SEC Company Response from SOUTHERN MICHIGAN BANCORP INC (CIK 0000703699) — Oct 12, 2004
SOUTHERN MICHIGAN BANCORP INC (CIK 0000703699)
Date: Oct. 12, 2004 · CIK: 0000703699 · Accession: 0000905729-04-000365
AI Filing Summary & Sentiment
Referenced dates: September 21, 2004
Letter
Office of Mergers and Acquisitions Division of Corporation Finance Securities and Exchange Commission Schedule 13E-3 Filed September 3, 2004 File No. 2-78178 Preliminary Schedule 14A Filed September 3, 2004 File No. 0-9219
Dear Mr. Pressman:
We have been engaged by Southern Michigan Bancorp, Inc. ("Southern" or the "Company") as counsel to assist the Company in the preparation of its Schedule 13E-3 and Preliminary Schedule 14A filed on September 3, 2004, and in responding to your letter dated September 21, 2004 (the "Letter"), in which you provided comments on Southern's Schedule 13E-3 and Preliminary Schedule 14A.
This letter provides the Company's response to your comments. For convenience of reference, each of the Commission's comments is set forth in full and Southern's response immediately follows. Page references indicated below refer to pages of the proxy statement and Schedule 13E-3, as noted. We have enclosed with this letter a copy of the revised proxy statement and Amendment No. 1 to the Schedule 13E-3. We have also enclosed marked copies of these documents to identify the changes we have made since the initial filing on September 3, 2004.
Mr. Michael Pressman
October 12, 2004
Page 2
_______________________
Schedule 14A
Comment 1:
Revise the proxy statement to include all of the disclosure required by Schedule 13E-3 as to SMB Merger Company. To the extent that SMB, as a newly-formed company, has not performed the analyses required by that Schedule, you may specifically adopt the conclusions and analyses of another filing person.
Response:
As a newly-formed company and wholly owned subsidiary of the Company, SMB Merger Company has not undertaken independent analyses relating to the going private transaction. Its directors and officers are directors and officers of the Company. To the extent that SMB Merger Company is required, as a filer, to analyze the proposed transaction, it expressly adopts the relevant conclusions and analyses of the Company. The proxy statement and Schedule 13E-3 now contain language to this effect. (See "INFORMATION ABOUT SOUTHERN MICHIGAN AND ITS AFFILIATES - SMB Merger Co.," page 33 of the proxy statement and page 1 of the Schedule 13E-3.)
Comment 2:
Please revise to indicate that the proxy statement and form of proxy card are preliminary copies. Refer to Rule 14a-6(e)(1).
Response:
The proxy statement and form of proxy card are preliminary copies. These documents have been revised to clearly disclose this fact. (See cover letter and cover page of proxy statement and form of proxy card.)
Comment 3:
Where appropriate please include the disclosure required by Items 1010(a)(3) and 1014(a)(4)*. *[For the purpose of our response, we have assumed that the Commission's reference to Item 1014(a)(4) was intended to reference Item 1010(a)(4).]
Response:
Item 1010(a)(3) requires the disclosure of the ratio of earnings to fixed charges for the two most recent fiscal years and the latest interim period. Item 1010(a)(4)
Mr. Michael Pressman
October 12, 2004
Page 3
_______________________
requires the disclosure of the book value per share as of the date of the most recent balance sheet. The Company refers the staff to "Pro Forma Financial Information - PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES" (page 48) and "- Pro Forma Book Value Per Share (page 49) of the proxy statement, where such information is disclosed.
Summary
Comment 4:
Either in this section or in your Questions and Answers section, please include a brief discussion of dissenters rights.
Response:
The Company has voluntarily granted dissenters' rights to those shareholders being cashed-out as a result of the going private transaction. These shareholders may elect to dissent from the merger and have the amount of their cash payment determined by a court. The Summary section now includes a brief discussion of dissenters' rights and a prominent cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 2.)
Comment 5:
It appears from the disclosure on page 6 under "Beneficial owners of shares held in "street name," that a beneficial owner of fewer than 500 shares may not be "cashed out" in this merger, if that beneficial owner holds through a record holder who in the aggregate, holds more than 500 shares. Since shareholders who receive this proxy statement may want to increase or decrease their holdings in order to receive cash in the merger or remain as a continuing shareholder, this discussion is critical and should be summarized here or in the Question and Answer section.
Response:
Beneficial owners of fewer than 500 shares may continue to be shareholders following the merger if they hold their shares of common stock in "street name" through record holders who hold 500 or more shares. The Summary section now includes a brief discussion regarding street name holders and a cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 2 and "SPECIAL FACTORS - Effects of the Merger," page 7.)
Mr. Michael Pressman
October 12, 2004
Page 4
_______________________
Comment 6:
Include bulleted disclosure highlighting the potential disadvantages of the reverse stock split.
Response:
There are several arguable disadvantages of the proposed merger and deregistration. The Summary section now refers to these disadvantages and provides a cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 3.)
Comment 7:
Please revise the penultimate bullet point to expressly indicate whether the Board and Audit Committee believe the Rule 13e-3 transaction is both substantively and procedurally fair to the company's unaffiliated shareholders in accordance with Item 1014(a) of Regulation M-A. Please make corresponding revisions throughout.
Response:
The Company has revised the bullet point disclosure to state that the Board of Directors has determined that the transaction is both substantively and procedurally fair to the Company's unaffiliated shareholders. (See "SUMMARY," page 3.) The Company has also made similar modifications in other portions of the proxy statement. (See "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors," page 10.) In addition, the Company refers the staff to "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors," pages 10-12, where the Company discussed the fairness of the transaction to unaffiliated shareholders.
The Audit Committee voted separately to approve the proposed transaction and recommend its approval by the board. After voting to approve the proposed transaction and recommend that the board approve the transaction and adopt the Plan of Merger, each member of the Audit Committee approved, as a member of the Board of Directors, the resolutions declaring the proposed merger to be fair to and in the best interest of Southern Michigan and its shareholders (including all unaffiliated shareholders). (See "SPECIAL FACTORS - Background of the Merger Proposal," page 9.)
Mr. Michael Pressman
October 12, 2004
Page 5
_______________________
When considering our response to this comment, please bear in mind that the Company's affiliates are beneficial owners of less than 5% of the Company's stock and, therefore, fairness to unaffiliated shareholders and to shareholders generally is effectively the same.
This proxy statement contains forward looking statements, page 3
Comment 8:
Please delete the statement that the Company undertakes no obligations to update, amend or clarify forward looking statements, or explain how this statement is consistent with your obligations under Rule 14a-9. Delete the comparable language on page 2 of the Schedule 13E-3, since it is also inconsistent with the requirements of Rule 13e-3(d)(2).
Response:
We have deleted the language in which the Company indicated that it had no obligation to update, amend or clarify forward looking statements in both the proxy statement and the Schedule 13E-3. (See "SUMMARY," page 3 in the proxy statement and pages 1-2 in the Schedule 13E-3.)
Special Factors, page 5
Reasons for the Merger, page 5
Comment 9:
We note that your lists of costs in the second paragraph in this section does not match the expenses discussed on page 21. For example, you indicate in the second paragraph that being subject to the Exchange Act causes you to be subject to costs of approximately $166,000 annually. Disclosure on page 21 indicates that the costs were $90,700 in 2002 and $115,000 in 2003 and are estimated to be $157,600 in 2004 and $318,000 in 2005. Please explain from where you derive the $166,000 figure.
Response:
The information summarized on page 5 now conforms to the more detailed cost information later in the proxy statement and includes a cross-reference to the more detailed information. We have removed the reference to $166,000 and modified the
Mr. Michael Pressman
October 12, 2004
Page 6
_______________________
language in the second paragraph of "Reasons for the Merger" and in the "Termination of Exchange Act Registration" sections to avoid confusion. (See "SPECIAL FACTORS - Reasons for the Merger," page 5 and "THE TRANSACTION - Termination of Exchange Act Registration," pages 25-26.)
Comment 10:
Provide additional disclosure clarifying the nature of the one-time costs, including quantification. Provide similar disclosure on page 21.
Response:
The one-time costs referenced in the second paragraph of the "Reasons for the Merger" section result from reviewing internal controls and implementing procedures and documentation to comply with Section 404 of the Sarbanes-Oxley Act of 2002. These costs are estimated to be approximately $100,000 for 2005. We have modified the proxy statement to provide this additional information. (See "SPECIAL FACTORS - Reasons for the Merger," page 5 and "THE TRANSACTION - Termination of Exchange Act Registration," page 26.)
Comment 11:
Expand your disclosure to explain the legal duties and risks that will be relieved by virtue of the transaction.
Response:
We have expanded our disclosure to detail the legal duties and risks to be relieved by virtue of the merger transaction. These items were addressed in "THE TRANSACTION - Termination of Exchange Act Registration" on page 25. We have amended the proxy statement to include this information in the "Reasons for the Merger" section and have included a cross-reference to a more detailed discussion in the proxy statement. (See "SPECIAL FACTORS - Reasons for the Merger," page 5.)
Mr. Michael Pressman
October 12, 2004
Page 7
_______________________
Effects of the Merger, page 6
Comment 12:
Please revise to ensure that you include a reasonably thorough discussion of the detriments of the merger. See Instruction 2 to Item 1013 of Regulation M-A. For example, one of the adverse effects of the merger will be that unaffiliated shareholders will be required to surrender their shares involuntarily in exchange for a cash price determined by your Board and that shareholders will not have the right as a result of the reverse stock split to liquidate their shares at a time for a price of their choosing.
Response:
A full discussion of potential disadvantages of the merger appears in the "SPECIAL FACTORS - Fairness; Recommendation of the Board of Directors" section. We have expanded our disclosure by adding a discussion involving this information to the "Effects of the Merger" section; we have also provided a cross-reference to guide the reader to the more detailed discussion referenced above. (See "SPECIAL FACTORS - Effects of the Merger," page 6.)
Comment 13:
Also, revise to discuss that the company will no longer be subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act and that officers of the company will no longer be required to certify the accuracy of its financial statements.
Response:
This section has been revised to add the suggested disclosure which, together with the cross-reference that was (and remains) in place, provides the reader with information regarding the effects of the termination of the registration of the Company's common stock. (See "SPECIAL FACTORS - Effects of the Merger," page 6.)
Mr. Michael Pressman
October 12, 2004
Page 8
_______________________
Background of the Merger Proposal, page 6
Comment 14:
When first referenced, identify the engagement partner, public accounting firm, members of the Audit Committee and corporate legal counsel.
Response:
The engagement partner of the Company's public accounting firm, Crowe Chizek and Company LLC, is Mr. Dan Mills. The Audit Committee members are Messrs. H. Kenneth Cole, Gregory J. Hull, Nolan F. Hooker and Ms. Marcia Albright. Corporate legal counsel, Warner Norcross & Judd LLP, was represented by Mr. Gordon R. Lewis. This section has been modified to include this information in the manner requested. (See "SPECIAL FACTORS - Background of the Merger Proposal," pages 7-10.)
Comment 15:
Your disclosure on page 11 indicates that the company "has recently repurchased shares for $24.25 per share." Disclose in this section the nature and timing of those stock repurchases. In addition, why aren't these purchases reflected in the table on page 33?
Comment 16:
See the last comment above. We note that you had been considering a going private transaction since 2002. Supplementally explain why this share repurchase should not be considered the first step of the going private transaction.
Response to Comments 15 & 16:
The Company publicly announced a stock repurchase program on February 2, 2004. The Company then had capital in excess of its operating needs. The purpose of the repurchase program was to reduce its shares with an expected resulting accretion in return on equity and earnings per share.
The Board of Directors first authorized the officers to study and report to the board on the strategic alternative of going private on May 17, 2004. Purchases under the stock repurchase program were then immediately discontinued.
Mr. Michael Pressman
October 12, 2004
Page 9
_______________________
The use of the term "recently" in the first preliminary proxy statement filing was inappropriate. The purchase at $24.25 was the last purchase before the purchases under the stock repurchase program were discontinued. That purchase is included in the "total number of shares purchased" and "average price paid per share" columns for the quarter in the table appearing in "INFORMATION ABOUT SOUTHERN MICHIGAN AND ITS AFFILIATES - Stock Repurchases" section on page 38. The disclosure under "SPECIAL FACTORS - Fairness; Recommendation of the Board of Directors" on page 12 has been revised to conform to that table.
The Company has not been "considering" a going private transaction since 2002. Active consideration of a going private transaction began at the Board of Directors meeting on May 17. As is accurately described in the "SPECIAL FACTORS - Background of the Merger Proposal" section, there was an increasing awareness by management of going private transaction
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CORRESP
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filename1.htm
Southern Michigan BanCorp, Inc. Correspondence Filing 10-12-04
Warner Norcross & Judd LLP
Attorneys at Law
900 Fifth Third Center
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2487
Telephone (616) 752-2000
Fax (616) 752-2500
October 12, 2004
Mr. Michael Pressman
Office of Mergers and Acquisitions
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549-0303
Re:
Southern Michigan Bancorp, Inc.
Schedule 13E-3 Filed September 3, 2004
File No. 2-78178
Preliminary Schedule 14A Filed September 3, 2004
File No. 0-9219
Dear Mr. Pressman:
We have been engaged by Southern Michigan Bancorp, Inc. ("Southern" or the "Company") as counsel to assist the Company in the preparation of its Schedule 13E-3 and Preliminary Schedule 14A filed on September 3, 2004, and in responding to your letter dated September 21, 2004 (the "Letter"), in which you provided comments on Southern's Schedule 13E-3 and Preliminary Schedule 14A.
This letter provides the Company's response to your comments. For convenience of reference, each of the Commission's comments is set forth in full and Southern's response immediately follows. Page references indicated below refer to pages of the proxy statement and Schedule 13E-3, as noted. We have enclosed with this letter a copy of the revised proxy statement and Amendment No. 1 to the Schedule 13E-3. We have also enclosed marked copies of these documents to identify the changes we have made since the initial filing on September 3, 2004.
Mr. Michael Pressman
October 12, 2004
Page 2
_______________________
Schedule 14A
Comment 1:
Revise the proxy statement to include all of the disclosure required by Schedule 13E-3 as to SMB Merger Company. To the extent that SMB, as a newly-formed company, has not performed the analyses required by that Schedule, you may specifically adopt the conclusions and analyses of another filing person.
Response:
As a newly-formed company and wholly owned subsidiary of the Company, SMB Merger Company has not undertaken independent analyses relating to the going private transaction. Its directors and officers are directors and officers of the Company. To the extent that SMB Merger Company is required, as a filer, to analyze the proposed transaction, it expressly adopts the relevant conclusions and analyses of the Company. The proxy statement and Schedule 13E-3 now contain language to this effect. (See "INFORMATION ABOUT SOUTHERN MICHIGAN AND ITS AFFILIATES - SMB Merger Co.," page 33 of the proxy statement and page 1 of the Schedule 13E-3.)
Comment 2:
Please revise to indicate that the proxy statement and form of proxy card are preliminary copies. Refer to Rule 14a-6(e)(1).
Response:
The proxy statement and form of proxy card are preliminary copies. These documents have been revised to clearly disclose this fact. (See cover letter and cover page of proxy statement and form of proxy card.)
Comment 3:
Where appropriate please include the disclosure required by Items 1010(a)(3) and 1014(a)(4)*. *[For the purpose of our response, we have assumed that the Commission's reference to Item 1014(a)(4) was intended to reference Item 1010(a)(4).]
Response:
Item 1010(a)(3) requires the disclosure of the ratio of earnings to fixed charges for the two most recent fiscal years and the latest interim period. Item 1010(a)(4)
Mr. Michael Pressman
October 12, 2004
Page 3
_______________________
requires the disclosure of the book value per share as of the date of the most recent balance sheet. The Company refers the staff to "Pro Forma Financial Information - PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES" (page 48) and "- Pro Forma Book Value Per Share (page 49) of the proxy statement, where such information is disclosed.
Summary
Comment 4:
Either in this section or in your Questions and Answers section, please include a brief discussion of dissenters rights.
Response:
The Company has voluntarily granted dissenters' rights to those shareholders being cashed-out as a result of the going private transaction. These shareholders may elect to dissent from the merger and have the amount of their cash payment determined by a court. The Summary section now includes a brief discussion of dissenters' rights and a prominent cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 2.)
Comment 5:
It appears from the disclosure on page 6 under "Beneficial owners of shares held in "street name," that a beneficial owner of fewer than 500 shares may not be "cashed out" in this merger, if that beneficial owner holds through a record holder who in the aggregate, holds more than 500 shares. Since shareholders who receive this proxy statement may want to increase or decrease their holdings in order to receive cash in the merger or remain as a continuing shareholder, this discussion is critical and should be summarized here or in the Question and Answer section.
Response:
Beneficial owners of fewer than 500 shares may continue to be shareholders following the merger if they hold their shares of common stock in "street name" through record holders who hold 500 or more shares. The Summary section now includes a brief discussion regarding street name holders and a cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 2 and "SPECIAL FACTORS - Effects of the Merger," page 7.)
Mr. Michael Pressman
October 12, 2004
Page 4
_______________________
Comment 6:
Include bulleted disclosure highlighting the potential disadvantages of the reverse stock split.
Response:
There are several arguable disadvantages of the proposed merger and deregistration. The Summary section now refers to these disadvantages and provides a cross-reference to a more detailed discussion in the proxy statement. (See "SUMMARY," page 3.)
Comment 7:
Please revise the penultimate bullet point to expressly indicate whether the Board and Audit Committee believe the Rule 13e-3 transaction is both substantively and procedurally fair to the company's unaffiliated shareholders in accordance with Item 1014(a) of Regulation M-A. Please make corresponding revisions throughout.
Response:
The Company has revised the bullet point disclosure to state that the Board of Directors has determined that the transaction is both substantively and procedurally fair to the Company's unaffiliated shareholders. (See "SUMMARY," page 3.) The Company has also made similar modifications in other portions of the proxy statement. (See "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors," page 10.) In addition, the Company refers the staff to "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors," pages 10-12, where the Company discussed the fairness of the transaction to unaffiliated shareholders.
The Audit Committee voted separately to approve the proposed transaction and recommend its approval by the board. After voting to approve the proposed transaction and recommend that the board approve the transaction and adopt the Plan of Merger, each member of the Audit Committee approved, as a member of the Board of Directors, the resolutions declaring the proposed merger to be fair to and in the best interest of Southern Michigan and its shareholders (including all unaffiliated shareholders). (See "SPECIAL FACTORS - Background of the Merger Proposal," page 9.)
Mr. Michael Pressman
October 12, 2004
Page 5
_______________________
When considering our response to this comment, please bear in mind that the Company's affiliates are beneficial owners of less than 5% of the Company's stock and, therefore, fairness to unaffiliated shareholders and to shareholders generally is effectively the same.
This proxy statement contains forward looking statements, page 3
Comment 8:
Please delete the statement that the Company undertakes no obligations to update, amend or clarify forward looking statements, or explain how this statement is consistent with your obligations under Rule 14a-9. Delete the comparable language on page 2 of the Schedule 13E-3, since it is also inconsistent with the requirements of Rule 13e-3(d)(2).
Response:
We have deleted the language in which the Company indicated that it had no obligation to update, amend or clarify forward looking statements in both the proxy statement and the Schedule 13E-3. (See "SUMMARY," page 3 in the proxy statement and pages 1-2 in the Schedule 13E-3.)
Special Factors, page 5
Reasons for the Merger, page 5
Comment 9:
We note that your lists of costs in the second paragraph in this section does not match the expenses discussed on page 21. For example, you indicate in the second paragraph that being subject to the Exchange Act causes you to be subject to costs of approximately $166,000 annually. Disclosure on page 21 indicates that the costs were $90,700 in 2002 and $115,000 in 2003 and are estimated to be $157,600 in 2004 and $318,000 in 2005. Please explain from where you derive the $166,000 figure.
Response:
The information summarized on page 5 now conforms to the more detailed cost information later in the proxy statement and includes a cross-reference to the more detailed information. We have removed the reference to $166,000 and modified the
Mr. Michael Pressman
October 12, 2004
Page 6
_______________________
language in the second paragraph of "Reasons for the Merger" and in the "Termination of Exchange Act Registration" sections to avoid confusion. (See "SPECIAL FACTORS - Reasons for the Merger," page 5 and "THE TRANSACTION - Termination of Exchange Act Registration," pages 25-26.)
Comment 10:
Provide additional disclosure clarifying the nature of the one-time costs, including quantification. Provide similar disclosure on page 21.
Response:
The one-time costs referenced in the second paragraph of the "Reasons for the Merger" section result from reviewing internal controls and implementing procedures and documentation to comply with Section 404 of the Sarbanes-Oxley Act of 2002. These costs are estimated to be approximately $100,000 for 2005. We have modified the proxy statement to provide this additional information. (See "SPECIAL FACTORS - Reasons for the Merger," page 5 and "THE TRANSACTION - Termination of Exchange Act Registration," page 26.)
Comment 11:
Expand your disclosure to explain the legal duties and risks that will be relieved by virtue of the transaction.
Response:
We have expanded our disclosure to detail the legal duties and risks to be relieved by virtue of the merger transaction. These items were addressed in "THE TRANSACTION - Termination of Exchange Act Registration" on page 25. We have amended the proxy statement to include this information in the "Reasons for the Merger" section and have included a cross-reference to a more detailed discussion in the proxy statement. (See "SPECIAL FACTORS - Reasons for the Merger," page 5.)
Mr. Michael Pressman
October 12, 2004
Page 7
_______________________
Effects of the Merger, page 6
Comment 12:
Please revise to ensure that you include a reasonably thorough discussion of the detriments of the merger. See Instruction 2 to Item 1013 of Regulation M-A. For example, one of the adverse effects of the merger will be that unaffiliated shareholders will be required to surrender their shares involuntarily in exchange for a cash price determined by your Board and that shareholders will not have the right as a result of the reverse stock split to liquidate their shares at a time for a price of their choosing.
Response:
A full discussion of potential disadvantages of the merger appears in the "SPECIAL FACTORS - Fairness; Recommendation of the Board of Directors" section. We have expanded our disclosure by adding a discussion involving this information to the "Effects of the Merger" section; we have also provided a cross-reference to guide the reader to the more detailed discussion referenced above. (See "SPECIAL FACTORS - Effects of the Merger," page 6.)
Comment 13:
Also, revise to discuss that the company will no longer be subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act and that officers of the company will no longer be required to certify the accuracy of its financial statements.
Response:
This section has been revised to add the suggested disclosure which, together with the cross-reference that was (and remains) in place, provides the reader with information regarding the effects of the termination of the registration of the Company's common stock. (See "SPECIAL FACTORS - Effects of the Merger," page 6.)
Mr. Michael Pressman
October 12, 2004
Page 8
_______________________
Background of the Merger Proposal, page 6
Comment 14:
When first referenced, identify the engagement partner, public accounting firm, members of the Audit Committee and corporate legal counsel.
Response:
The engagement partner of the Company's public accounting firm, Crowe Chizek and Company LLC, is Mr. Dan Mills. The Audit Committee members are Messrs. H. Kenneth Cole, Gregory J. Hull, Nolan F. Hooker and Ms. Marcia Albright. Corporate legal counsel, Warner Norcross & Judd LLP, was represented by Mr. Gordon R. Lewis. This section has been modified to include this information in the manner requested. (See "SPECIAL FACTORS - Background of the Merger Proposal," pages 7-10.)
Comment 15:
Your disclosure on page 11 indicates that the company "has recently repurchased shares for $24.25 per share." Disclose in this section the nature and timing of those stock repurchases. In addition, why aren't these purchases reflected in the table on page 33?
Comment 16:
See the last comment above. We note that you had been considering a going private transaction since 2002. Supplementally explain why this share repurchase should not be considered the first step of the going private transaction.
Response to Comments 15 & 16:
The Company publicly announced a stock repurchase program on February 2, 2004. The Company then had capital in excess of its operating needs. The purpose of the repurchase program was to reduce its shares with an expected resulting accretion in return on equity and earnings per share.
The Board of Directors first authorized the officers to study and report to the board on the strategic alternative of going private on May 17, 2004. Purchases under the stock repurchase program were then immediately discontinued.
Mr. Michael Pressman
October 12, 2004
Page 9
_______________________
The use of the term "recently" in the first preliminary proxy statement filing was inappropriate. The purchase at $24.25 was the last purchase before the purchases under the stock repurchase program were discontinued. That purchase is included in the "total number of shares purchased" and "average price paid per share" columns for the quarter in the table appearing in "INFORMATION ABOUT SOUTHERN MICHIGAN AND ITS AFFILIATES - Stock Repurchases" section on page 38. The disclosure under "SPECIAL FACTORS - Fairness; Recommendation of the Board of Directors" on page 12 has been revised to conform to that table.
The Company has not been "considering" a going private transaction since 2002. Active consideration of a going private transaction began at the Board of Directors meeting on May 17. As is accurately described in the "SPECIAL FACTORS - Background of the Merger Proposal" section, there was an increasing awareness by management of going private transaction