EXHIBIT 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

                    THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is made by SOUTHERN MICHIGAN BANCORP, INC., a Michigan corporation
(the "Corporation"), and John H. Castle ("Executive") and amends and restates in
its entirety the Employment Agreement between the Corporation and Executive
effective January 1, 2004 (the "Prior Agreement"). The parties agree as follows.

                    WHEREAS, the Board of Directors of the Corporation believes
that the future services of the Executive as provided in this Agreement will be
of great value to the Corporation; and

                    WHEREAS, the Corporation operates wholly owned commercial
banking subsidiaries known as Southern Michigan Bank & Trust ("SMB Bank") and
FNB Financial ("FNB Bank"), each of which is engaged in the general business of
banking (the "Banks"); and

                    WHEREAS, the Board of Directors of the Corporation has
determined that it is in the best interests of the Corporation and its
shareholders to secure Executive's continued services and to ensure Executive's
continued dedication and objectivity in the event of any threat or occurrence
of, or negotiation or other action that could lead to, or create the possibility
of, a Change in Control (as hereafter defined) of the Corporation, without
concern as to whether Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage Executive's full attention and dedication to the Corporation and the
Bank, the Board of Directors has authorized the Corporation to enter into this
Agreement; and

                    WHEREAS the Executive is willing to serve in the employ of
the Corporation and the Bank on a full-time basis as provided in this Agreement;

                    NOW, THEREFORE, the parties agree as follows.

          1.          Effective Date and Term. This Agreement will take effect
as of ________, 2008 ("Effective Date"). This Agreement shall remain in effect
until the end of the calendar year following that in which either party gives
the other Notice (as defined in Section 14) of intention to terminate this
Agreement; provided, however, that:

          (a)          except for termination as provided above pursuant to
Notice from the Executive to the Corporation, this Agreement will not terminate
during an "Active Change in Control Proposal Period" (as defined in Section 10),
even if the Corporation has given the Executive Notice of intention to terminate
this Agreement;

          (b)          except for termination as provided above pursuant to
Notice from the Executive to the Corporation, upon the occurrence of a "Change
in Control" (as defined in Section 9) the term of this Agreement shall
automatically be extended until the second anniversary of the effective date of
the Change in Control, even if the Corporation has given Notice of intention to
terminate this Agreement; and

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          (c)          termination of this Agreement shall not affect the
obligations of either party accrued before termination of this Agreement, the
obligations of the Corporation under Section 7(B)(ii) with regard to a
termination of the Employment before this Agreement terminates, the Executive's
obligations under Section 11, 12 or 13, or the obligations of the parties under
Section 18 or 20.

          2.          Employment. Executive will serve as: (A) Chairman and
Chief Executive Officer of the Corporation and Chairman and Chief Executive
Officer of SMB Bank; (the "principal positions"); and (B) in such positions with
Affiliates (defined for purposes of this Agreement as any organizations
controlling, controlled by or under common control with the Corporation) as
reasonably requested by the Corporation, provided that the duties of such
positions are consistent with Executive's responsibilities in his principal
position; (together, the "Employment"). As used in this Agreement, the term
"Corporation" includes the Banks, unless the context clearly required otherwise.

Executive will serve the Corporation and the Banks well and faithfully during
the Employment and will devote his best reasonable full time business efforts to
the Employment, except that Executive may engage in civic and professional
activities, investment oversight, and service on boards of directors as long as
such activities do not constitute a conflict of interest or impair the
Executive's performance of the duties of the Employment. The Employment may be
terminated during the term of this Agreement as provided in Sections 4 and 5.

          3.          Compensation. Executive will be compensated during the
Employment as follows:.

          (a)          Salary. Executive's salary ("Salary") will be $221,000
for 2008, subject to required payroll deductions and payable in weekly,
bi-weekly or semi-monthly installments pursuant to the Corporation's normal
payroll practices. Such Salary shall be subject to review annually commencing in
2009 and shall be maintained or increased during the term hereof as determined
by the Corporation's Board of Directors.

          (b)          Bonus. Executive will participate in any bonus programs
for senior executives of the Corporation or the Banks. The Corporation shall
negotiate in good faith with the Executive an incentive bonus plan providing the
Executive with an annual bonus opportunity, upon attainment of goals established
pursuant to the plan, equal to comparable amounts paid to other senior officers
of the Corporation.

          (c)          Equity Plans. Executive will participate in any stock
option or other equity based compensation programs ("Equity Plans") offered by
the Corporation, at a level commensurate with Executive's principal position.

          (d)          Fringe Benefits. Executive will participate in health and
dental, life insurance, short and long term disability insurance, retirement and
other employee fringe benefit programs covering the Corporation's salaried
employees as a group, and in any programs applicable to senior executives of the
Corporation or the Banks. The terms of applicable insurance policies and benefit
plans in effect from time to time will govern with regard to specific issues of
coverage and benefit eligibility. All benefit programs are

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subject to change from time to time in the Corporation's discretion, except that
Executive will at all times receive the following specific benefits:

          i.          Four weeks paid vacation per year, to be taken in the year
earned, and which may not be accumulated or carried forward except with the
written approval of the Chairman of the Executive Committee;

          ii.          The use of an executive automobile at the expense of the
Corporation and payment by the Corporation of all insurance, maintenance and
business fuel expenses relating to the automobile;

          iii.          Corporation-paid membership for the Executive in the
Coldwater Country Club, and such other clubs as agreed to by the parties from
time to time, including all dues, fees and assessments.

          (e)          Business Expenses. The Corporation will reimburse
Executive for reasonable ordinary and necessary business expenses incurred in
the course of the Employment, for fees and expenses of Executive's attendance in
the course of the Employment at banking related conventions and similar events,
for reasonable professional association and seminar expenses, and for any
additional expenses authorized by the Corporation, subject to the Executive's
submission of proper documentation for tax and accounting purposes.
Reimbursement under this section will be paid within thirty (30) days after the
Executive submits documentation as provided by this Section, provided that
payments may not be made after March 15 of the calendar year following the
calendar year in which the expenses were incurred.

          4.          Termination of the Employment Without Severance Pay.
Executive shall not be entitled to any further compensation from the Corporation
or any Affiliate after termination of the Employment as permitted by this
Section 4, except (A) unpaid Salary installments through the end of the week in
which the Employment terminates, (B) any vested benefits accrued as of the date
of termination of the Employment under the terms of any written Corporation or
Bank employment, compensation or benefit program; and (C) any rights of
Executive to indemnification under the provisions of the Articles or Bylaws of
the Corporation or the Banks (together, the "Vested Rights").

          (a)          Death. The Employment will terminate automatically upon
Executive's death.

          (b)          Disability. The Corporation may terminate the Employment
due to Executive's "Permanent Disability", as defined and provided for in this
Section 4(b). If Executive has been unable by reason of physical or mental
disability to properly perform his duties hereunder for a period of one hundred
eighty (180) days, the Corporation may give the Executive Notice of its
intention to terminate the Employment due to Permanent Disability. If Executive
wishes to contest the existence of termination due to Permanent Disability, he
must give the Corporation Notice of his disagreement within ten (10) days after
receipt of the Notice from the Corporation, and he must promptly submit to
examination by three physicians in the Coldwater Michigan area who are
reasonably

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acceptable to both Executive and the Corporation (with consultation from other
physicians as determined by those three). If (A) within sixty (60) days after
receipt by the Executive of the Notice from the Corporation, two of such
physicians shall issue their written statement to the effect that in their
opinion, based on their diagnosis, the Executive is capable of resuming his
employment and devoting his full time and energy to discharging his duties
within sixty (60) days after the date of such statement, and (B) Executive does
in fact within such sixty (60) day period resume the Employment and properly
perform his duties hereunder, then the Employment shall not be terminated due to
Permanent Disability. It is understood that the Corporation has the right to
terminate the Employment due to Executive's disability without meeting the
standards in this Section 4(b), but in that event the termination shall be
deemed to be a termination of the Employment pursuant to Section 5(a).

          (c)          Termination by Corporation for Cause. The Corporation may
terminate the Employment for "Cause", defined as removal by order of a
regulatory agency having jurisdiction over the Corporation or the Banks, or the
Executive's willful and repeated failure to perform his duties under this
Employment Agreement, which failure has not been cured within thirty (30) days
after the Corporation gives Notice thereof to the Executive; it being expressly
understood that negligence or bad judgment shall not constitute "Cause" so long
as such act or omission shall be without intent of personal profit and is
reasonably believed by the Executive to be in or not adverse to the best
interests of the Corporation.

          (d)          Discretionary Termination by Executive. Executive may
terminate the Employment at will, with at least thirty (30) days advance
Notice.          If Executive gives such notice of termination, the Corporation
may (but need not) relieve Executive of some or all of Executive's offices and
responsibilities for part or all of such notice period, provided that
Executive's Salary and benefits are continued for the lesser of thirty (30) days
or the remaining period of the Employment.

          (e)          Termination of Employment after Termination of This
Agreement. If Executive continues to be employed by the Corporation or the Banks
after termination of this Agreement as provided in Section 1, Executive's
employment shall be terminable by either party at will.

          5.          Termination With Severance Pay. Executive shall not be
entitled to any further compensation from the Corporation or any Affiliate after
termination of the Employment as permitted by this Section 5, except (A) Vested
Rights; and (B) Severance Pay under Section 6 or the Cash Payment under Section
7, whichever is applicable.

          (a)          Discretionary Termination by Corporation. The Corporation
may terminate the Employment during the term of this Agreement at will, by
Notice to Executive. Any termination of Executive's Employment by the
Corporation under Section 4 that is found not to meet the standards of such
Section will be considered to have been a termination under this Section 5(a).

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          (b)          Termination by Executive for Good Reason After a Change
in Control. Executive may terminate the Employment during the term of this
Agreement for "Good Reason" after the occurrence of a Change in Control if there
is a material negative change to the employment relationship between Executive
and the Corporation because: (A) Executive is removed from any of his principal
positions; or (B) the status, authority or responsibility of Executive's
principal positions is materially diminished; or (C) Executive's Salary as then
in effect is materially reduced, or (D) Executive's bonus opportunity is
materially reduced; or (E) the overall value to Executive of the fringe benefit
programs in which he participates (other than Equity Plans) is materially
reduced from the overall value of the fringe benefit programs applicable to
Executive immediately before the Change in Control; or (F) any requirement of
the Corporation that Executive be based anywhere other than in Branch or
contiguous counties or any substantial increase in the business travel required
of Executive; or (G) any material breach by the Corporation or the Banks or any
successor of its obligations to Executive under this Agreement.

          Executive may not terminate the employment for "Good Reason" unless:

          i.          Executive notifies the Board in writing, within 90 days
after Executive becomes aware of the act or omission constituting Good Reason
that the act or omission in question constitutes Good Reason and explaining why
the Executive considers it to constitute Good Reason;

          ii.          the Corporation fails, within 30 days after notice from
Executive under i. above, to revoke the action or correct the omission and make
the Executive whole; and

          iii.          Executive gives notice of termination within 90 days
after expiration of the 30-day period under ii. above.

          6.          Severance Pay. The Corporation will pay and provide
Executive with the payments and benefit continuation provided in this Section 6
("Severance Pay") if Executive's Employment is terminated during the term of
this Agreement as provided in Section 5(a) above in a manner that constitutes a
"separation from service" as that term is defined by Section 409A of the
Internal Revenue Code of 1986 (the "Code") and Executive is not entitled to the
Cash Payment (as defined in Section 7). If Executive becomes entitled to
Severance Pay under this Section, and subsequently becomes entitled to the Cash
Payment under Section 7(B)(ii), the amount of the Cash Payment under Section 7
shall be reduced by the amount of Severance Pay already received by Executive
under this Section 6, and no further Severance Pay will be payable under this
Section 6.

          (a)  Amount and Duration of Severance Pay. Subject to the other
provisions of this Section, Severance Pay will consist of:

          i.          Salary Continuation. Continuation of Executive's Salary
for fifty-two (52) weeks following the week in which the Employment terminates
(the "Severance Pay Period"), subject to required payroll withholding; and

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          ii.          Health Coverage Continuation. Reimbursement by the
Corporation of expenses incurred by Executive to continue Executive's then
current employee and dependent health, dental, and prescription drug coverage
under COBRA during the Severance Pay Period, provided (A) that Executive elects
and remains eligible for COBRA continuation coverage, (B) that Executive
continues to pay the normal employee contribution for such coverage, (C) that
the Corporation's obligation to provide coverage will end if Executive becomes
eligible for comparable coverage from a new employer; and (D) that
reimbursements under this Section will be made within thirty (30) days after the
Executive submits documentation of the reimbursable expense, but may not be made
after the last day of the second calendar year following the calendar year in
which the Executive's employment terminates; and

          iii.          Outplacement Assistance. Reimbursement of up to
$5,000.00 of outplacement assistance from an outplacement assistance firm
selected by Executive and approved by the Corporation (whose approval shall not
be unreasonably withheld). Expenses must be incurred under this Section by the
last day of the second calendar year following the calendar year in which
Executive's Employment terminates. Such expenses will be reimbursed within
thirty (30) days after the Executive submits documentation of the expenses,
provided that payments may not be made after the last day of the third calendar
year following the calendar year in which Executive's Employment terminates.

Executive will receive the Salary continuation provided in Section 6(a)(i)
notwithstanding any other earnings that Executive may have, and subject to
offset only as provided in Section 6(c). If Executive dies during the Severance
Pay Period, Salary continuation under Section 6(a)(i) will continue for the
remainder of the Severance Pay Period for the benefit of Executive's designated
beneficiary (or Executive's estate if Executive fails to designate a
beneficiary), and health coverage continuation under Section 6(a)(ii) will
continue for Executive's eligible dependants for the remainder of the Severance
Pay Period subject to the conditions in Sections 6(a)(ii) (A) and (B).

          (b)          Conditions to Severance Pay. To be eligible for Severance
Pay, Executive must meet the following conditions: (i) Executive must comply
with Executive's obligations under this Agreement that continue after
termination of the Employment; and (ii) Executive must resign upon written
request by Corporation from all positions with or representing the Corporation
or any Affiliate, including but not limited, to membership on boards of
directors; and (iii) Executive must provide the Corporation for a period of
thirty (30) days after the Employment termination date with consulting services
regarding matters within the scope of Executive's former duties upon request by
the Corporation's Chief Executive Officer; provided, however, that Executive
will only be required to provide those services by telephone at Executive's
reasonable convenience and without substantial interference with Executive's
other activities or commitments.

          (c)          Reductions to Severance Pay. The Severance Pay due to
Executive under Section 6(a)(i) for any week will be reduced (but not below 0)
by: (i) any disability benefits to which Executive is entitled for that week
under any disability insurance policy

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or program of the Corporation or any Affiliate (including but not limited to
worker's disability compensation); and (ii) any severance pay payable to
Executive under any other agreement or Corporation policy; (iii) any payment due
to Executive under the Federal Worker Adjustment and Retraining Notification Act
or any comparable state statute or local ordinance.

          7.          Cash Payment. The Corporation will make the payments
provided for in this Section 7 if Executive's Employment is terminated during
the term of this Agreement in a manner that constitutes a "separation from
service" as that term is defined by Section 409A of the Code: (A) by Executive
as permitted by Section 5(b) or (B) by the Corporation as provided in Section
5(a), and such termination of Employment occurs either (i) after the date of a
Change in Control or (ii) within six months before the date of a Change in
Control.

          (a)          Amount and Payment of Cash Payment. The Corporation will
make a cash payment (the "Cash Payment") to Executive in an amount equal to 2.99
times the Executive's Average Compensation (as defined below). The Cash Payment
shall be paid to Executive in a single lump sum on the tenth business day after
termination of the Employment. If Executive dies after becoming entitled to the
Cash Payment but before it has been paid, the Cash Payment will be made to
Executive's designated beneficiary (or Executive's estate if Executive fails to
designate a beneficiary).

          (b)          Average Compensation. As used in this Section 7 "Average
Compensation" means (A) the sum of the Executive's Salary and cash bonuses for
each of the most recent three complete calendar years of Executive's employment
by the Corporation (or such lesser number of complete calendar years as the
Executive has been employed by the Corporation) divided by (B) three (or the
lesser number of complete calendar years for which the Executive has been
employed by the Corporation). Average Compensation shall not include any amount,
other than Salary and cash bonuses, included in Executive's taxable compensation
for federal income tax purposes, such as the reporting of previously deferred
compensation or gain realized upon exercise of any non qualified stock options.

          (c)          Health Coverage Continuation. In addition to the
foregoing, the Corporation will reimburse Executive for expenses incurred by
Executive to continue Executive's then current employee and dependent health,
dental, and prescription drug coverage during the period of time in which the
Executive would be entitled to continuation coverage under COBRA, provided (A)
that Executive elects and remains eligible for COBRA continuation coverage, (B)
that Executive continues to pay the normal employee contribution for such
coverage, and (C) that the Corporation's obligation to provide coverage will end
if Executive becomes eligible for comparable coverage from a new employer; and
(D) that reimbursements under this Section will be made within thirty (30) days
after the Executive submits documentation of the reimbursable expense, but may
not be made after the last day of the calendar year following the second
calendar year in which the Executive's employment terminates.

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          (d)          Reductions to Cash Payment. The Executive will receive
the Cash Payment notwithstanding any other earnings that Executive may have and
without offset of any kind except required payroll deductions.

          8.          Gross-Up Payment. Within thirty (30) days following a
payment to the Executive pursuant to Section 7 of this Agreement, the
Corporation shall obtain a determination of whether any amount paid under this
Agreement, either separately or in conjunction with any other payments, benefits
and entitlements received by the Executive hereunder or under any other plan or
agreement under which Executive participates or to which he is a party, would
constitute an "Excess Parachute Payment" within the meaning of Section 280G of
the Code, and would thereby be subject to the excise tax, interest and penalties
imposed by Section 4999 of the Code (the "Excise Tax"). In such event, the
Corporation shall pay to Executive, within thirty (30) days of such
determination, but no later than March 15 of the calendar year following the
year in which Executive's separation from service (as defined by Code Section
409A) occurs, an additional cash payment (a "Gross-Up Payment"), in an amount
equal to the amount of such Excise Tax, plus all federal and state income or
other taxes, interest or penalties with respect to the payment of the amount of
such Excise Tax, including all such taxes with respect to any such grossing-up
amount. If, at a later date, the Internal Revenue Service assesses a deficiency
against Executive for the Excise Tax which is greater than that which was
determined at the time such amounts were paid, the Corporation shall pay to
Executive, within thirty (30) days of such assessment, but no later than March
15 of the calendar year following the year in which the deficiency is assessed,
the amount of such unreimbursed Excise Tax, plus any interest, penalties and
reasonable professional fees or expenses incurred by the Executive as a result
of such assessment, including all such taxes with respect to any such additional
amount, provided that in no event shall such payment be made until six (6)
months following Executive's separation from service, if at the time of such
separation from service the Executive is a specified employee as defined by
Section 409A of the Code. The Corporation shall withhold from any amounts paid
under this Agreement the amount of any Excise Tax or other federal, state or
local taxes then required to be withheld. Computations of the amount of any
Gross-Up Payment paid under this Section shall be conclusively made by the
Corporation's independent accountants, or other independent accountants retained
by the Corporation, in consultation, if necessary, with the Corporation's
independent legal counsel. If, after the Executive receives any gross-up
payments or other amount pursuant to this Section, the Executive receives any
refund with respect to the Excise Tax, the Executive shall promptly pay the
Corporation the amount of such refund within thirty (30) days of receipt by the
Executive, on a grossed-up basis. If the Corporation deems it necessary or
advisable to contest or appeal any assessment, or determination made by the
Internal Revenue Service relating to the imposition of an Excise Tax as
described herein (an "Excise Tax Contest/Appeal"), Executive covenants and
agrees to reasonably cooperate with the Corporation in connection with the
Excise Tax Contest/Appeal; provided, however, that the Corporation shall be
responsible for all professional costs and expenses incurred by the Executive in
connection with such Excise Tax Contest/Appeal.

          9.          Definition of Change in Control. As used in this
Agreement, the term "Change in Control" means any of the occurrences listed in
(a) below, subject to (b) and (c) below.

          (a)          A Change in Control shall be deemed to have occurred if:

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          i.          Any person or group (as such terms are used in connection
with Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13(d)(3) and 13(d)(5) under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 50% or
more of the combined voting power of the Corporation's then outstanding
securities;

          ii.          A merger, consolidation, sale of assets, reorganization,
or proxy contest is consummated and, as a consequence of which, members of the
Corporation's Board of Directors in office immediately prior to such transaction
or event constitute less than a majority of the Board of Directors thereafter;

          iii.          During any period of 24 consecutive months, individuals
who at the beginning of such period constitute the Board of Directors of the
Corporation (including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was approved by a vote
of at least one-half of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors; or

          iv.          A merger, consolidation or reorganization is consummated
with any other corporation pursuant to which the shareholders of the Corporation
immediately prior to the merger, consolidation or reorganization do not
immediately thereafter directly or indirectly own more than fifty percent (50%)
of the combined voting power of the voting securities entitled to vote in the
election of directors of the merged, consolidated or reorganized entity.

          (b)          Notwithstanding the foregoing, no trust department or
designated fiduciary or other trustee of such trust department of the
Corporation or a subsidiary of the Corporation, or other similar fiduciary
capacity of the Corporation with direct voting control of the stock shall be
treated as a person or group within the meaning of subsection (a)(i) hereof.
Further, no profit-sharing, employee stock ownership, employee stock purchase
and savings, employee pension, or other employee benefit plan of the Corporation
or any of its subsidiaries, and no trustee of any such plan in its capacity as
such trustee, shall be treated as a person or group within the meaning of
subsection (a)(i) hereof.

          (c)          Notwithstanding anything contained in this Agreement to
the contrary, if Executive's employment is terminated prior to a Change in
Control and Executive reasonably demonstrates that such termination was at the
request of or in response to a third party who has indicated an intention or
taken steps reasonably calculated to effect a Change in Control (a "Third
Party"), and who subsequently effectuates a Change in Control, then for all
purposes of this Agreement, the date of a Change in Control shall mean the date
immediately prior to the date of such termination of Executive's employment.

          10.          Definition of "Active Change in Control Proposal Period".
As used in this Agreement the term "Active Change in Control Proposal Period"
shall mean any period:

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          (a)          during which the Board of Directors of the Corporation
has authorized solicitation by the Corporation of offers for a transaction
which, if consummated, would constitute a Change in Control; or

          (b)          during which the Corporation has received a proposal for
a transaction which, if consummated, would constitute a Change in Control, and
the Board of Directors has not determined to reject such proposal without any
counter-offer or further discussions; or

          (c)          during which any proxy solicitation or tender offer with
regard to the securities of the Corporation is ongoing, if the intent of such
proxy solicitation or tender offer is to cause the Corporation to solicit offers
for or enter into a transaction that would constitute a Change in Control.

          11.          Confidentiality, Return of Property. Executive has
obtained and may obtain confidential information concerning the business,
operations, financial affairs, organizational and personnel matters, policies,
procedures and other non-public matters of Corporation and its Affiliates, and
those of third-parties that is not generally disclosed to persons not employed
by Corporation or its subsidiaries. Such information (referred to herein as the
"Confidential Information") may have been or may be provided in written form or
orally. Executive shall not disclose to any other person the Confidential
Information at any time during or after termination of the Employment, except
that during the Employment Executive may use and disclose Confidential
Information as reasonably required by the Employment. Upon termination of the
Employment, Executive will deliver to the Corporation any and all property owned
or leased by the Corporation or any Affiliate and any and all Confidential
Information (in whatever form) including without limitation all customer lists
and information, financial information, business notes, business plans,
documents, keys, credit cards and other Corporation-provided equipment.
Executive's commitments in this Section will continue in effect after
termination of the Employment and after termination of this Agreement. The
parties agree that any breach of Executive's covenants in this Section would
cause the Corporation irreparable harm, and that injunctive relief would be
appropriate.

          12.          Inventions, Discoveries and Improvements. Executive
hereby agrees to assign and transfer to the Corporation, its successors and
assigns, his entire right, title and interest in and to any and all inventions,
discoveries, trade secrets and improvements thereto which he may discover to
develop, either solely or jointly with others, during his employment hereunder
and for a period of one year after termination of such employment, which would
relate in any way to the business of the Corporation or any Affiliate of the
Corporation, together with all rights to letters patent, copyrights or
trademarks which may be granted with respect thereto. Immediately upon making or
developing any invention, discovery, trade secret or improvement thereto,
Executive shall notify the Corporation thereof and shall execute and deliver to
the Corporation, without further compensation, such documents as may be
necessary to assign and transfer to the Corporation his entire right, title and
interest in and to such invention, discovery, trade secret or improvement
thereto, and to prepare or prosecute applications for letters patent with
respect to the same in the name of the Corporation. Executive's obligations
under this Section 12 shall continue in effect, as to inventions, discoveries
and improvements covered by this Section 12, notwithstanding any termination of
the employment or this Agreement.

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          13.          Noncompetition and Nonsolicitation.

          (a)          In view of Executive's importance to the success of the
Corporation, Executive and Corporation agree that the Corporation would likely
suffer significant harm from Executive's competing with Corporation during the
Employment and for some period of time thereafter. Accordingly, Executive agrees
that Executive shall not engage in competitive activities (except in Marginal
Business Areas, as defined in Section 13(e)) either: (A) while employed by
Corporation; or (B) if Executive's Employment is terminated during the term of
this Agreement, during the Restricted Period (as defined below). Executive shall
be deemed to engage in competitive activities if he shall, without the prior
written consent of the Corporation, (i) in Branch County, Michigan, or in any
county contiguous thereto (including the municipalities therein), render
services directly or indirectly, as an employee, officer, director, consultant,
advisor, partner or otherwise, for any organization or enterprise which competes
directly or indirectly with the business of Corporation or any of its Affiliates
in providing financial products or services (including, without limitation,
banking, insurance, or securities products or services) to consumers and
businesses, or (ii) directly or indirectly acquires any financial or beneficial
interest in (except as provided in the next sentence) any organization which
conducts or is otherwise engaged in a business or enterprise in Branch County,
Michigan, or any of the counties contiguous thereto (including all
municipalities) which competes directly or indirectly with the business of
Corporation or any of its Affiliates in providing financial products or services
(including, without limitation, banking, insurance or securities products or
services) to consumers and businesses. Notwithstanding the preceding sentence,
Executive shall not be prohibited from owning less than 1 percent of any class
of publicly traded securities. For purposes of this Section 13 the term
"Restricted Period" shall equal one (1) year, commencing as of the date of
termination of Executive's Employment during the term of this Agreement.

          (b)          While employed by Corporation and for a period of one (1)
year following any termination of Executive's Employment during the term of this
Agreement, Executive agrees that Executive shall not, in any manner directly (i)
solicit by mail, by telephone, by personal meeting, or by any other means, any
customer or prospective customer of Corporation to whom Executive provided
services, or for whom Executive transacted business, or whose identity become
known to Executive in connection with Executive's services to Corporation
(including employment with or services to any predecessor or successor
entities), to transact business with a person or an entity other than the
Corporation or its Affiliates or reduce or refrain from doing any business with
the Corporation or its Affiliates or (ii) interfere with or damage (or attempt
to interfere with or damage) any relationship between Corporation or any of its
Affiliates and any such customer or prospective customer, or any shareholder of
the Corporation. The term "solicit" as used in this Section 13 means any
communication of any kind whatsoever, inviting, encouraging or requesting any
person to take or refrain from taking any action with respect to the business of
Corporation or any of its Affiliates.

          (c)          While employed by Corporation and for a period of one (1)
year following any termination of Executive's Employment during the term of this
Agreement, Executive agrees that Executive shall not, in any manner directly
solicit any person who

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is an employee of Corporation or any of its Affiliates to apply for or accept
employment or a business opportunity with any other person or entity.

          (d)          The parties agree that nothing herein shall be construed
to limit or negate that common law of torts or trade secrets where it provides
broader protection than that provided herein.

          (e)          Activities by Executive that would otherwise violate
Section 13(a) will not be considered a violation of this Agreement if such
activities are conducted only with regard to a Marginal Business Area, defined
as a line of business (other than banking) engaged in by the Corporation or any
of its Affiliates but which represents less than 5% of the consolidated
non-interest income of the Corporation and its Affiliates.

          (f)          Notwithstanding the foregoing, this Section 13 shall not
apply after termination of the Employment if Executive is entitled to the Cash
Payment under Section 7.

          (g)          If Executive's Employment is terminated during the term
of this Agreement, the Executive's obligations under this Section shall survive
termination of this Agreement.

          14.          Successors; Binding Agreement.

          (a)          This Agreement shall not be terminated by any merger or
consolidation of the Corporation whereby the Corporation is or is not the
surviving or resulting corporation or as a result of any transfer of all or
substantially all of the assets of the Corporation. In the event of any such
merger, consolidation, or transfer of assets, the provisions of this Agreement
shall be binding upon the surviving or resulting corporation or the person or
entity to which such assets are transferred.

          (b)          The Corporation agrees that concurrently with any merger,
consolidation or transfer of assets constituting a Change in Control, it will
cause any successor or transferee unconditionally to assume, by written
instrument delivered to Executive (or his beneficiary or estate), all of the
obligations of the Corporation hereunder. Failure of the Corporation to obtain
such assumption prior to the effective date of any Change in Control shall be a
material breach of the Corporation's obligations to Executive under this
Agreement.

          (c)          This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive shall die while any amounts would be payable to Executive hereunder
had Executive continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to such
person or persons appointed in writing by Executive to receive such amounts or,
if no person is so appointed, to Executive's estate.

          15.          Notice. For purposes of this Agreement, all notices and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given

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when delivered or received by facsimile transmission or five (5) days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed as follows:

If to the Corporation:

51 West Pearl Street
Coldwater, MI 49036

 

 

If to the Executive:

78 Douglas Avenue
Coldwater, MI 49036

Either party may change its address for Notices by Notice to the other party.

          16.          Amendment and Waiver. No provisions of this Agreement may
be amended, modified, waived or discharged unless the waiver, modification, or
discharge is authorized by the Corporation's board of directors, or a committee
of the board of directors, and is agreed to in a writing signed by Executive and
by the Chief Executive Officer of the Corporation. No waiver by either party at
any time of any breach or non-performance of this Agreement by the other party
shall be deemed a waiver of any prior or subsequent breach or non-performance.

          17.          Severability. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of
any other provision of this Agreement, which will remain in full force and
effect. If a court of competent jurisdiction ever determines that any provision
of this Agreement (including, but not limited to, all or any part of the
non-competition covenant in this Agreement) is unenforceable as written, the
parties intend that the provision shall be deemed narrowed or revised in that
jurisdiction (as to geographic scope, duration, or any other matter) to the
extent necessary to allow enforcement of the provision. The revision shall
thereafter govern in that jurisdiction, subject only to any allowable appeals of
that court decision.

          18.          Dispute Resolution.

          (a)          Arbitration. The Corporation and Executive agree that
except as provided in Section 18(b) the sole and exclusive method for resolving
any dispute between them arising out of or relating to this Agreement shall be
arbitration under the procedures set forth in this Section; provided, however,
that nothing in this Section prohibits a party from seeking preliminary or
permanent judicial injunctive relief, or from seeking judicial enforcement of
the arbitration award. The arbitrator shall be selected pursuant to the Rules
for Commercial Arbitration of the American Arbitration Association. The
arbitrator shall hold a hearing at which both parties may appear, with or
without counsel, and present evidence and argument. Pre-hearing discovery shall
be allowed in the discretion of and to the extent deemed appropriate by the
arbitrator, and the arbitrator shall have subpoena power. The procedural rules
for an arbitration hearing under this Section shall be the rules of the American
Arbitration Association for Commercial Arbitration hearings and any rules as the
arbitrator may determine. The hearing shall be completed within ninety (90) days
after the arbitrator has been selected and the arbitrator shall issue a written
decision within sixty (60) days after the close of the hearing. The hearing
shall be held in Coldwater, Michigan. The award of the arbitrator shall be final
and binding and may be enforced by and certified as a judgment

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of the Circuit Court for Branch County, Michigan or any other court of competent
jurisdiction. One-half of the fees and expenses of the arbitrator shall be paid
by the Corporation and one-half by Executive, except that the fees and expenses
of the Arbitrator incurred by Executive shall be reimbursed in full by the
Corporation with respect to any arbitration initiated after the date of a Change
in Control. The attorney fees and expenses incurred by the parties shall be paid
by each party, except that the Corporation shall reimburse the Executive's
reasonable attorney fees incurred with regard to any arbitration proceeding
initiated after a Change in Control unless the arbitrator finds that the
Executive's claims or defenses in such proceeding lack merit and were asserted
in bad faith. Any such reimbursement will be made within thirty (30) days after
the Executive submits documentation of such expenses, provided that no payment
will be made after the last day of the calendar year following the calendar year
in which the expense was incurred. To the extent that (i) the reimbursement of
attorney fees, together with any other payments under this Agreement that
constitute separation pay under Code Section 409A and the regulations
thereunder; (ii) a portion of such separation pay exceeds the amount that would
be exempt from consideration as a deferral of compensation under Treas. Reg. §
1.409A-1(b)(9)(iii) (the "Excess Separation Payment"); and (iii) the Excess
Separation Payment is not otherwise exempt from treatment as a deferral of
compensation under Treas. Reg. § 1.409A-1(b), then such amounts shall be reduced
to the extent necessary so that the Executive does not receive an Excess
Separation Payment.

          (b)          Section 18(a) shall be inapplicable to a dispute arising
out of or relating to Sections 12 of this Agreement.

          19.          Entire Agreement. No agreements or representations, oral
or otherwise, express or implied, with respect to Executive's Employment with
the Corporation or any of the subjects covered by this Agreement have been made
by either party that are not set forth expressly in this Agreement, and this
Agreement supersedes any pre-existing employment agreements, including the Prior
Agreement, and any other agreements on the subjects covered by this Agreement;
provided, however, except as expressly modified hereby, this Agreement shall not
affect Executive's rights under the Deferred Compensation Agreement between
Executive and SMB Bank, as amended, Executive's rights under the SMB Bank
Supplemental Retirement Plan or under other retirement and health and welfare
plans in which Executive participates which are maintained by the Corporation or
its Affiliates.

          20.          Governing Law. The validity, interpretation, and
construction of this Agreement are to be governed by Michigan laws, without
regard to choice of law rules. The parties agree that any judicial action
involving a dispute arising under this Agreement will be filed, heard and
decided in the Branch County Circuit Court. The parties agree that they will
subject themselves to the personal jurisdiction and venue of either court,
regardless of where Executive or the Corporation may be located at the time any
action may be commenced. The parties agree that the locations specified above
are mutually convenient forums and that each of the parties conducts business in
Branch County.

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          21.          Counterparts. This Agreement may be signed in original or
by fax in counterparts, each of which shall be deemed an original, and together
the counterparts shall constitute one complete document.

The parties made this Agreement effective as of the Effective Date in Section 1.

SOUTHERN MICHIGAN BANCORP, INC.

 

 

 

 

 

 

 

 

By:

 

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Nolan E. Hooker

 

John H. Castle

Its:

Chairman of the Compensation Committee

 

Chairman and Chief Executive Officer

 

 

 

 

 

"Corporation"

 

"Executive"

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