE IN THE NUMBER OF
AUTHORIZED SHARES OF CAPITAL AND COMMON STOCK
The Board of Directors proposes an amendment to the Company's Certificate of
Incorporation to increase the total number of shares of Common Stock authorized
for issuance from 7.0 million to 11.0 million. This amendment will increase the
total number of shares of authorized capital from 7.5 million to 11.5 million
shares. The amendment is being proposed in connection with a planned three-
for-two split of the Company's Common Stock in the form of a one-for-two stock
dividend.
Paragraph A of Article Fourth of the Company's Certificate of Incorporation
currently authorizes the issuance of 7.5 million shares of capital stock,
consisting of five hundred thousand shares of Preferred Stock and 7.0 million
shares of Common Stock. No recommendation is being made to increase the
authorized Preferred Stock beyond the five hundred thousand shares currently
authorized. As of April 1, 1998, the Company had 4,144,368 shares of Common
Stock issued and outstanding, 1,941,407 shares held in treasury, 631,945 shares
reserved for issuance upon the exercise and award of options and future awards
under the RRP, and 282,280 remaining authorized but unissued shares.
The Board of Directors believes that the proposed stock split will benefit
the Company by increasing the number of shares available for public trading and
lowering the market price of the Company's Common Stock, increasing liquidity
and serving to broaden investor interest in owning the Company's Common Stock.
Besides the additional number of shares required to effect the stock split, the
Board of Directors considers it desirable to have additional authorized shares
of Common Stock available to the Company for possible future stock offerings,
acquisitions, and stock option grants, although currently the Board of Directors
is not considering any such plans.
Because the proposed stock split will require the issuance of a greater
number of shares of Common Stock than are presently authorized but unissued or
not reserved for future issuance, it is necessary to increase the number of
authorized shares of Common Stock. The Board of Directors believes that an
increase in the total authorized number of shares of capital stock to 11.5
million, consisting of 11.0 million shares of Common Stock, is desirable in
order to effect the stock split and to ensure that the Company has a sufficient
number of additional shares available for issuance from time to time in
connection with its business activities.
Although the proposed stock split will increase the number of outstanding
shares of Common Stock by fifty percent, each stockholder of the Company will
hold immediately after the distribution of the dividend the same percentage
interest in the Company as he or she held immediately before the dividend,
disregarding any fractional interests. Each share of Common Stock outstanding
after the dividend will continue to have one vote.
To accomplish this proposed increase in the authorized number of shares of
the Company's Common Stock, Paragraph A of Article Fourth of the Company's
Certificate of Incorporation is proposed to be amended in its entirety to read
as follows:
FOURTH:
A. The total number of shares of all classes of stock that the
Company shall have authority to issue is 11.5 million
consisting of:
1. Five hundred thousand shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock"); and
2. Eleven million shares of Common Stock, $.01 par value per
share (the "Common Stock").
The proposed amendment to the Company's Certificate of Incorporation, if
approved by the stockholders, will become effective upon the effectiveness of a
Certificate of Amendment filed with the Delaware Secretary of
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<PAGE>
State. If approved by the Company's stockholders, it is expected that this
filing will be made as soon as practicable after the Meeting.
If the amendment is approved by the stockholders, the Board plans on setting
an appropriate record date and distribution date at its meeting to be held
immediately following the Meeting. Record holders of Common Stock on the record
date would receive on the distribution date an additional stock certificate
representing one share of Common Stock for each two shares held as of the record
date. For example, if a stockholder owns 100 shares of Company Common Stock, the
Company will issue to that stockholder an additional certificate for 50 shares
of Common Stock. The stock split will result in a proportional increase in the
number of shares subject to outstanding options, in the number of shares subject
to the Company's Stock Option Plan, RRP and Employee Stock Ownership Plan and in
the number of shares held in the treasury of the Company.
No fractional shares of Common Stock will be issued by the Company in
connection with the stock split. Instead, the Company will pay to any
stockholder entitled to a fractional share cash in an amount equal to the
applicable fraction times the closing price per share as reported on the Nasdaq
National Market on the record date, as adjusted for the stock dividend.
The Company intends to apply to the Nasdaq National Market to list thereon
the additional shares of Common Stock that will be outstanding as a result of
the proposed stock split. The additional shares of Common Stock authorized in
connection with the amendment will be available for issuance without further
action by the stockholders, unless such action is required by applicable law or
the rules of the Nasdaq National Market or any other stock exchange on which the
Company's securities may then be listed. Other than the proposed stock split, at
the date of this Proxy Statement the Company has no agreements, commitments or
plans with respect to the sale or issuance of the additional shares of Common
Stock that will become available for issuance if the proposed amendment is
adopted.
Adoption of the proposed amendment requires the affirmative vote of the
holders of a majority of the Company's outstanding shares of Common Stock. THE
BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT IS IN THE BEST INTEREST
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ADOPTION.
III--RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed KPMG Peat Marwick LLP,
independent accountants, to be the Company's auditors for the fiscal year ending
December 31, 1998. KPMG Peat Marwick LLP has audited the financial statements of
the Company since 1966. Representatives of KPMG Peat Marwick LLP are expected to
attend the Meeting to respond to appropriate questions and to make a statement
if they so desire.
If the stockholders do not ratify the appointment of KPMG Peat Marwick LLP,
the Board of Directors will review the appointment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's main office located at 101
North Broadway, Spring Valley, Minnesota 55975-0231, no later than November
[26], 1998. Any such proposal shall be subject to the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934, as amended.
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<PAGE>
CERTAIN INFORMATION CONCERNING PARTICIPANTS
The directors of the Company and the Company's nominees for director, and
certain officers and employees of the Company and its subsidiaries are
participants in the solicitation of proxies on behalf of the Company's Board of
Directors. Certain information with respect to such participants is set forth in
Appendix A hereto.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Directors and executive officers are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's directors and executive
officers, all Section 16(a) filing requirements were met for the year ended
December 31, 1997.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
The Company anticipates furnishing its Annual Report, including financial
statements, for the year ended December 31, 1997 to each stockholder with this
Proxy Statement. IN THE EVENT THIS PROXY STATEMENT OR A PRELIMINARY PROXY
STATEMENT IS DISTRIBUTED IN ACCORDANCE WITH THE RULES OF THE SECURITIES AND
EXCHANGE COMMISSION PRIOR TO THE COMPANY'S FINANCIAL STATEMENTS BEING AVAILABLE,
THE COMPANY WILL FURNISH ITS ANNUAL REPORT TO ALL STOCKHOLDERS AT LEAST 20
CALENDAR DAYS BEFORE THE DATE OF THE MEETING.
The cost of solicitation of proxies for the Meeting in the form enclosed
herewith will be borne by the Company. It is currently estimated that the
aggregate amount to be spent by the Company in connection with the
solicitation of proxies and related matters, excluding the salaries and fees
of directors, officers and employees and the normal expenses of an
uncontested election, will be approximately $ of which approximately $
has been incurred to date. The Company has retained MacKenzie Partners,
Inc. ("MacKenzie"), a proxy soliciting firm, to perform various proxy
advisory and solicitation services for the Company for a fee of $35,000 plus
reimbursement of certain expenses. It is anticipated that approximately 35
employees of MacKenzie and directors and officers of the Company may solicit
proxies by letter, telephone, telecopy, telegraph, facsimile or in person
without additional compensation therefor. The Company will also provide
certain persons, firms, banks and corporations holding shares in their names
or in the names of nominees, which in either case are beneficially owned by
others, proxy materials for transmittal to such beneficial owners and will
reimburse such record owners for their expenses in doing so.
By Order of the Board of Directors
/s/ Roger P. Weise
Roger P. Weise
CHAIRMAN
Dated: , 1998
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<PAGE>
APPENDIX A
ADDITIONAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for each of the Company's directors and
executive officers, his or her name and present principal occupation with the
Company (except with respect to directors, whose principal occupation is set
forth in the Proxy Statement). Unless otherwise indicated, the principal
business address of each person is HMN Financial, Inc., 101 North Broadway,
Spring Valley, Minnesota 55975-1223. The table also sets forth the number of
shares of Company Common Stock beneficially owned by each person as of
March 3, 1998. Finally, the table sets forth information concerning each
person's purchases and sales of the Company's Common Stock since March 3, 1996.
<TABLE>
<CAPTION>
COMMON STOCK
PRESENT OFFICE OR BENEFICIALLY
NAME AND OTHER PRINCIPAL OWNED AT MARCH DATE OF NATURE AND AMOUNT
PRINCIPAL BUSINESS ADDRESS OCCUPATION 3, 1998 TRANSACTION OF TRANSACTION
- --------------------------------------- --------------------- ---------------- ----------- --------------------
<S> <C> <C> <C> <C>
DIRECTORS:
M.F. Schumann 19,286(1) -- --
Schumann, Granahan, Hesse & Wilson,
Ltd.
415 3rd Ave. S.E.
Rochester, Minnesota 55906
Roger P. Weise 90,596(2) 2/2/96 Purchase 500 shares
12/15/97 Sale(3) 1,000 shares
James B. Gardner 60,418(4) 11/4/97 Sale 1,000 shares
8/5/97 Sale 1,000 shares
7/24/96 Purchase 800 shares
Timothy R. Geisler 200 -- --
The Mayo Foundation
200 1st Street S.W.
Rochester, Minnesota 55905
Duane D. Benson 5,500(5) 8/5/97 Purchase 1,100 shares
Minnesota Business Partnership, Inc.
4050 IDS Center
Minneapolis, Minnesota 55402
Irma R. Rathbun 2/3/97 Sale 450 shares
9,119(6) 7/28/97 Sale 450 shares
EXECUTIVE OFFICERS:
Roxanne M. Hellickson Vice President and 16,690(7) 10/29/96 Sale 711 shares
Corporate Secretary 10/28/97 Sale 350 shares
Timothy P. Johnson Vice President and 14,776(8) 4/26/96 Sale 200 shares
Treasurer 7/25/96 Sale 711(3) shares
2/27/97 Sale 250 shares
7/28/97 Sale 1,252 shares
Dwain C. Jorgensen Vice President and 33,906(9) 5/2/96 Purchase 125 shares
Controller
Susan K. Kolling Senior Vice President 30,611(10) -- --
</TABLE>
- ------------------------------
(1) Includes 6,068 shares issuable under options exercisable within 60 days of
March 3, 1998. Also includes 3,600 shares held of record in his wife's IRA
and 1,900 shares held of record by his wife, of which 5,500 shares Mr.
Schumann disclaims beneficial ownership.
(2) Includes 20,818 shares held in a fiduciary capacity, 1,400 shares held of
record in his wife's IRA, 9,483 shares allocated to his ESOP account, 3,955
shares held under the Bank's 401(k) Plan, and 37,540 shares issuable under
options exercisable within 60 days of March 3, 1998.
(3) Disposition of shares in payment of stock option exercise price.
(4) Includes 2,500 shares held of record in his wife's IRA, 7,126 shares
allocated to his ESOP account, 2,540 shares held under the Bank's 401(k)
Plan, and 24,952 shares issuable under options exercisable within 60 days of
March 3, 1998.
(5) Includes 2,400 shares of Common Stock covered by options which are currently
exercisable or exercisable within 60 days of March 3, 1998.
(6) Includes 341 shares held of record in her husband's IRA and 6,086 shares
issuable under options exercisable within 60 days of March 3, 1998.
(7) Includes 587 shares held of record in her husband's IRA, 736 shares held
under the Bank's 401(k) Plan, and 9,128 shares issuable under options
exercisable within 60 days of March 3, 1998.
(8) Includes 4,305 shares allocated to his ESOP account and 8,337 shares
issuable under options exercisable within 60 days of March 3, 1998.
-19-
<PAGE>
(9) Includes 4,412 shares allocated to his ESOP account, 1,906 shares held under
the Bank's 401(k) Plan, 1,143 shares held of record by his wife and other
family members, and 13,973 shares issuable under options exercisable within
60 days of March 3, 1998.
(10)Includes 850 shares held of record in her husband's IRA, 3,624 shares
allocated to her ESOP account, 1,417 shares held under the Bank's 401(k)
Plan, 750 shares held by her children, 1,250 shares held by a corporation
of which she is a 10% owner, and 13,973 shares issuable under options
exercisable within 60 days of March 3, 1998.
Except as disclosed in this Appendix or in the Proxy Statement, none of the
Company's directors or executive officers owns any securities of the Company or
any subsidiary of the Company, beneficially or of record, has purchased or sold
any of such securities within the past two years. Except as disclosed in this
Appendix or in the Proxy Statement, to the Company's knowledge, none of its
directors or executive officers or any of their associates beneficially owns,
directly or indirectly, any securities of the Company.
Other than as disclosed in this Appendix or in the Proxy Statement, to the
Company's knowledge, none of its directors or executive officers has any
substantial interest, direct or indirect, by security holdings or otherwise, in
any matter to be acted upon at the Annual Meeting.
Other than as disclosed in this Appendix or in the Proxy Statement, to the
Company's knowledge, none of its directors or executive officers is, or has been
within the past year, a party to any contract, arrangement, or understanding
with any person with respect to any securities of the Company, including, but
not limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies.
Other than as set forth in this Appendix or in the Proxy Statement, to the
Company's knowledge, none of its directors or executive officers, or any of
their associates, has had or will have a direct or indirect material interest in
any transaction or series of similar transactions since the beginning of the
Company's last fiscal year or any currently proposed transactions, or series of
similar transactions, to which the Company or any of its subsidiaries was or is
to be a party in which the amount involved exceeds $60,000.
Other than as set forth in this Appendix and in the Proxy Statement, to the
Company's knowledge, none of its directors or executive officers, or any of
their associates, has any arrangements or understandings with any person with
respect to any future employment by the Company or its affiliates or with
respect to any future transactions to which the Company or any of its affiliates
will or may be a party.
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<PAGE>
APPENDIX B
INFORMATION REGARDING PERSONS NOMINATED BY LASALLE
The following information was provided to the Company by LaSalle, as to
which the Company assumes no responsibility.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------------------ --- ----------------------------------------------------------------
<S> <C> <C>
Thomas A. Burton 62 President of Management Services Company, which provides
management consultant services to medical and computer
industries. Mr. Burton served as a director of Rochester
Savings and Loan, its successor Reliance Savings and Loan, and
its successor United Savings and Loan. Mr. Burton served as
president, chief executive officer, and a director of Waters
Instruments, Inc. of Rochester, Minnesota and served two terms
as a public utilities commissioner of the state of Minnesota,
appointed by the governor of the state.
</TABLE>
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<PAGE>
HMN FINANCIAL, INC.
ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of James B. Gardner and Timothy P.
Johnson, with full powers of substitution, to act as attorneys and proxies for
the undersigned to vote all shares of capital stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders (the
"Meeting") to be held at the Best Western Apache Hotel, 1517 16th Street, S.W.,
Rochester, Minnesota on April 28, 1998 at 10:00 a.m., local time, and at any and
all adjournments and postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS AND EACH OF THE NOMINEES LISTED ON
THE REVERSE SIDE. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY
WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT.
Any proxy previously given by the undersigned with respect to such shares
is hereby revoked.
The undersigned acknowledges receipt from the Company, before the execution
of this proxy, of a Notice of the Meeting, a Proxy Statement, and an Annual
Report.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE /SEE REVERSE SIDE/
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE THREE PROPOSALS SET
FORTH BELOW.
1. The election as directors of all nominees listed below (except as marked to
the contrary):
NOMINEES: M.F. Shumann and Roger P. Weise
FOR WITHHOLD
/ / / /
/ /______________________________________
INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name in the space above.
2. The amendment to the Company's Certificate of Incorporation, increasing the
number of authorized shares of Common Stock from 7 million to 11 million.
FOR AGAINST ABSTAIN
/ / / / / /
3. The ratification of the appointment of KPMG Peat Marwick LLP as auditors
for the Company for the fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING
/ /
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
/ /
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) TO THE LEFT.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE YOUR FULL TITLE. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
Date:_______________________, 1998
Signature:______________________________
Signature
(if held jointly):______________________
Title
(if applicable)_________________________
