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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
SOUTHERN MICHIGAN BANCORP, INC.
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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)(4) 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):
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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.
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[ ] 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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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
Monday, April 20, 1998
The Annual Meeting of Shareholders of Southern Michigan Bancorp, Inc. will be
held on Monday, April 20, 1998 at Southern Michigan Bank & Trust, 51 West Pearl
Street, Coldwater, Michigan at 4:00 p.m. for the purpose of considering and
voting on the following matters:
(1) Proposal to amend the Company's Articles of Incorporation to provide
for a staggered board, to provide that a Director may be removed only for
cause, to permit new Directorships to be created and filled only by the
shareholders or by the affirmative vote of not less than 80% of the
Directors then in office and to permit vacancies to be filled only by the
affirmative vote of not less than 80% of the Directors then in office.
(2) Election of eleven (11) directors to serve until the next annual meeting
and until their successors are duly elected and qualified.
(3) Proposal to amend the Company's Articles of Incorporation to
eliminate a provision permitting shareholder action by less than unanimous
written consent in lieu of a meeting.
(4) Proposal to amend the Company's Articles of Incorporation to require
the affirmative vote of the holders of not less than two-thirds (2/3) of
the voting stock to alter, amend, repeal or adopt certain provisions of
the Articles of Incorporation and Bylaws, or 80% of the Directors then in
office to alter, amend, repeal or adopt certain provisions of the Bylaws.
(5) Proposal to amend the Company's Articles of Incorporation to authorize
100,000 shares of Preferred Stock.
(6) Ratification of the selection of Crowe, Chizek and Company LLP as
Independent Auditors for 1998.
Shareholders of record at the close of business on March 10, 1998 are entitled
to notice of and to vote at the Annual Meeting.
It is important that your shares be represented at the meeting. We urge you to
sign and return the enclosed proxy as promptly as possible, whether or not you
plan to attend the meeting in person. If you do attend the meeting, you may
revoke your proxy and vote in person.
By Order of the Board of Directors
JAMES T. GROHALSKI
James T. Grohalski
Secretary of the Board
March 20, 1998
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SOUTHERN MICHIGAN BANCORP, INC
51 WEST PEARL STREET
COLDWATER, MICHIGAN 49036
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Southern Michigan Bancorp, Inc. (the
"Corporation"), a Michigan corporation, to be voted at the Annual Meeting of
Shareholders of the Corporation to be held on Monday, April 20, 1998, at 4:00
p.m. at Southern Michigan Bank & Trust, 51 West Pearl Street, Coldwater,
Michigan (the "Annual Meeting"), or any adjournment thereof, for the purposes
set forth in the accompanying Notice of the Annual Meeting.
The costs of soliciting proxies will be paid by the Corporation. Proxies may be
solicited by mail, in person or by telephone by directors, officers and regular
employees of the Corporation. These persons will not be specially compensated
for soliciting proxies.
As of March 10, 1998, the record date for the Annual Meeting, there were
1,921,253 shares of Common Stock of the Company, par value $2.50 per share,
("Common Stock") issued and outstanding. Each outstanding share is entitled to
one (1) vote on each matter submitted to a vote at the Annual Meeting. The
transaction of business at the Annual Meeting requires the presence of a quorum,
which will be established by the presence or representation at the Annual
Meeting of shares of the Corporation entitled to cast a majority of the votes at
the meeting. Directors will be elected by a plurality of the votes cast, whether
in person or by proxy, by holders of the Common Stock entitled to vote at the
Annual Meeting. (see "Proposal (2) Election of Directors"). The affirmative vote
of a majority of the outstanding Shares entitled to vote at the Annual Meeting
is necessary to approve Proposals (1), (3), (4), (5) and (6). Shares as to which
authority is withheld in the election of directors, abstentions and broker
non-votes will be counted for purposes of determining the presence of a quorum.
Since they are not votes cast, shares as to which authority is withheld will
have no effect on the election of directors. Abstentions and broker non-votes
will have the same effect as votes against Proposals (1), (3), (4), (5) and (6).
Proxies are revocable by the delivery of written notice of revocation to the
Secretary of the Corporation at any time before the proxy is exercised. The
signing of a proxy does not preclude a shareholder from attending the Annual
Meeting and voting in person. All proxies returned before the Annual Meeting
will be voted in accordance with the instructions contained therein. If the
proxy is not marked with the shareholder's instructions as to voting, the shares
to which the proxy relates will be voted for the nominees for director named in
this Proxy Statement, for the increase in the number of authorized shares, for
the ratification of the selection of the independent auditors, and in the
discretion of the proxies on any other business as may properly come before the
Annual Meeting. All shareholders are encouraged to mark, date and sign the
enclosed proxy card and return it to the Corporation. This Proxy Statement and
accompanying proxy card were first sent or given to shareholders on
approximately Marc 20, 1998.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 28, 1998, the names and addresses
of all known to the Corporation to be beneficial owners of 5% or more of the
Corporation's Common Stock, showing the amount and nature of such beneficial
ownership:
AMOUNT & NATURE PERCENT
TITLE OF NAME & ADDRESS OF BENEFICIAL OF
CLASS BENEFICIAL OWNER OWNERSHIP (1) CLASS
-------- ---------------- --------------- --------
Common Stock Southern Michigan Bank & Trust
51 W. Pearl Street 371,160.5118 (a) 19.319
Coldwater, Michigan 49036
Common Stock Southern Michigan Bank & Trust
Employee Stock Ownership Plan 144,125 (b) 7.502
51 W. Pearl Street
Coldwater, Michigan 49036
Common Stock Harvey B. Randall
8391 Old U.S. 27 South 132,885.6024 (c) 6.917
Marshall, Michigan 49068
Common Stock Estate of Max I. Larsen
410 East Chicago Street 118,747.3964 6.181
Coldwater, Michigan 49036
(1) Based upon information furnished to the Corporation by
the beneficial owners named above. The nature of beneficial
ownership for shares shown is sole voting and investment power,
except as set forth below.
(a) Shares are held by Bank's Trust Department in
various fiduciary capacities which include
power to vote the shares.
(b) Shares are voted in accordance with
instructions from plan participants.
(c) Sole voting and investment power.
PROPOSAL (1) PROPOSAL TO PROVIDE FOR A STAGGERED BOARD
GENERAL
The Board has determined that certain amendments to the Company's Articles of
Incorporation concerning the Board are advisable and unanimously recommends to
the shareholders that such amendment be adopted. In general, the proposed
amendments would:
1. provide for staggered terms for the Board members;
2. provide that a Director may be removed only for cause;
3. permit new Directorships to be created and filled only by the
shareholders or by the affirmative vote of not less than 80% of
the Directors then in office; and
4. permit vacancies to be filled only by the affirmative vote of not
less than 80% of the Directors then in office.
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The Board recommends the proposed amendments (collectively, the "Staggered Board
Proposal") because it believes that the Company benefits from continuity of
membership on the Board and because the Board believes that requiring cause for
removal of a Director prior to the expiration of such Director's term
discourages attempts by hostile companies or groups to take over the Board and
the Company by means of a proxy contest. In addition, the Staggered Board
Proposal would enable the Company to obtain commitments for Board service for
periods longer than one year.
The overall effect of the Staggered Board Proposal would be to render more
difficult the accomplishment of certain acquisitions of control by hostile third
parties. At the same time, such amendments would also make more difficult the
removal of current management and the Board and may have other antitakeover
effects, both favorable and unfavorable, to Company shareholders.
CURRENT ARTICLES OF INCORPORATION AND BYLAWS
The Company's Articles of Incorporation as currently in effect do not contain
any provisions with respect to the term of service of Directors and do not
contain any provisions concerning the removal of Directors or the Board.
Currently, the election and removal of Directors is governed by the Company's
Bylaws, which provide that the number of Directors shall be determined and fixed
from time to time by resolution of eighty percent (80%) of the Directors then in
office. The Board has, by resolution, established the number of Directors at
eleven. Each Director serves until the expiration of the term for which he or
she is elected, and until his or her successor has been elected and qualified.
Subject to the provisions of Section 711 of the Michigan Business Corporation
Act ("MBCA"), Directors may be removed with or without cause by vote of a
majority of the shares entitled to vote at an election of Directors. Because the
Directors will be directly affected by the Staggered Board Proposal, they may be
deemed to have an interest in the outcome of such proposal.
PROPOSED AMENDMENTS
The Board of Directors has approved, subject to Shareholder approval, the
amendments to the Articles of Incorporation to provide for a staggered Board of
Directors, to provide that a Director may be removed only for cause, to permit
new Directorships to be created and filled only by the shareholders or by the
affirmative vote of not less than 80% of the Directors then in office and to
permit vacancies to be filled only by the affirmative vote of not less than 80%
of the Directors then in office (collectively, the "Staggered Board Amendment").
The Company's Directors are presently elected annually to hold office until the
next annual meeting of shareholders and until their successors are elected and
qualified. If the Staggered Board Amendment is approved by the shareholders,
Directors will be elected for three year terms, with approximately one-third of
such overall directors elected each year; except that in the first year of such
classifications, Class I Directors will be elected to serve for a three year
period ending with the annual meeting of shareholders following the year ended
December 31, 2000, Class II Directors will be elected to serve for two years
until the annual meeting following the year ended December 31, 1999 and Class
III Directors will be elected to serve for one year until the next annual
meeting of the shareholders. In the event that the shareholders do not approve
the Staggered Board Amendment, the Directors elected at the Meeting will
continue to serve until the next Annual Meeting. The Staggered Board Amendment,
if adopted, would also prohibit the removal of Director without cause.
The text of the Articles of Incorporation as they would read assuming adoption
of the Staggered Board Proposal is set forth under "Staggered Board Amendment"
on Exhibit A attached hereto. Shareholders are urged to read carefully the
following material, as well as Exhibit A, as they involve matters of particular
importance.
The Board proposes that the Articles of Incorporation be amended by adding a new
Article XI to the Articles of Incorporation which provides for staggered
three-year terms for Directors, provides that a Director may be removed only for
cause, permits new Directorships to be created and filled only by the
shareholders or by the affirmative vote of not less than 80% of the Directors
then in office and permits vacancies to be filled only by the affirmative vote
of not less than 80% of the Directors then in office.
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VOTE REQUIRED
The adoption of the Staggered Board Proposal requires the affirmative vote of
not less than a majority of the votes entitled to be cast by all holders of
shares of Common Stock of the Company issued and outstanding on the Record Date.
If the proposed Staggered Board Amendment is approved by the shareholders, it
will become effective upon filing and recording of a Certificate of Amendment as
required by the MBCA. A shareholder wishing to approve one more parts of the
Staggered Board Amendment must vote for all of them; conversely, a shareholder
wishing to vote against one or more parts of the Staggered Board Amendment must
vote against all of them.
CONSIDERATIONS IN SUPPORT OF THE STAGGERED BOARD PROPOSAL
The Board believes that the Staggered Board Proposal will enhance its ability to
protect shareholders against attempts to acquire control of the Company by means
of unfair or abusive tactics that exist in many unsolicited takeover attempts.
The Staggered Board Proposal would encourage persons seeking to acquire control
of the Company to engage in good faith, arms-length negotiations with the Board
regarding the structure of their proposal, rather than waging a hostile proxy
contest, and would permit the Board to engage in such negotiations from a
stronger position. In addition, the Staggered Board Proposal would facilitate
the Company's attracting and retaining qualified Board members and hiring and
retaining competent management personnel by increasing the likelihood of a
stable employment environment.
The Company also believes that ensuring continuity of service among the Board
members and three-year commitments for Board service is desirable, and helps
assure continuity and stability of the Company's business strategies and
policies. Since at least two shareholder meetings will generally be required to
effect a change in control of the Board, a majority of Directors at any given
time will have prior experience as Directors of the Company.
In view of the foregoing, the Board feels that adoption of the Staggered Board
Proposal is appropriate.
OTHER CONSIDERATIONS
The Staggered Board Proposal could be deemed to have an anti-takeover effect
since it may deter certain third parties from initiating proxy contests or from
acquiring substantial blocks of the Company's shares. Such proxy contests and
acquisitions of substantial blocks of shares tend to increase, at least
temporarily, market prices for the Company's stock. A potential acquirer may not
proceed with a tender offer because it would be unable to obtain control of the
Company's Board of Directors for a period of at least two years. No more than
one-third of the sitting Board of Directors would be up for election at any
annual meeting of shareholders. Consequently, if the Staggered Board Proposal is
approved, Company shareholders could be deprived of temporary opportunities to
sell their shares at higher market prices. Moreover, by possibly deterring proxy
contests or acquisitions of substantial blocks of the Common Stock, the
Staggered Board Proposal might have the incidental effect of inhibiting certain
changes in incumbent management, some or all of whom may be replaced in the
course of a change in control. The Board of Directors, however, is not aware of
any efforts to obtain control of the Company, and the proposal of this measure
is not in response to any such efforts.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR d
THE STAGGERED BOARD PROPOSAL. d
PROPOSAL (2) ELECTION OF DIRECTORS
At the Meeting, eleven directors will be elected by the shareholders to serve in
accordance with the classes which are established, ultimately to serve for 3
years, but initially to serve less than 3 years, as set forth in Proposal (1)
(unless the proposal is defeated, in which case they will serve until the next
Annual Meeting of Shareholders), or until their successors are elected and shall
qualify. Each of the nominees is currently a director of the Company. Management
recommends that the persons name below be elected as directors of the Company
and it is intended that the accompanying proxy will be voted for their election
as directors, unless the proxy contains contrary instructions. The Company has
no reason to believe that any of the nominees will not be a candidate or will be
unable to serve. However, in the event that any of the nominees should become
unable or unwilling to serve as a director, the persons named in the proxy have
advised that they will vote for the election of such person or persons as shall
be designated by Management.
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INFORMATION REGARDING DIRECTORS
The following sets forth the name and ages of the eleven nominees for election
to the Board of Directors, their respective principal occupations and the year
in which each became a director of the Company. Subject to Shareholder approval
of Proposal (1), the Company has elected to group the Directors into three
classes, with each class to serve for a three year period. In that manner, the
shareholders benefit from continuity and experience of the Directors. The
Directors are grouped into Class I, Class II and Class III. In the first year of
such classifications, it is necessary to stagger the period of service of the
Classes. Thereafter, members of each Class would serve for three years.
Therefore, Class I Directors are being nominated to serve for a three year
period ending with the annual meeting of shareholders following the year ended
December 31, 2000, Class II Directors are being nominated to serve for two years
until the annual meeting following the year ended December 31, 1999 and the
Class II Directors are being nominated to serve for one year until the next
annual meeting of the shareholders.
PRINCIPAL OCCUPATION(S) YEAR FIRST BECAME
NAME OF DIRECTOR CLASS AGE FOR PAST 5 YEARS (1) DIRECTOR OF CORPORATION
- ---------------- ----- --- --------------------- -----------------------
Jerry L. Towns (2) II 63 President and Chief Executive Officer 1982
of Southern Michigan Bancorp, Inc.
(Chairman of Southern Michigan Bank
& Trust)
James T. Grohalski (2) I 57 Executive Vice President and Chief 1982
Financial Officer of Southern Michigan
Bancorp, Inc. (President of Southern
Michigan Bank & Trust)
James Briskey III 64 Owner - Briskey Elevator (grain elevator 1982
operator)
H. Kenneth Cole I 49 Treasurer - Hillsdale College 1998
William E. Galliers I 55 Co-owner and Chief Executive 1993
Officer - G & W Display
Fixtures, Inc.
Nolan E. Hooker III 46 Owner - Hooker Oil Co. (distributor 1991
of heating oil)
Gregory J. Hull II 49 Farmer 1995
Thomas E. Kolassa II 50 Owner - The Planning Group (insurance) 1995
James J. Morrison I 50 Owner - Morrison & Associates 1991
(insurance)
Jane L. Randall III 76 Owner - Dally Tire Co. (tire 1982
distributor)
Freeman E. Riddle II 65 Owner - Spoor & Parlin Farm Equipment 1982
NOTES:
(1) The business experience of each director during the past five
years was that typical of a person engaged in the principal
occupation listed for each.
(2) Messrs. Towns and Grohalski, the Corporation's two executive
officers (who are also directors) have held the same positions
since the organization of Corporation in 1982.
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The following table sets forth, as of February 28, 1998, the total number of
shares of the Corporation's Common Stock beneficially owned, and the percent of
such shares so owned, by each director and by all directors and executive
officers of the Corporation as a group.
NAME OF INDIVIDUAL OR
NUMBER OF PERSONS IN AMOUNT AND NATURE OF
GROUP BENEFICIAL OWNERSHIP (1) TOTAL PERCENT OF CLASS
--------------------- ------------------------ ----- ----------------
James Briskey 9,680 (a) 19,360.0000 1.008
9,680 (b)
H. Kenneth Cole 0 0 0
William E. Galliers 1,490.70 (b) 1,490.7000 (2)
James T. Grohalski 2,954.3759 2,954.3759 (2)
Nolan E. Hooker 737.4478 (b) 737.4478 (2)
Gregory J. Hull 636.9112 (b) 636.9112 (2)
Thomas E. Kolassa 1,035.1013 1.035.1013 (2)
James J. Morrison 2,233.6652 (b) 2,233.6652 (2)
Jane L. Randall 5,042.1587 5,042.1587
Freeman E. Riddle 4,050.1614 (a)
2,224 (b) 6,274.1614 (2)
Jerry L. Towns 56 (a)
153.3262 (b) 209.3262 (2)
All directors and executive
officers as a group (11 persons) 39,973.8477 39.973.8477 2.081
(1) Based upon information furnished to the Corporation by the individual
named and the members of the designated group. The nature of beneficial
ownership for shares shown is sole voting and investment power except as
set forth below.
(a) Sole voting and investment power
(b) Shared voting and investment power
(2) Less than one percent (1%)
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MEETINGS, COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation held twelve (12) meetings during 1997.
All directors, with the exception of Mr. Cole who was elected to the Board in
1998, attended at least 75 percent (75%) of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings held by all
standing committees of the Board on which they serve.
The Corporation's Board of Directors has an Audit Committee. The Committee is
comprised of Messrs. Hull, Briskey, Galliers and Kolassa. The Audit Committee
determines whether adequate internal controls are being maintained. It meets
with the Corporation's independent auditors to review internal controls,
procedures of the Corporation and the Bank, the scope of internal audits, the
financial position of the Corporation and external audits of the Corporation.
The Bank's Board of Directors has a Compensation Committee. The Committee is
comprised of Messrs. Morrison, Hull and Kolassa. The Compensation Committee is
responsible for setting and administering the policies which govern annual
compensation and incentive programs. In addition, it reviews all executive
compensation and benefit programs from time to time available to executive
officers of the Corporation and to all officers and staff of the Bank. In this
respect, the Committee makes recommendations to the Board of Directors with
respect to the Compensation of the Chief Executive Officer and the President, as
well as reviewing and approving the Chief Executive Officer's recommendations
for other officers of the Corporation.
The Corporation's Board of Directors has an Executive Committee. The Committee
is comprised of Messrs. Towns, Grohalski, Riddle, Hooker, and Mrs. Randall. The
Executive Committee reviews major policy changes, evaluates the performance of
the President and Chief Executive Officer and the Executive Vice-President and
reviews any merger or expansion plans. The Executive Committee also acts as the
nominating committee for future members of the Board of Directors. The Committee
also reviews any promotions to Executive Officer status.
Currently, each director of the Corporation whose principal occupation is not
with the Corporation or the Bank receives an annual fee of $6,000 which will be
indexed for inflation in 1998. In addition, outside directors are compensated
$150 for each committee meeting attended and participate in a bonus program
based upon the achievement of growth and profitability goals. The 1997 bonus
paid to each outside director was $4,467.
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EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Corporation and the Bank
with respect to the fiscal year ended December 31, 1997 to the Corporation's
Chief Executive Officer and its Executive Vice-President. There were no other
executive officers whose combined salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
- -------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL ALL OTHER
POSITION YEAR SALARY ($) (1) COMPENSATION ($) (2)
- ------------------ ---- -------------- ---------------------
Jerry L. Towns 1997 $146,059 $5,978
President and Chief Executive 1996 $149,201 $5,978
Officer of the Corporation and 1995 $134,190 $6,038
Chairman of the Bank
James T. Grohalski 1997 $130,320 $7,202
Executive Vice President and 1996 $135,225 $7,191
Chief Financial Officer of the 1995 $123,968 $7,239
Corporation and President of the
Bank
(1) The amount shown includes amounts deferred under the 401(k) provisions of
the Bank's Employee Stock Ownership Plan ("ESOP") and the Bank's
Executives' Deferred Compensation Plan ("Deferred Compensation Plan").
(2) The amount shown includes the following for 1997: (i) employer
contributions to accounts in the ESOP and the Deferred Compensation Plan
of $2,600 and $3,000, respectively, for Mr. Towns and $3,796 and $3,000,
respectively, for Mr. Grohalski; and (ii) $378 and $406 constituting the
value of insurance premiums paid by the Bank for term life insurance for
Mr. Towns' and Mr. Grohalski's benefit, respectively.
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Officers of the Corporation participate in the Southern Michigan Bank & Trust
Retirement Plan (the "Retirement Plan"), which has been adopted by the
Corporation. Under the terms of the Plan, a normal monthly retirement benefit is
provided to covered employees who attain the age of 65. It provides for a normal
retirement benefit after 30 years of credited service equal to 35% of a
participant's actual monthly compensation based on the participant's highest
consecutive five year average compensation (see the column captioned
"Remuneration"). For participants with less than 30 years credited service,
reduced benefits are available in an amount equal to the normal retirement
benefit reduced by 1/30 for each year of service less than 30. Participants are
100% vested after five years of credited service, and are subject to forfeiture
upon termination of employment with credited service less than five years. The
following table represents estimated normal annual benefits payable on a
straight-life annuity basis upon retirement at age 65 and are not subject to
deduction for social security benefits
PENSION PLAN TABLE
------------------
YEARS OF SERVICE
--------------------------------------------------
Remuneration 25 30 35
110,000 32,100 38,500 38,500
120,000 35,000 42,000 42,000
130,000 37,900 45,500 45,500
140,000 40,800 49,000 49,000
150,000 43,750 52,500 52,500
Jerry L. Towns has 26 years of credited service and $131,000 current covered
remuneration. James T. Grohalski has 31 years of credited service and $118,000
current covered remuneration.
The Bank also has in effect supplemental retirement arrangements in the form of
Executive Employee Salary Continuation Agreements with its executive officers
under which a specified annual benefit, in addition to that provided under the
Retirement Plan, is payable to the officer upon retirement at age 65, subject to
reduction for credited service of less than 30 years on the same basis as under
the Retirement Plan. The specified annual benefit, when added to the benefit
under the Retirement Plan, is intended to be approximately equal to the benefit
the officer would have received under the Retirement Plan but for a plan
amendment which changed the Plan's benefit formula to comply with changes in
pension laws and which substantially reduced the executive officers' benefits.
For Jerry L. Towns, the specified annual benefits payable upon retirement at age
65 under the supplemental retirement arrangement is $16,860. For James T.
Grohalski, the specified annual benefits payable upon retirement at age 65 under
the supplemental retirement arrangement is $22,060.
12
The Bank also has a Deferred Compensation Plan for directors and certain
executive officers. Under the Deferred Compensation Plan, participants elect to
defer a portion of their compensation (in the case of directors, their fees) on
a pre-tax basis. Upon retirement at or after age 65, the participant or his
designated beneficiary is entitled to a benefit equal to the amount of the
participant's deferrals to the Plan plus earnings on such deferrals at a
specified rate of interest compounded annually, payable in equal monthly amounts
for the participant's life expectancy, but for not less than 180 months. Upon a
participant's death before retirement, other than as a result of suicide, the
benefit described above is paid to the participant's designated beneficiary.
Upon the participant's termination of employment or retirement before age 65,
the benefit payable to the participant at age 65 is determined by multiplying
the amount deferred under the Plan by the ratio of the number of months for
which th participant made deferrals to the number of months from the time the
participant began making deferrals to the participant's reaching age 65. The
amounts shown in the cash compensation table above include amounts deferred as
contributions under the Plan, which amounts are subject to forfeiture pursuant
to the formula described above for determining the applicable benefit in the
event the participant's employment terminates before retirement at age 65.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Directors and officers of the Corporation and their associates were customers
of, and had transactions with the Bank in the ordinary course of business during
1997. All loans and commitments included in such transactions were made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk of
collectability or present other unfavorable features.
PROPOSAL (3) APPROVAL OF PROPOSAL ELIMINATING SHAREHOLDER ACTION BY LESS THAN
UNANIMOUS WRITTEN CONSENT
GENERAL
The Board of Directors proposes to delete Article VII of the Articles of
Incorporation which currently permits actions to be taken by less than unanimous
written consent in lieu of an annual or special meeting of the shareholders. If
adopted, the proposal would eliminate Article VII of the Articles of
Incorporation and, therefore, require that shareholder action be taken only at
an annual or special meeting or by unanimous written consent in accordance with
the MBCA.
CURRENT ARTICLES OF INCORPORATION
Article VII of the Articles of Incorporation currently provides as
follows:
Any action required or permitted by this act to be taken at an
annual or special meeting of shareholders may be taken without
a meeting, without prior written notice and without a vote, if
after approval of such action by the Board of Directors a
consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given
to shareholders who have not consented in writing.
PROPOSED AMENDMENT
The Board of Directors has approved, subject to shareholder approval, the
deletion of Article VII of the Articles of Incorporation.
13
VOTE REQUIRED
The proposal to delete Article VII of the Articles of Incorporation requires the
affirmative vote of not less than a majority of the shares entitled to be cast
by all holders of shares of common stock of the Company issued and outstanding
on the record date. If the proposal is approved by the shareholders, it will
become effective upon filing and recording of a Certificate of Amendment as
required by the MBCA.
CONSIDERATIONS IN SUPPORT OF THE PROPOSAL
Eliminating Article VII of the Articles of Incorporation would give all
shareholders of the Company entitled to vote on a particular matter notice of
and the opportunity to participate in the determination of any proposed action
on such matter and the chance to take judicial or other action to protect their
interest. In addition, the change to eliminate shareholder action by written
consent may serve to avoid untimely action in a context that might not permit
shareholders to have the full benefit of the knowledge, advice and participation
of the Company's management and the Board of Directors. In the event of a
proposed acquisition of the Company, for example, the interests of shareholders
may best be served by a transaction that results from negotiations based on
careful consideration of the proposed terms. Although there can be no certainty
as to the result of any particular negotiations, adoption of the proposal may
tend to promote negotiations concerning any proposed acquisition of the Company,
by placing greater bargaining power in the Board of Directors.
OTHER CONSIDERATIONS
Any provision in the Company's Articles of Incorporation which effectively
require a potential acquirer to negotiate with the Company's management and
Board of Directors could be characterized as increasing management's and the
Board's ability to retain their positions with the Company and to resist the
transaction which may be deemed advantageous by certain shareholders. The
elimination of action by written consent may deter acquisitions of the Company's
stock and may delay, deter or impede shareholder action not approved by the
Board of Directors. Such actions may include shareholder attempts to obtain
control of the Board, unsolicited tender offers or other efforts to acquire
control of the Company. Eliminating actions by less than unanimous written
consent may impede or delay the initiation or consummation of business
transactions, such as reorganizations, mergers, or recapitalizations, which are
opposed by the Board of Directors even though sought by a majority of the
shareholders. The Board of Directors, however, is not aware of any efforts to
obtain control of the Company, and the proposal of this measure is not in
response to any such efforts.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL ELIMINATING ACTION BY
LESS THAN UNANIMOUS WRITTEN CONSENT
PROPOSAL (4) APPROVAL OF PROPOSAL REQUIRING SUPERMAJORITY VOTE TO AMEND
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
The Board of Directors of the Company has approved, subject to shareholder
approval, a new Article XII to the Articles of Incorporation to require the
affirmative vote of holders of not less than two thirds (2/3) of the voting
stock to alter, amend, repeal or adopt certain provisions of the Articles of
Incorporation and Bylaws, or 80% of the directors then in office to alter,
amend, repeal or adopt certain provisions of the Bylaws.
CURRENT ARTICLES OF INCORPORATION
Pursuant to the MBCA, the affirmative vote of a majority of the shares entitled
to vote at a meeting is required to amend the Articles of Incorporation, unless
the Articles of Incorporation provide for a higher requirement. The Company's
Articles of Incorporation contain in Article IX a supermajority requirement of
two-thirds (2/3) of the outstanding shares of the Corporation entitled to vote
in order to adopt any agreement or approve any merger or consolidation of the
14
Corporation with or into another person, to authorize any sale of all or
substantially all of the assets to another corporation or to authorize the
issuance or transfer by the Company of its voting securities in exchange for the
securities or assets of another company. Article X of the current Articles of
Incorporation states that any amendment to Article IX must be approved by the
two-thirds supermajority. Any other provision of the Articles of Incorporation
of the Company may be amended by a majority vote of the shareholders entitled to
vote at a meeting.
PROPOSED AMENDMENT
The Board of Directors has approved, subject to shareholder approval, a new
Article XII to the Articles of Incorporation which requires the affirmative vote
of the holders of not less than two-thirds (2/3) of the voting stock in order to
alter, amend, repeal, or adopt any new provision of the Articles of
Incorporation to permit action to be taken by shareholders by less than
unanimous written consent. In addition, the proposed Article XII of the Articles
of Incorporation requires the same two-thirds (2/3 supermajority in order to
amend Article XII or the above-referenced Article X. Finally, the proposed
Article XII requires a two-thirds (2/3) supermajority vote or the affirmative
vote of Directors constituting not less than 80% of the Directors then in office
to alter, amend, repeal, or adopt any provision inconsistent with Bylaw
provisions Article XII Section 2 (governing special meetings) or Section 4
(governing notice and shareholder proposals) or Article III, Section 2
(governing size of board), Section 3 (governing procedures for nominating
directors), Section 6 (governing special meetings of the Board of Directors), or
Section 11 (governing the manner of filling director vacancies) or Article XII
(governing redemption of "Control Shares") or Article XIII (governing the manner
of amending the Bylaws).
The text of the Articles of Incorporation as they would read, assuming adoption
of the new Article XII, is set forth on Exhibit B attached hereto. Shareholders
are urged to read carefully the following material, as well as Exhibit B, as
they involve matters of particular importance.
VOTE REQUIRED
The adoption of the amendment to the Articles of Incorporation set forth as
Article XII requires the affirmative vote of not less than a majority of the
votes entitled to be cast by all holders of shares of common stock of the
Company issued and outstanding on the record date. If the proposed amendment is
approved by the shareholders, it will be effective upon filing and recording of
a Certificate of Amendment as required by the MBCA.
CONSIDERATIONS IN SUPPORT OF THE PROPOSAL
By limiting the manner in which certain Articles and Bylaw provisions may be
amended, the Company may promote continuity of operations and thereby enhance
the Company's ability to attain its long term goals. Limiting the manner in
which certain Articles and Bylaw provisions may be amended also allows the Board
of Directors to more effectively manage the affairs of and internal operating
procedures of the Company.
OTHER CONSIDERATIONS
Adoption of Article XII to the Bylaws will have the effect of making it more
difficult for stockholders and the Board to change the internal operating
procedures of the Company. These provisions may further discourage potentially
unfriendly bids for shares of the Company. For these reasons, the proposal may
have an antitakeover effect. The Board of Directors, however, is not aware of
any efforts to obtain control of the Company, and the proposal of this measure
is not in response to any such efforts.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL REQUIRING A
SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
AND BYLAWS
15
PROPOSAL (5) APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION TO AUTHORIZE
100,000 SHARES OF PREFERRED STOCK
GENERAL
The Board of Directors has approved an amendment to Article III of the Company's
Articles of Incorporation to authorize the issuance of up to 100,000 shares of
Preferred Stock.
The Board of Directors believes that the authorization to issue shares of the
Preferred Stock, in one or more series (up to a total of 100,000 shares of
Preferred Stock), is in the best interests of the Company and its shareholders
and believes that it is advisable to authorize such shares and have them
available in connection with possible future transactions, such as financings,
strategic alliances, corporate mergers, acquisitions, possible funding of new
product programs or businesses and other uses no presently determinable and as
may be deemed to be feasible and in the best interests of the Company. In
addition, the Board of Directors believes that it is desirable that the Company
have the flexibility to issue shares of Preferred Stock without further
shareholder action, except as otherwise provided by law.
CURRENT ARTICLES OF INCORPORATION
Currently, the Company's Articles of Incorporation does not authorize the
issuance of any class of preferred stock.
EFFECT OF AMENDMENT
The proposed amendment will give the Board of Directors the express authority,
without further action of the shareholders, to issue shares of Preferred Stock
from time to time in one or more series and to fix before issuance with respect
to each series: (a) the designation and the number of shares to constitute each
series, (b) the liquidation rights, if any, (c) the dividend rights and rates,
if any, (d) the rights and terms of redemption, if any, (e) whether the shares
will be subject to the operation of a sinking or retirement fund, if any, (f)
whether the shares are to be convertible or exchangeable into other securities
of the Company, and the rates thereof, if any, (g) any limitations on the
payment of dividends on the Common Stock while any such series is outstanding,
if any, (h) the voting power, if any, in addition to the voting rights provided
by law, of the shares, which voting powers may be general or special, and (i)
such other provisions as shall not be in consistent with the Articles of
Incorporation. All the shares of anyone series of the Preferred Stock shall be
identical in all respects.
It is not possible to determine the actual effects of the Preferred Stock on the
rights of the shareholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payment of dividends
to holders of the Common Stock; (ii) dilution of voting power to the extent that
the holders of shares of Preferred Stock are given voting rights; (iii) dilution
of the equity interests and voting power of holders of Common Stock if the
Preferred Stock is convertible into Common Stock; and (iv) restrictions upon any
distribution of assets to the holders of the Common Stock upon liquidation or
dissolution and until the satisfaction of any liquidation preference granted to
the holders of Preferred Stock.
The Board of Directors will make any determination to issue shares of Preferred
Stock based upon its judgment as to the best interests of the shareholders and
the Company. Although the Board of Directors has no present intention of doing
so, it could issue shares of Preferred Stock (within the limits imposed by
applicable law) that could, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. When in the judgment of
the Board of Directors such action would be in the best interests of the
shareholders and the Company, the issuance of shares of Preferred Stock could be
used to create voting or other impediments or to discourage persons seeking to
gain control of the Company, for example, by the sale of Preferred Stock to
purchasers favorable to the Board of Directors. In addition, the Board of
Directors could authorize holders of a series of Preferred Stock to vote either
separately as a class or with the holders of Common Stock, on any merger, sale
or exchange of assets by the Company or any other extraordinary corporate
transaction. The existence of the additional authorized shares could have the
effect of discouraging unsolicited takeover attempts. The issuance of new shares
could also be used to dilute the stock ownership of a person or entity seeking
to obtain control of
16
the Company should the Board of Directors consider the action of such
entity or person not to be in the best interests of the shareholders and the
Company. The Board of Directors, however, is not aware of any efforts to obtain
control of the Company, and the proposal of this measure is not in response to
any such efforts. Such issuance of Preferred Stock could also have the effect of
diluting the earnings per share and book value per share of the Common Stock
held by the holders of the Common Stock.
DISSENTERS' RIGHTS
Pursuant to the MBCA, the Company's shareholders are not entitled to dissenters'
rights of appraisal with respect to the proposed amendment.
If the proposed amendment is approved, a Certificate of Amendment amending the
Articles of Incorporation will be filed with the Department of Consumer and
Industry Services of the State of Michigan as promptly as practicable thereafter
and the authorization to issue Preferred Stock would become effective on the
date of such filing.
PROPOSED AMENDMENT
Article III of the Company's Articles of Incorporation, would be amended and
restated as follows assuming adoption of the proposal:
ARTICLE III
The total authorized capital stock is: 4,100,000 shares
1. Common shares: 4,000,000, common par value $2.50 per share
Preferred shares: 100,000
2. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
A. Each share of common stock shall have equal voting rights,
preferences and privileges.
B. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article III to
divide and issue the shares of Preferred Stock in series, and
by filing a certificate containing the resolution of the Board
pursuant to the applicable law of the State of Michigan, to
establish from time to time the number of shares to be
included in each series, and to prescribe the designation,
powers, relative preferences and rights of the shares of each
series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so,
from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares
of that series;
(c) whether shares of that series shall have voting
rights, in addition to the voting rights provided by
law, and, if so, the terms of such voting rights;
17
(d) whether shares of that series shall be convertible
into shares of any class or into shares of any series
of any class at the option of the holder, or the
Corporation, or upon the happening of a specified
event; and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of
Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of
such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount
may vary under different conditions and at different
redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and,
if so, the terms and amounts of such sinking fund;
(g) the rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the relative
rights of priority, if any, of payment of shares of
that series;
(h) any other relative rights, preferences and
limitations of that series as well as other
variations in the relative rights and preferences as
among different series.
REQUIRED VOTE
The affirmative vote of the holders of a majority of all outstanding shares of
Common Stock entitled to vote at a meeting of shareholders, in person or by
proxy, is required for approval of the proposed amendment to the Company's
Articles of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" APPROVAL OF THIS AMENDMENT TO
THE ARTICLES OF INCORPORATION
PROPOSAL (6) SELECTION OF INDEPENDENT AUDITORS
The firm of Crowe, Chizek and Company LLP examined and certified the financial
statements of the Corporation for the year ended December 31, 1997. Upon the
recommendation of the Audit Committee, the Board of Directors has selected
Crowe, Chizek and Company LLP to act as the Corporation's independent auditors
for 1998.
This selection is being submitted to shareholders for ratification. While such
ratification is not required, the Corporation believes it is an important
corporate decision in which shareholders should participate. If the selection is
not ratified, the Board of Directors may, nevertheless, choose to retain Crowe,
Chizek and Company LLP as auditors for 1998.
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.
OTHER MATTERS
The Board of Directors knows of no matters to be presented for consideration at
the Annual Meeting other than the matters described herein. Should any other
matter properly come before the Annual Meeting, the persons named as proxies in
the accompanying proxy card will vote on such matters in their discretion.
18
ADDITIONAL INFORMATION
The financial statements of the Corporation, supplementary financial information
and management's discussion and analysis of operations for the fiscal year ended
December 31, 1997 are included in the Corporation's 1997 Annual Report to
Shareholders. The 1997 Annual Report will be mailed to shareholders on
approximately March 20, 1998.
The Company files an Annual Report on Form 10-K with the Securities and Exchange
Commission. Form 10-K will be available upon request after March 31, 1998. To
request a copy of the Form 10-K address request to Southern Michigan Bancorp,
Inc., 51 West Pearl Street, Coldwater, Michigan 49036, Attention: Secretary.
By Order of the Board of Directors
James T. Grohalski
Secretary
19
PROXY FOR ANNUAL MEETING
SOUTHERN MICHIGAN BANCORP, INC.
The undersigned does hereby appoint Stanley E. Tipton and Jaylen T. Johnson, or
either one of them, proxy with full power of substitution, in the name, place
and stead of the undersigned, to vote all of the Common Shares of Southern
Michigan Bancorp, Inc., held by the undersigned on March 10, 1998 at the Annual
Meeting of Shareholders to be held at Southern Michigan Bank & Trust, 51 West
Pearl Street, Coldwater, Michigan, on April 20, 1998 at 4:00 p.m., and at any
adjournment or adjournments thereof with all the powers the undersigned would
possess if personally present. The Board of Directors of the Corporation
recommends a vote in favor of the following proposals:
1. Proposal to amend the Company's FOR AGAINST ABSTAIN
Articles of Incorporation to provide [ ] [ ] [ ]
for a staggered board, to provide
that a Director may be removed only
for cause, to permit new Directorships
to be created and filled only by
the shareholders or by the affirmative
vote of not less than 80% of the
Directors then in office and to permit
vacancies to be filled only by
the affirmative vote of not less than
80% of the Directors then in office.
2. Election of Directors [ ] FOR all nominees below [ ] WITHHOLD AUTHORITY to
(except as marked to vote for all nominees
the contrary below) listed below
To withhold authority to vote for any individual, mark FOR above and strike out
the name below.
James P. Briskey Thomas E. Kolassa
H. Kenneth Cole James J. Morrison
William E. Galliers Jane L. Randall
James T. Grohalski Freeman E. Riddle
Nolan E. Hooker Jerry L. Towns
Gregory J. Hull
3. Proposal to amend the Company's Articles FOR AGAINST ABSTAIN
of Incorporation to eliminate a provision [ ] [ ] [ ]
permitting shareholder action by less than
unanimous written consent in lieu of a meeting.
20
4. Proposal to amend the Company's Articles FOR AGAINST ABSTAIN
of Incorporation to require the affirmative [ ] [ ] [ ]
vote of the holders of not less than
two-thirds (2/3) of the voting stock to alter,
amend, repeal or adopt certain provisions
of the Articles of Incorporation and Bylaws,
or 80% of the Directors then in office to alter,
amend, repeal or adopt certain provisions of
the Bylaws.
5. Proposal to amend the Company's Articles of FOR AGAINST ABSTAIN
Incorporation to authorize 100,000 shares [ ] [ ] [ ]
of Preferred Stock.
6. Ratification of the selection of Crowe, FOR AGAINST ABSTAIN
Chizek and Company LLP as Independent [ ] [ ] [ ]
Auditors for 1998.
The Board of Directors recommends shareholders vote "For" the nominees listed in
Proposal (2) and "For" Proposals (1), (3), (4), (5) and (6). If NO SPECIFIC VOTE
IS GIVEN, THE PROXY WILL BE VOTED "FOR" ALL NOMINEES AND "FOR" PROPOSALS (1),
(3), (4), (5) AND (6). If any other business is presented at the meeting, this
proxy shall be voted IN THE DISCRETION OF THE PROXIES. All shares represented by
properly executed proxies will be voted as directed. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS and may be revoked before its exercise by
either written notice or notice in person at the meeting or by a subsequently
dated proxy. The undersigned hereby acknowledges receipt of a Notice of Annual
Meeting and Proxy Statement, each dated March 20, 1998, for the Annual Meeting
of Shareholders of the Company called for April 20, 1998.
Dated: , 1998
---------------------- ---------------------------
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NOTE: Please sign your name(s) exactly as printed on your stock certificates to
authorize the voting of your shares as indicated above. Persons signing as
Executors, Administrators, Trustees, etc. should so indicate. Corporate
proxies should be signed by an authorized officer.