EXHIBIT 10.3

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

                    THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement"), is made by and among SOUTHERN MICHIGAN BANCORP, INC., a Michigan
corporation (the "Corporation") and RICHARD E. DYER ("Executive") and amends and
restates in its entirety the Employment Agreement between the Corporation and
the Executive effective December 1, 2007 (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 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 15) 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 10) the term of this Agreement shall automatically be
extended until the

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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

          (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) Executive Vice-President
of the Corporation (the "principal position"); 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").

Executive will perform his duties under this Agreement 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 One Hundred Sixty
Thousand Four Hundred Forty-four Dollars ($160,444) 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.

          (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

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with regard to specific issues of coverage and benefit eligibility. All benefit
programs are 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 (prorated for 2007 based
on the number of days Executive is employed by the Corporation in 2007) to be
taken in the year earned, and which may not be accumulated or carried forward
except with the written approval of the Chief Executive Officer of the
Corporation;

          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 a local
golf club with dues not to exceed $2,400 per year, 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

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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 southern Michigan area who are
reasonably 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

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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).

          (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
position; or (B) the status, authority or responsibility of Executive's
principal position 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 St. Joseph or
contiguous counties or any substantial increase in the business travel required
of Executive; or (G) any material breach by the Corporation or the Bank 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 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:

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          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

          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 and must be reimbursed by 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.

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          (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 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. The Severance Pay will also be subject to any reduction required by
Section 9.

          7.  Cash Payment. The Corporation will make the payment 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
under this Agreement (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.
Provided, however, that for purposes of computing Average Compensation only,
Executive shall be deemed to have been employed during all of 2007, and the sum
of Executive's Salary and cash bonuses for 2007 shall be deemed to be the
greater of (A) Executive's actual Salary and cash bonuses under this Agreement,
or (B) $160,444.

          (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

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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.

          (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 and any reduction required
by Section 8.

          8.  IRC Section 280(G) Limitation. In the event that payments required
under this Agreement, when combined with any other amounts payable by the
Corporation or its Affiliates to or for the benefit of Executive, result in an
"Excess Parachute Payment," as that term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), then the amount of the
payments provided for in this Agreement shall be reduced to that amount which
causes no excise tax to be imposed under Section 4999 (or any successor thereto)
of the Code.

          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:

          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

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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:

          (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

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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 under
this Agreement; 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 St. Joseph 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 St. Joseph
County, Michigan, or in any county 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 under this Agreement and during the Restricted
Period (as defined in Section 13(a)), 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 or the Bank (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 under this Agreement and during the Restricted
Period (as defined in Section 13(a)), Executive agrees that Executive shall not,
in any manner

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directly solicit any person who 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.

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          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 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:

17150 Reagan Drive
Three Rivers, MI 49093

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

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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 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 12of 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 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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  John H. Castle

 

       Richard E. Dyer

Its:

 Chairman and Chief Executive Officer

 

       Executive Vice-President

 

 

 

 

 

 

 

"Corporation"

 

 

"Executive"

 

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