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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Commercial National Financial Corporation
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(Name of Registrant as Specified In Its Charter)
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(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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, APRIL 22, 2003
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The annual meeting of shareholders of Commercial National Financial
Corporation will be held at the Ithaca Community Center, 120 North Maple Street,
Ithaca, Michigan 48847, on Tuesday, April 22, 2003, at 7:00 p.m. to consider and
vote upon:
1. Election of Directors.
2. To transact any other business that may come before the meeting.
Shareholders of record at the close of business on March 14, 2003 are
entitled to notice of and to vote at the meeting or any adjournment of the
meeting.
By Order of the Board of Directors,
Jeffrey S. Barker
President and Chief Executive Officer
March 21, 2003
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It is important that your shares be represented at the
meeting. Even if you expect to attend the meeting,
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
COMMERCIAL NATIONAL FINANCIAL CORPORATION
P.O. Box 280
101 North Pine River Street
Ithaca, Michigan 48847
This proxy statement is being furnished to holders of common stock,
with no par value ("Common Stock"), of Commercial National Financial Corporation
(the "Corporation") in connection with the solicitation of proxies by the
Corporation's board of directors for use at the annual meeting of shareholders
to be held on April 22, 2003, and at any adjournment of that meeting. The annual
meeting will be held at the Ithaca Community Center, 120 North Maple Street,
Ithaca, Michigan 48847, at 7:00 p.m. for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This proxy statement and
form of proxy are first being sent to shareholders on or about March 26, 2003.
If a proxy in the form distributed by the Corporation is properly
executed and returned to the Corporation, the shares represented by that proxy
will be voted at the annual meeting of shareholders and at any adjournment of
that meeting. Where a shareholder specified a choice, the proxy will be voted as
specified. If no choice is specified, the shares represented by the proxy will
be voted for the election of all nominees to the board of directors. Management
does not know of any other matters to be presented at the annual meeting. If
other matters are presented, all proxies will be voted in accordance with the
judgment of the persons named as proxies, who will consider management's
recommendations.
A proxy may be revoked at any time prior to the closing of the polls by
written notice delivered to the President of the Corporation, by a subsequent
dated proxy, or by voting the shares represented by the proxy at the annual
meeting.
Solicitation of proxies will be made initially by mail. Officers,
directors and employees of the Corporation and its wholly owned subsidiary,
Commercial Bank (the "Bank"), may also solicit proxies in person or by telephone
without additional compensation. In addition, proxies may be solicited by
nominees and other fiduciaries, who may mail material to or otherwise
communicate with the beneficial owners of shares held by them. All expenses of
solicitation of proxies will be paid by the Bank.
ELECTION OF DIRECTORS
The board of directors of the Corporation has nominated the following
10 persons for election to the board of directors at the annual meeting:
Richard F. Abbott Patrick G. Duffy Howard D. Poindexter
Jefferson P. Arnold David A. Ferguson Scott E. Sheldon
Jeffrey S. Barker Paul B. Luneack
Don J. Dewey Kim C. Newson
Directors are to be elected at the annual meeting of shareholders to
serve until the next following annual meeting of shareholders. The proposed
nominees are willing to be elected and to serve. In the event that any nominee
is unable to serve or is otherwise unavailable for election, which is not now
contemplated, the incumbent Corporation board of directors may or may not select
a substitute nominee. If a substitute nominee is selected, all proxies will be
voted for the person so selected. If a substitute nominee is not so
selected, all proxies will be voted for the election of the remaining nominees.
Proxies will not be voted for a greater number of persons than the number of
nominees named.
A vote of shareholders holding a plurality of shares is required to
elect directors. For the purpose of counting votes on this proposal,
abstentions, broker non-votes, and other shares not voted will not be counted as
shares voted, and the number of votes of which a plurality is required will be
reduced by the number of shares not voted.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF ALL NOMINEES AS
DIRECTORS
VOTING SECURITIES
Holders of record of Common Stock, at the close of business on March
14, 2003, will be entitled to vote at the annual meeting of shareholders on
April 22, 2003, and any adjournment of that meeting. As of March 14, 2003, there
were 3,814,965 shares of Common Stock issued and outstanding. Each share of
Common Stock entitles its holder to one vote upon each matter to be voted upon
at the meeting.
The following table shows certain information concerning the number of
shares of Common Stock held as of March 14, 2003, by shareholders known to
management to have been the beneficial owner of more than 5% of the outstanding
shares as of that date:
Amount and Nature of Beneficial Ownership (1)
Sole Voting or Shared Voting or
Name and Address of Investment Investment Total Beneficial Percent
Beneficial Owner Power Power(2) Ownership of Class
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Kenneth R. Luneack
9333 N. Union Road
St. Louis, Michigan 48880 265,152 10,144 275,296 7.22%
The following table sets forth information concerning the number of
shares of Common Stock held as of March 14, 2003, by each of the Corporation's
directors and nominees, the named executive officers of the Corporation, and by
all directors and executive officers of the Corporation as a group:
2
Amount and Nature of Beneficial Ownership (1)
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Sole Voting Shared Voting
and or Total
Investment Investment Stock Beneficial Percent
Power Power(2) Options(3) Ownership of Class
=============================== ============== ============== ============ ============== ========
Richard F. Abbott - 99,955 2,104 102,059 2.68%
Jefferson P. Arnold 37,368 56,038 3,805 97,211 2.55%
Jeffrey S. Barker(4) 13,759 7,171 42,225 63,155 1.66%
Don J. Dewey 5,130 13,323 4,653 23,106 .61%
Patrick G. Duffy(4) 2,112 6,954 19,747 28,813 .76%
David F. Ferguson 32,981 44,488 1,025 78,494 2.06%
Paul B. Luneack 77,930 5,266 - 83,196 2.18%
Kim C. Newson 12,398 9,731 4,864 26,993 .71%
Howard D. Poindexter 69,733 66,934 2,173 138,840 3.64%
Andrew P. Shafley(4) 15,227 - 11,805 27,032 .71%
Scott E. Sheldon(5) 139,613 10,149 8,544 158,306 4.15%
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All Directors and Executive
Officers as a Group 406,251 320,009 100,945 827,205 21.68%
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(1) The number of shares stated is based on information furnished by the
officers and directors and includes shares personally owned of record
by each person and shares which under applicable regulations are deemed
to be otherwise beneficially owned by each person. Under these
regulations, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares voting power or
investment power with respect to the security. Voting power includes
the power to vote or to direct the voting of the security. Investment
power includes the power to dispose or to direct the disposition of the
security. A person is also considered to be the beneficial owner of a
security if the person has a right to acquire beneficial ownership of
the security within sixty days.
(2) These numbers include shares as to which the indicated person is
legally entitled to share voting or investment power by reason of joint
ownership, trust or other contract or property right, and shares held
by a family member over whom the indicated person may have substantial
influence by reason of relationship.
(3) These numbers include vested stock options, granted under the
Corporation's 1991 Stock Option Plan and 2001 Stock Option Plan, which
entitle the holder to acquire beneficial ownership of such shares
within sixty days.
(4) These numbers include shares that are allocated to the member's
individual account under the Commercial Bank Employee Savings and Stock
Ownership Plan.
(5) These numbers include 34,688 shares owned by an estate for which Mr.
Sheldon serves as trustee.
DIRECTORS AND EXECUTIVE OFFICERS
Biographical information concerning executive officers and directors
who are nominated for election to the board of directors at the annual meeting
is presented below. Except as otherwise indicated, all directors and executive
officers have had the same principal employment for over 5 years and have held
their positions with the Corporation since January 1998. All nominees were last
elected to the Corporation's board of directors at the last annual meeting of
shareholders that was held on April 23, 2002.
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Richard F. Abbott (age 68) has been a director of the Corporation and
the Bank since 1989. He had been interim president and chief executive
officer of the Bank from September 15, 1993, until March 16, 1994, and
of the Corporation from September 15, 1993 until May 18, 1994. From
May, 1990 to September 15, 1993, and from March 16, 1994 until December
31, 1996, Mr. Abbott served as executive vice president of the Bank and
of the Corporation.
Jefferson P. Arnold (age 63) has been a director of the Corporation
since May 18, 1994. Mr. Arnold is an attorney at law and has practiced
law with the Arnold Law Offices for over 30 years.
Jeffrey S. Barker (age 54) is president and chief executive officer of
the Corporation and the Bank. He has been a director of the Corporation
and the Bank since November 12, 1997. He has been president and chief
executive officer of the Bank and the Corporation since November 12,
1997.
Don J. Dewey (age 65) has been a director of the Corporation since 1988
and a director of the Bank since 1987. He is a funeral director and the
owner and president of Dewey Funeral Homes, Inc.
Patrick G. Duffy (age 39) is executive vice president and chief
financial officer of the Corporation and the Bank. He was named
executive vice president and appointed to the board of directors of the
Corporation and the Bank on May 19, 1999. He has been vice president
and chief financial officer of the Bank and the Corporation since
February 19, 1997.
David A. Ferguson (age 53) has been a director of the Corporation since
1988 and a director of the Bank since 1985. He is a member of Chodoka
LLC. He previously served as vice president of Ashcraft's Market, Inc.,
a regional retail grocery store chain.
Paul B. Luneack (age 43) has been a director of the Corporation and the
Bank since January 2002. He is Vice President of Ken Luneack
Construction, Inc., a building materials manufacturer.
Kim C. Newson (age 52) has been director of the Corporation since 1988
and a director of the Bank since 1987. He is president of Alma Hardware
Company and general manager of Alma True Value Hardware, both of which
are in the retail hardware business.
Howard D. Poindexter (age 67) has been chairman of the board of the
Corporation since February of 1993. He has been a director of the
Corporation since 1988 and a director of the Bank since 1973. He is
manager of Poindexter Farms, an independent farming business. From 1954
until his retirement in 1992, he was a soil conservationist for the
U.S. Department of Agriculture.
Scott E. Sheldon (age 45) has served as chairman of the board of the
Bank since July of 1997. He has been a director of the Corporation
since 1988 and a director of the Bank since 1985. He is the owner of
Kernen-Sheldon Agency, and Shepherd Insurance Agency, which are
insurance agencies.
Jeffrey S. Barker and Patrick G. Duffy serve as the executive officers
of the Corporation. Biographical information for Mr. Barker and Mr. Duffy is
presented above. Mr. Shafley serves as an executive officer of the Bank.
Biographical information for Mr. Shafley is presented below.
Andrew P. Shafley (age 37) has served as the senior vice president and
senior loan officer of Commercial Bank since May 19, 1999. Prior to
that he served as vice president senior loan officer
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from May of 1998 until May of 1999. He previously served as vice
president commercial loan officer from January of 1996 until May of
1999.
The Corporation's executive officers serve in their capacity without
receiving specific compensation for their services from the Corporation. The
Corporation's executive officers continue to serve as executive officers of the
Bank. All officers serve at the pleasure of the boards of directors of the
Corporation and the Bank.
The Corporation's board has three standing committees, the human
resources committee, the corporate governance committee and the audit committee.
The human resources committee includes Messrs. Ferguson, Arnold, Poindexter and
Sheldon. The human resources committee makes compensation recommendations. The
human resources committee met 4 times in 2002. The human resources committee
administers the 2001 Stock Option Plan.
The corporate governance committee includes Messrs. Abbott, Newson,
Poindexter and Sheldon. The governance committee is responsible for making
recommendations to the board of directors regarding director performance,
ethical conduct and compensation, director recruitment, management succession
plans and other matters which affect the board's ability to discharge its
duties. The committee met one time during 2002.
The audit committee recommends to the board the employment of
independent certified public accountants to examine the financial statements of
the Corporation and its subsidiary, makes such additional examinations as the
committee deems advisable, reviews reports of examination of the Corporation and
its subsidiary received from regulatory authorities, reports to the board at
least once each calendar year on the results of examinations made and offers
such conclusions and recommendations as the committee deems appropriate. During
2002, the audit committee was comprised of Messrs. Dewey, Newson, Poindexter,
Sheldon and Abbott. The audit committee met 5 times during 2002.
The Corporation's entire board of directors, excluding Mr. Barker and
Mr. Duffy, performs the functions of compensation committee. The Corporation's
entire board of directors performs the functions of nominating committee.
The Corporation's board of directors will consider the nomination of
candidates for election as directors of the Corporation at any meeting of
shareholders called for the purpose of electing directors submitted by any
shareholder entitled to vote at that meeting. Any shareholder desiring to
nominate a candidate for director must deliver a notice to the Secretary of the
Corporation, not less than 14 nor more than 50 days prior to the meeting,
setting forth: the name, age, business address and residence address of the
nominee; the principal occupation or employment of the nominee; the number of
shares of Common Stock beneficially owned by the nominee; the total number of
shares of Common Stock that will be voted for each nominee; the name, business
address and residence address of the nominating shareholder; the number of
shares of Common Stock owned by the nominating shareholder; a statement that the
nominee is willing to be nominated; and such other information regarding the
nominee as would be required under the rules of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies for the
election of the nominee.
The board of directors of the Corporation held 13 meetings during 2002.
All incumbent directors attended at least 75% of the aggregate number of
meetings of the board of directors and meetings of committees on which they
served while they served in such capacities.
5
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows certain information concerning the
compensation of the named executive officers of the Corporation and the Bank for
the three years ended December 31, 2002. For the same period, the annual salary
and bonus of no other executive officer of the Corporation or Bank exceeded
$100,000.
SUMMARY COMPENSATION TABLE
Long Term
Compensation Awards
Securities Underlying
Annual Compensation Options All Other
Name and Principal Position Year Salary(1) Bonus(3) (No. Shares) (2) Compensation (4)
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Jeffrey S. Barker 2002 129,000 56,000 11,429 11,278
President and 2001 125,000 62,000 12,458 10,449
Chief Executive Officer 2000 122,875 60,000 11,238 11,332
of the Corporation and
Bank
Patrick G. Duffy 2002 101,000 37,000 10,360 8,749
Executive Vice President 2001 98,000 41,000 11,355 8,374
and Chief Financial 2000 90,170 39,000 10,419 7,891
Officer of the Corporation
and Bank
Andrew P. Shafley 2002 89,200 36,000 9,450 8,551
Senior Vice President 2001 83,113 40,000 8,820 8,176
and Senior Loan Officer 2000 75,526 38,000 8,102 7,319
of the Bank
(1) Includes compensation deferred under the Commercial Bank Employee Savings
and Stock Ownership Plan and directors' fees.
(2) Shares have been adjusted for the 5% stock dividend paid in November of
2002.
(3) Bonuses are calculated based on a board of director approved formula. The
formula is based on earnings, return on average equity, and return on
average assets. The board of directors also has discretion in adjusting the
bonus for other factors including but not limited to individual
performance.
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(4) All other compensation for Mr. Barker, Mr. Duffy, and Mr. Shafley includes
the following:
Matching and Base Contributions
Under the Commercial Bank Employee Savings Life, Short-term and Long-term
Stock Ownership Plan Disability Premium Paid by the Corporation
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Mr. Barker 2002 10,087 1,191
2001 9,314 1,135
2000 10,200 1,132
Mr. Duffy 2002 7,756 993
2001 7,440 934
2000 6,965 926
Mr. Shafley 2002 7,576 975
2001 7,267 909
2000 6,420 899
It is the Corporation's practice to award stock options annually to key
policy making members of management. Stock options have been an important
component of the Corporation's executive compensation program for several years.
Stock options are believed to help align the interests of senior management with
the interests of shareholders by promoting stock ownership by senior executive
officers and by rewarding them for appreciation in the price of the
Corporation's Common Stock. Stock options which were granted, exercised, or
outstanding during 2002 were granted under the 1991 Stock Option Plan and the
2001 Stock Option Plan. The 1991 Stock Option Plan terminated by its terms on
April 22, 2001. The Corporation's shareholders have approved the 2001 Stock
Option Plan.
The Corporation's 1991 Stock Option Plan and 2001 Stock Option Plan
provide that stock options, stock appreciation rights, and tax benefit rights
may be issued to directors, officers, and key employees. Stock options entitle a
participant to buy shares of Common Stock of the Corporation during a specified
time period at a specified price. Subject to restrictions imposed by the Plan,
the human resource committee in its discretion determines who will be granted
options, how many shares will be subject to options, and the form of
consideration that may be paid upon exercise of an option. As of December 31,
2002, a maximum of 83,510 authorized shares are subject to the exercise of
options under the 2001 plan. As of December 31, 2002, a maximum of 148,329
authorized shares are subject to the exercise of options under the 1991 plan. As
of December 31, 2002, no stock appreciation rights had been granted under the
plan. The 1991 Stock Option Plan terminated by its terms on April 22, 2001.
The following tables set forth information concerning stock options
granted to and exercised or retained by the named executive officers of the
Corporation and Bank during 2002. In 2002, the Corporation granted options under
the 2001 Stock Option Plan. As indicated in the following table, options awarded
in 2002 are exercisable for ten years.
7
OPTIONS GRANTED IN LAST FISCAL YEAR (1)
No. of Percent of
Securities Total Options Potential Realizable Value at Assumed
Underlying Granted to Annual Rates of Stock Price
Options Employees in Exercise Expiration Appreciation for Option Term
Name Granted Fiscal Year Price ($/Shr) Date 0% 5% 10%
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Jeffrey S. Barker 11,429 23.75% $ 14.29 6/19/2012 $ 0 $ 102,532 $259,835
Patrick G. Duffy 10,360 21.56% $ 14.29 6/19/2012 $ 0 $ 93,104 $235,945
Andrew P. Shafley 9,450 19.67% $ 14.29 6/19/2012 $ 0 $ 84,926 $215,220
(1) The per share exercise price of each option is equal to the market
value of the Common Stock on the date each option was granted. The
option information has been adjusted to reflect the 5% stock dividend
paid in November of 2002. All outstanding options were granted for a
term of ten or fewer years. Options terminate subject to certain
limited exercise provisions, in the event of death, retirement, or
other termination of employment. In the event of a change in control of
the Corporation, a participant may exercise tax benefit rights granted
in tandem with the options. Such tax benefit rights would entitle an
optionee to cash payments at the time of exercise to partially
reimburse the optionee for tax liability.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Acquired Options at Year End Year End
Name On Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
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Jeffrey S. Barker 4,428 $ 29,889 42,225 32,243 $ 110,992 $ 31,142
Patrick G. Duffy 0 $ 0 19,747 27,089 $ 33,816 $ 24,872
Andrew P. Shafley 0 $ 0 11,805 24,436 $ 14,191 $ 21,685
CHANGE OF CONTROL ARRANGEMENT
The Bank has entered into a Change of Control Arrangement with named
executive officers Jeffrey S. Barker, Patrick G. Duffy, and Andrew P. Shafley
providing that if certain "employment changes" occur within 24 months after a
"change of control" of the Corporation, then they shall receive a lump sum
severance payment equal to 1 1/2 times their yearly salary and bonus.
The Arrangement generally defines employment changes as follows:
termination of employment for reasons other than good cause; a significant
change in the nature or scope of their authority or in the overall working
environment; their assignment to duties materially inconsistent with their
present duties, responsibilities and status; or a material reduction in their
monthly rate of base salary. A change of control occurs for purposes of the
Arrangement when more than 50% of the Corporation's common stock is acquired by
an entity, person or group.
The Bank's purpose in entering into the Arrangement with Mr. Barker,
Mr. Duffy, and Mr. Shafley is to provide these individuals with financial
security following a change of control and to provide an additional inducement
for them to remain employed by the Bank. With continuation of their employment
reasonably assured, the Corporation and its shareholders should be more assured
that they will act, with respect to a possible change of control, for the
benefit of the Corporation and its shareholders and without concern for their
own financial security.
8
COMPENSATION OF DIRECTORS
The board of directors of the Bank holds regular monthly meetings. The
Bank compensates its directors at the rate of $1,000 per month. The Chairman of
the board is paid $2,000 per month. Directors of the Bank, who are not executive
officers, are paid $150 for each committee meeting attended. The Corporation's
board of directors meetings customarily coincide with Bank board of directors
meetings. No separate cash compensation is paid to directors for Corporation
board of directors meetings.
The directors of the Corporation and Bank may receive stock options
under the Corporation's 2001 Stock Option Plan. The number of shares of Common
Stock covered by each option equals the number of shares the director could
purchase if he had purchased shares with the directors fees that the director
earned during the year. The options awarded to the directors are exercisable
after six months from the date of grant and expire ten years from the date of
grant.
AUDIT COMMITTEE REPORT
The following report is not deemed to be "soliciting material" or to be
"filed" with the SEC or subject to the SEC's proxy rules or to the liabilities
of Section 18 of the Securities Exchange Act of 1934 and the report shall not be
deemed to be incorporated by reference into any prior or subsequent filing by
the Corporation under the Security Act of 1933 or the Securities Exchange Act of
1934.
The Audit Committee reports as follows with respect to the
Corporation's audited financial statements for the year ended December 31, 2002
(the "Consolidated Financial Statements"): (1) the Audit Committee has reviewed
and discussed the Consolidated Financial Statements with the Corporation's
management; (2) the Audit Committee has discussed with its independent auditors
(Crowe, Chizek and Company LLP) the matters required to be discussed by
Statement on Auditing Standards No. 61, which include, among other items,
matters related to the conduct of the audit of the Consolidated Financial
Statements; (3) the Audit Committee has received written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1 (which relates to the auditor's independence from the Corporation
and its related entities) and has discussed with the auditors the auditors'
independence from the Corporation; and (4) based on the review and discussions
referred to above, the Audit Committee recommended to the Board of Directors
that the Consolidated Financial Statements be included in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 2002 for filing with
the Securities and Exchange Commission.
Audit Committee Charter The Board of Directors and Audit Committee have
adopted an Audit Committee Charter.
Independence of Audit Committee During 2002, the Company's Audit
Committee was comprised of Mr. Dewey, Mr. Newson, Mr. Poindexter, Mr. Sheldon
and Mr. Abbott. Each of these members meets the requirements for independence as
defined in Rule 4200(a)(15) of the National Association of Securities Dealers'
listing standards.
RELATIONSHIP WITH INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Crowe, Chizek and Company LLP examined and certified the
financial statements of the Corporation for the year ended December 31, 2002.
Upon the recommendation of the Audit Committee, the
9
Board of Directors has selected Crowe, Chizek and Company LLP to act as the
Corporation's independent auditors for 2003.
Audit Fees The aggregate fees billed by Crowe, Chizek and Company LLP
for professional services rendered for the audit of the Corporation's financial
statements for the year ended December 31, 2002 including fees related to annual
report on Form 10-K, and reviewing of the Corporation's quarterly reports on
Form 10-Q filed during the year ended December 31, 2002 were $66,400.
Financial Information Systems Design and Implementation Fees The
aggregate fees billed by Crowe, Chizek and Company LLP for professional services
described in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X (relating to
financial information systems design and implementation) for the year ended
December 31, 2002 were $0.
All Other Fees The aggregate fees billed for services rendered by
Crowe, Chizek and Company LLP, other than services included above under the
captions "Audit Fees" and "Financial Information Systems Design and
Implementation" for the year ended December 31, 2002 were $42,720.
The Audit Committee of the Company believes the services provided by
Crowe, Chizek and Company LLP in exchange for the fees set forth above under the
captions "Financial Information Systems Design and Implementation" and "All
Other Fees" are compatible with Crowe, Chizek and Company LLP's independence.
Greater than 50% of the hours expended on Crowe, Chizek and Company LLP's
engagement to audit the Company's financial statements for the year ended
December 31, 2002 were performed by full-time permanent employees of Crowe,
Chizek and Company LLP.
A representative of Crowe, Chizek and Company LLP is expected to be
present at the Annual Meeting to respond to appropriate questions from
shareholders and to make any comments deemed appropriate.
CERTAIN RELATIONSHIPS
Directors and officers of the Corporation and members of their
immediate families and businesses controlled by them were customers of and had
certain transactions with the Bank in the ordinary course of business since
January 1, 2002. It is anticipated that such transactions will take place in the
future in the ordinary course of business. All loans and commitments included in
such transactions were made on substantially the same terms, including interest
rates, fees, and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than normal risk of
collectibility or present any unfavorable features.
During 2002, the Bank retained the services of Mr. Arnold, an attorney,
for routine legal matters. These fees were billed at the regular rates charged
by Mr. Arnold for services rendered to all of his firm's clients. The fees paid
by the Bank did not exceed 5% of the firm's gross revenues for its last fiscal
year.
10
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the annual
meeting scheduled to be held April 27, 2004, must be received by the Corporation
for inclusion in its proxy statement and form of proxy relating to that meeting
by November 27, 2003. Proposals of shareholders should be made in accordance
with Securities and Exchange Commission Rule 14a-8.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and certain officers and persons who own more than ten
percent of the Corporation's common stock, to file with the SEC initial reports
of ownership and reports of changes in ownership of the Corporation's common
stock. These officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Corporation with copies of these
reports.
To the Corporation's knowledge, based solely on review of the copies of
such reports furnished to the Corporation during the fiscal year ended December
31, 2002, all Section 16(a) filing requirements were satisfied, with respect to
the applicable officers, directors and greater than ten percent beneficial
owners.
11
PROXY COMMERCIAL NATIONAL FINANCIAL CORPORATION PROXY
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 2003
The undersigned acknowledges receipt of notice of and a proxy statement for the
annual meeting of shareholders of Commercial National Financial Corporation to
be held on APRIL 22, 2003. The undersigned hereby appoints Richard S. Prestage
and Bradley M. Simmet, each of them proxies of the undersigned with full power
of substitution, to vote all shares of the undersigned in Commercial National
Financial Corporation at the annual meeting of its shareholders to be held on
April 22, 2003, and at any adjournment thereof, with all powers which the
undersigned would have if personally present. The undersigned hereby instructs
Commercial National Financial Corporation to vote any and all shares held for
the account of the undersigned under the Commercial National Financial
Corporation Dividend Reinvestment Plan in accordance with the specifications, if
any, made in this proxy.
1. Election of Directors:
[ ] VOTE FOR all nominees (except as [ ] WITHHOLD AUTHORITY to vote
marked to the contrary). for all nominees listed below.
Richard F. Abbott, Jefferson P. Arnold, Jeffrey S. Barker, Don J. Dewey,
Patrick G. Duffy, David A. Ferguson, Paul B. Luneack, Kim C. Newson,
Howard D. Poindexter, and Scott E. Sheldon.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COMMERCIAL NATIONAL FINANCIAL CORPORATION. IF THIS PROXY IS PROPERLY EXECUTED
AND DELIVERED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR ELECTION OF ALL
NOMINEES NAMED ON THIS PROXY. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH MAY COME BEFORE THE
MEETING.
Number of Shares: Dated: , 2003
----------------------- ----------------------------------
X
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Signature
X
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Signature, if held jointly
Please sign exactly as your name(s) appear(s).
Joint owners should each sign personally.
Executors, administrators, trustees and
persons signing for corporations or
partnerships should give their title as such.
If a corporation, please sign in full
corporate name by president or authorized
officer. If partnership, please sign in
partnership name by properly authorized person.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO:
COMMERCIAL NATIONAL FINANCIAL CORPORATION
P.O. BOX 280
101 NORTH PINE RIVER STREET
ITHACA, MICHIGAN 48847