Edgar Filing: NORTH COUNTRY FINANCIAL CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Rule 14f-1
----------

Report of Change in Majority of Directors

Information Statement Pursuant to Section 14(f) of the Securities Exchange Act
of 1934 and Rule 14f-1 Thereunder

NORTH COUNTRY FINANCIAL CORPORATION
--------------------
(Name of Registrant as Specified In Its Charter)

Commission File Number: 02-20167

NORTH COUNTRY FINANCIAL CORPORATION
130 South Cedar Street
Manistique, Michigan 49854
(800) 200-7032

Incorporated in the Employer Identification
State of Michigan No. 38-2062816

INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER

NO VOTE OR OTHER ACTION BY THE SHAREHOLDERS OF

NORTH COUNTRY FINANCIAL CORPORATION IS REQUIRED IN RESPONSE TO THIS
INFORMATION STATEMENT. PROXIES ARE NOT BEING SOLICITED.

[NORTH COUNTRY FINANCIAL CORPORATION LOGO]

INTRODUCTION

This Information Statement is being mailed on or about December 8, 2004 to the
holders of shares of common stock, no par value (the "Common Stock"), of North
Country Financial Corporation (the "Company"). This Information Statement is
being furnished to provide you with certain information concerning a change in
the majority of the members of the Company's Board of Directors that will occur
when (i) all new members of the Board of Directors have been approved by the
Federal Reserve and the Federal Deposit Insurance Corporation; (ii) at least ten
days have passed since the mailing and filing with the Securities and Exchange
Commission ("SEC") of this Information Statement; and (iii) the transactions
contemplated in the Stock Purchase Agreement described below are completed (the
"Effective Date").

On August 10, 2004, the Company and NCFC Recapitalization, LLC, a Michigan
limited liability company, individually and on behalf of investors that
subscribe for shares of Common Stock, entered into a Stock Purchase Agreement,
which was subsequently amended by a First Amendment to Stock Purchase Agreement,
dated September 28, 2004 (the "Stock Purchase Agreement"). The Stock Purchase
Agreement provides for the private sale of our Common Stock to new investors for
approximately $30 million, and the net proceeds from the sale will be used to
recapitalize the Company and our subsidiary bank, North Country Bank and Trust
(the "Bank"). One of the conditions to the closing under the Stock Purchase
Agreement is that our board of directors be reconstituted. This Information
Statement is being delivered to you as required by regulations of the SEC in
connection with the changes to our board that will occur if the closing under
the Stock Purchase Agreement is completed (the "Closing").

Our shareholders approved the sale of Common Stock pursuant to the Stock
Purchase Agreement and approved other proposals required for the Closing at the
Special Meeting of Shareholders held on November 18, 2004. The Stock Purchase
Agreement and the contemplated recapitalization are described in greater detail
in our proxy statement previously distributed to our shareholders for the
special meeting. The Closing is subject to a number of other conditions. We
cannot assure you that the conditions will be satisfied or waived by the
parties. If all conditions are satisfied or waived, we expect that the Closing
will occur prior to December 31, 2004.

In order to reconstitute the board, all of the current members of the Board of
Directors, with the exception of Mr. C. James Bess, and Mr. Dennis B. Bittner,
will resign from the board as of the Effective Date, and five new members will
be added to the board.

The current members of our board are:

C. James Bess
Dennis B. Bittner
Bernard A. Bouschor
Stanley J. Gerou, II
John D. Lindroth
Stephen H. Madigan
Spencer B. Shunk

Information regarding the current members of our board can be found in our Proxy
Statement for our May 18, 2004 Annual Meeting of Shareholders, as amended, and
is incorporated herein by reference.

As of the Effective Date, the Board of Directors of the Company will be
reconstituted as follows:

Walter J. Aspatore
C. James Bess
Dennis B. Bittner
Robert H. Orley
Randolph Paschke
Eliot R. Stark
Paul D. Tobias

In accordance with the Stock Purchase Agreement, the new board members were
identified and selected by NCFC Recapitalization, LLC. After being identified
and selected by NCFC Recapitalization, LLC, the new board members were approved
by a majority vote of the board.

Reconstitution of the board will not occur unless and until the new board
members receive the necessary regulatory approval, the passing of at least ten
days after the mailing and filing with the SEC of this Information Statement,
and the Closing under the Stock Purchase Agreement is completed.

NO VOTE OR OTHER ACTION IS REQUIRED OF THE SHAREHOLDERS IN CONNECTION WITH THIS
INFORMATION STATEMENT OR THE RESIGNATION AND APPOINTMENT OF ANY DIRECTOR. A
PROXY IS NOT BEING SOUGHT AND YOU ARE NOT REQUESTED TO SUBMIT A PROXY.

Please read this Information Statement carefully. It contains biographical and
other information concerning the executive officers and directors.

OUTSTANDING SHARES

As of the date of this filing, there were outstanding 7,019,152 shares of our
Common Stock. At the November 18, 2004 Special Meeting of Shareholders, the
Company's shareholders approved a 1 for 20 reverse stock split that will be
effective if the transactions contemplated by the Stock Purchase Agreement are
completed. After the reverse stock split, there will be outstanding 350,958
shares of our common stock. Unless otherwise noted, all share information is
based on the current number of outstanding shares of Common Stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of October 11, 2004,
regarding beneficial ownership of our Common Stock by each person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934 (the "Exchange Act") known by us to be the beneficial owner of more than
5% of the outstanding shares of our Common Stock. The information is based upon
information furnished by the persons listed or contained in filings made by them
with the SEC. Except as otherwise indicated below, the listed shareholders
possess sole voting and investment power with respect to their shares.

Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Common Stock
------------------- -------------------- ------------

Ernest D. King 515,792 7.3%
Vides E. King
P.O. Box 216
Naubinway, MI 49762

SECURITY OWNERSHIP OF MANAGEMENT

CURRENT MANAGEMENT

The following table sets forth information, as of October 11, 2004, regarding
beneficial ownership of our Common Stock and any equity securities of our
subsidiaries other than directors' qualifying shares, beneficially owned by each
of our current directors, naming them, each of the named executive officers as
defined in Item 402(a)(3) of Regulation S-K, and our directors and executive
officers as a group.

Name and Address Management Amount and Nature of Percent of
of Beneficial Owner Position Beneficial Ownership(1) Common Stock
------------------- -------- ----------------------- ------------

C. James Bess Director, President and Chief Executive 0 0%
Officer of the Company and the Bank
Dennis B. Bittner Director 7,734 Less than 1%
Bernard A. Bouschor Director 18,942 Less than 1%

Stanley J. Gerou, II Director 118,033(2) 1.7%
John D. Lindroth Director 81,114(3) 1.2%
Sherry Littlejohn * See below 217 Less than 1%
Stephen Madigan Director 11,446(4) Less than 1%
Spencer B. Shunk Director 59,738(5) Less than 1%
All directors and executive
officers as a group 297,224 4.2%
(8 persons)

* Former President and Chief Executive Officer. Ms. Littlejohn resigned from
the Company and the Bank effective May 21, 2003.

1. Includes options for 6,500 shares for Messrs. Bittner, Madigan and Shunk,
18,600 shares for Messrs. Bouschor, Gerou and Lindroth, and 75,300 shares
for all directors and executive officers as a group, that are exercisable
within 60 days.

2. Includes 13,156 shares owned jointly with Mr. Gerou's spouse and 42,828
shares held by Mr. Gerou's spouse's revocable trust as to which Mr. Gerou
may be deemed to have shared voting power and dispositive powers. Includes
621 shares held by Mr. Gerou's spouse and children as to which Mr. Gerou
disclaims beneficial ownership.

3. Includes 52,200 shares held jointly with Mr. Lindroth's spouse or by Mr.
Lindroth's children as to which Mr. Lindroth may be deemed to have shared
voting and dispositive power.

4. Includes 2,205 shares held by Mr. Madigan's spouse's revocable trust as to
which Mr. Madigan may be deemed to have shared voting and dispositive
power.

5. Includes 42,143 shares owned jointly with Mr. Shunk's spouse.

MANAGEMENT AS OF THE EFFECTIVE DATE

The following table sets forth information, as of the Effective Date, regarding
beneficial ownership of our Common Stock and any equity securities of our
subsidiaries other than directors' qualifying shares, beneficially owned by each
of the directors, naming them, each of the named executive officers as defined
in Item 402(a)(3) of Regulation S-K, and our directors and executive officers as
a group.

Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership(1) Common Stock(1)
------------------- ----------------------- ---------------

Walter J. Aspatore 0 0%
C. James Bess 0 0%
Dennis B. Bittner 387 Less than 1%
Robert H. Orley 17,123(2) Less than 1%(2)
Randolph Paschke 0 0%
Eliot R. Stark 32,208(3) 1.3%
Paul D. Tobias 55,365(3) 2.3%
All directors and executive officers as a
group (7 persons) 105,083 4.3%

1. Based on the purchase of such post reverse split shares at the Closing at
the assumed price of $14.60 per share, and approximately 2,413,600
outstanding post reverse split shares after the Closing.

2. Mr. Orley anticipates purchasing approximately $250,000 of post reverse
split shares of our Common Stock at the Closing. Assuming $30 million of
post reverse split shares are sold pursuant to the Stock Purchase
Agreement for $14.60 per share, Mr. Orley will own 17,123 shares.

3. Messrs. Tobias and Stark anticipate purchasing approximately $500,000 and
$250,000 of post reverse split shares of our Common Stock at the Closing.
Messrs. Tobias and Stark will also be awarded at the Closing options to
purchase approximately 105,595 and 75,425, respectively, of post reverse
split shares of our Common Stock. Twenty percent of those options will be
exercisable within 60 days. Assuming $30 million of post reverse split
shares are sold pursuant to the Stock Purchase Agreement for $14.60 per
share, Messrs. Tobias and Stark will own and have the option to purchase a
total of 139,841 shares and 92,548 shares, respectively.

ANTICIPATED CHANGE IN CONTROL

As a result of the completion of the transactions contemplated by the Stock
Purchase Agreement, there will be a change in control of the Company.
Consequently, we will disclose the change in control in a filing on Form 8-K
subsequent to the Closing.

LEGAL PROCEEDINGS

Following are descriptions of any material proceedings which any of our
directors, officers, affiliates, owners of record of more than 5% of any class
of voting securities of the Company, or any associate of any of our directors,
officers or affiliates, or any of our shareholders is a party adverse to us or
any of our subsidiaries or has a material interest adverse to us or any of our
subsidiaries.

SECURITIES LITIGATION

In an action styled Lanctot v. Littlejohn, et al., filed in the U.S. District
Court for the Western District of Michigan on June 13, 2003, a shareholder
brought a class action against us, our former Chairman, Chief Executive Officer
and director, Ronald G. Ford, and its former chief executive officer and
director, Sherry L. Littlejohn, for alleged violations of Federal securities
laws.

In another action styled Rosen v. North Country Financial Corporation, et al.,
filed in the U.S. District Court for the Western District of Michigan on June
23, 2003, a former shareholder brought a class action against us, our former
Chairman, Chief Executive Officer and director, Ronald G. Ford, and our former
Chief Executive Officer and director, Sherry L. Littlejohn, for alleged
violations of Federal securities laws.

In an Order dated September 29, 2003, the Court consolidated the Lanctot and
Rosen actions.

On June 18, 2004, the parties submitted to the Court their Stipulation of
Settlement, which describes in detail the terms and conditions of the
settlement. The parties submitted two Revised and Amended Stipulations of
Settlement, the most recent of which was filed with the Court on July 16, 2004.

On August 16, 2004, the Court granted conditional approval of the settlement as
set forth in the Revised and Amended Stipulation of Settlement. On October 15,
2004, the Court preliminarily certified a class for purposes of settlement only,
approved a form of notice of hearing to be distributed to class members, and
scheduled a hearing concerning final approval of the settlement. The plaintiffs
were then allowed to mail notice of the proposed settlement to members of the
class, who were permitted to opt out of the class by written request. One class
member, owning 5,359 shares, requested exclusion. Members of the class who did
not opt out and who filed a written notice could have objected to approval of
the settlement, but no members of the class made such an objection.

The hearing concerning final approval of the settlement by the Court was held on
December 1, 2004. At the hearing, the Court determined that the settlement,
subject to some minor modifications, was fair, reasonable and adequate and in
the best interests of the class. Within thirty days of the hearing, counsel for
the plaintiffs will mail to the class members a Proof of Claim form, with
specific instructions as to how to submit claims. Pursuant to the

Order, the defendants must make two payments to the plaintiffs, one in the
amount of $550,000, and another in the amount of $200,000. The Court's order
dismisses the action between the class and the defendants in its entirety.

SHAREHOLDER'S DERIVATIVE LITIGATION

In an action styled Virginia M. Damon Trust v. North Country Financial
Corporation, Nominal Defendant, and Dennis Bittner, Bernard A. Bouschor, Ronald
G. Ford, Sherry L. Littlejohn, Stanley J. Gerou II, John D. Lindroth, Stephen
Madigan, Spencer Shunk, Michael Henrickson, Glen Tolksdorf, and Wesley Hoffman,
filed in the U.S. District Court for the Western District of Michigan on July 1,
2003, a shareholder of ours brought a shareholder's derivative action under
Section 27 of the Exchange Act against us and certain of our current and former
directors and senior executive officers. The Complaint, which demands a jury
trial, is brought on behalf of us against the individual defendants. It alleges
that the individual defendants have caused loss and damage to us through
breaches of their fiduciary duties of oversight and supervision by failing (i)
adequately to safeguard our assets, (ii) to ensure that adequate administrative,
operating, and internal controls were in place and implemented, (iii) to ensure
that we were operated in accordance with legally-prescribed procedures, and (iv)
to oversee the audit process to ensure that our assets were properly accounted
for and preserved.

The Complaint further alleges that the individual defendants violated Section
14(a) of the Exchange Act by making materially false and misleading statements
in the proxy statement mailed to shareholders in connection with our annual
meeting held May 29, 2000, and the adoption by the shareholders at that meeting
of our 2000 Stock Incentive Plan. The Complaint also alleges that Mr. Ford and
Ms. Littlejohn, through a series of compensation arrangements, stock options,
and employment agreements obtained by them through improper means resulting from
the offices they held with us, received excessive compensation, to our injury.
Among other things, the Complaint is based upon allegations of material
misstatements or omissions in filings made by us with the SEC, and deficiencies
in our policies and procedures for safe and sound operation, including our
directorate and management personnel and practices, credit underwriting, credit
administration, and policies regarding asset/liability management, liquidity,
funds management, and investments, and our compliance with all applicable laws
and regulations, including Regulations O and U of the Federal Reserve Board,
FDIC Rules and Regulations, and the Michigan Banking Code of 1999. The Complaint
seeks (i) rescission of the approval of the 2000 Stock Incentive Plan and return
of all stock and options granted under the Plan, (ii) a declaration that the
individual defendants breached their fiduciary duty to us, (iii) an order to the
individual defendants to account to us for all losses and/or damages by reason
of the acts and omissions alleged, (iv) an order to each of the individual
defendants to remit to us all salaries and other compensation received for
periods during which they breached their fiduciary duties, (v) compensatory
damages in favor of us, (vi) injunctive relief, and (vii) interest, costs, and
attorney's and expert's fees.

By letter dated September 17, 2003, and expressly without prejudice to the
argument that any such written demand is not required, plaintiff's counsel
purported to make a written demand that we pursue a number of indicated putative
claims against present and former officers and directors of the Company who also
are the individual defendants in the Damon action.

On September 18, 2003, the Company filed a motion to dismiss the Damon action
because plaintiff did not satisfy the mandatory precondition, under Section 493a
of the Michigan Business Corporation Act ("MBCA"), M.C.L. Sec. 450.1493a, for
filing a shareholder derivative action that the shareholder must first have
submitted a written demand that we pursue in our own right the claims asserted
by the shareholder (the plaintiff here). Certain of the individual defendants in
the Damon action filed their own motion to dismiss on November 25, 2003, in
which motion the other individual defendants later joined. The plaintiff filed
an Opposition to both motions to dismiss on January 9, 2004, and on January 30,
2004, the defendants filed reply briefs in support of their motions to dismiss.

On March 22, 2004, the Court issued an Opinion and Order granting in part and
denying in party the motions to dismiss. The Court dismissed the Section 14(a)
claim against all of the defendants as barred by the applicable statute of
limitations and, as further grounds, dismissed that claim as to those who were
not directors at the time of the mailing of the proxy statement. The Court has
permitted the plaintiff to proceed with its breach of fiduciary duty claims
against the Directors on the grounds that the plaintiff cured its procedural
failings by subsequently transmitting a demand letter as required by Section 493
of the MBCA.

On April 19, 2004, the Court entered an Order Granting Stipulation to Grant
Plaintiff Leave to File Amended Complaint and to Grant Related Relief to All
Parties. On May 14, 2004, the plaintiff filed an Amended Complaint

and, thereafter, all defendants timely filed Answers to the Amended Complaint.
In our Answer, we averred that the plaintiff's claims are asserted for and on
behalf of us, that the plaintiff does not assert any claims against us and,
therefore, we properly should be realigned as a plaintiff in the action.

During the above described proceedings, on November 11, 2003, we filed a motion
requesting the court appoint a disinterested person to conduct a reasonable
investigation of the claims made by the plaintiff and to make a good faith
determination whether the maintenance of the derivative action is in our best
interests. After additional written submissions to the Court by the defendants
and the plaintiff concerning the issues presented by this motion, and after
several conferences with the Court, on May 20, 2004, the Court entered an Order
adopting the parties' written stipulations concerning the appointment of a
disinterested person and the manner of conducting the investigation of the
claims made by the plaintiff and making recommendations as to whether the
maintenance of the derivative action is in our best interests.

On July 14, 2004, the Court convened a settlement conference among counsel for
all parties and counsel for the individual defendants' insurer. Although a
settlement was not achieved, at the direction of the Court, the parties'
respective counsel agreed to continue settlement discussions.

By Order of the Court dated November 2, 2004, the report of the disinterested
person was timely filed with us on October 23, 2004, and the action was stayed
until November 22, 2004. Our outside legal counsel is currently evaluating the
report of the disinterested person.

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS AS OF THE EFFECTIVE DATE

The following information has been furnished by the respective directors to be
appointed as of the Effective Date. Each of them has been engaged in the
occupations stated below during the periods indicated, or if no period is
indicated, for more than five years.

Name of Appointee Age Principal Occupation Expiration of Term
----------------- --- -------------------- ------------------

Walter J. Aspatore 61 Investment Banking, Amherst Partners Term expires in 2007.
C. James Bess 66 President and Chief Financial Officer Term expires in 2005.
of the Company and the Bank.
Dennis B. Bittner 55 Owner and President, Bittner Engineering Term expires in 2005.
Robert H. Orley 49 Real Estate Developer, Vice President Term expires in 2006.
and Secretary of Real Estate Interests
Group, Inc.

Randolph Paschke 55 From May 1970 to August 2002 -- worked Term expires in 2006.
in Tax Services at Arthur Anderson
LLP. Served as a partner in Arthur
Anderson LLP from September 1982 until
August 2002. Served as Managing
Partner -- U.S. International Tax Trade
Services at Arthur Anderson LLP from
2001-2002. Served as Managing Partner
-- Great Lakes International Tax
Services at Arthur Anderson LLP from
1999-2001.
From August 2002 to present -- Chair,
Department of Accounting in the School
of Business Administration at Wayne
State University.
Eliot R. Stark 52 From June 1995 to January 2001 -- Term expires in 2007.
Served as Executive Vice President of
Compuware Corporation.
From January 2001 to present
-- Managing Director of
Mackinac Partners LLC.
Paul D. Tobias 53 From April 1995 to October of 1999 -- Term expires in 2007.
Served as CEO of Munder
Capital Management. From
January 2000 to present --
Chairman and CEO of Mackinac
Partners LLC.

CURRENT EXECUTIVE OFFICERS

Our executive officers serve at the please of the board. Set forth below are our
current executive officers, and a brief explanation of their principal
employment during the last five years.

John D. Lindroth -- Age 49 -- Chairman of the Board of Directors. Mr. Lindroth
has served as President of Superior State, Inc., an insurance agency, for the
past five years.

C. James Bess -- Age 66 -- President and Chief Executive Officer. Mr. Bess has
served as our and the Bank's President and Chief Executive Officer since August
of 2003. Prior to that time, Mr. Bess served as President and Chief Executive
Officer of The Commercial and Savings Bank of Millersburg, Ohio from December
2000 to July 2003. Mr. Bess served as President and Chief Executive Officer of
Security Dollar Bank of Niles, Ohio from February 2000 through November 2000.
Mr. Bess was engaged as a consultant to various financial service companies from
January 1, 1999 to February 2000.

Joseph E. Petterson -- Age 58 -- Executive Vice President and Chief Financial
Officer. Mr. Petterson has served as our and the Bank's Executive Vice President
since September 2003 and also Chief Financial Officer since February 2004. Prior
to that time, Mr. Petterson served as Assistant Director of the Bank and Trust
Division of the State of Michigan Office of Financial and Insurance Services
from 2001 through 2003. Mr. Petterson served on the Senior Staff of the Risk
Division of the State of Michigan Office of Financial and Insurance Services in
2001, the Senior Staff of the Financial Institutions Policy Division of the
State of Michigan Office of Financial and Insurance Services in 2000, and held
the position of Risk Manager for the Office of the Commissioner of the State of
Michigan Financial Institutions Bureau from 1998 through 2000.

Kelly W. George -- Age 37 -- Senior Vice President and Chief Lending Officer.
Mr. George has served as our and the Bank's Senior Vice President and Chief
Lending Officer since September 2003. Prior to that time, Mr. George served as
Senior Vice President and Chief Lending Officer of The Commercial and Savings
Bank of Millersburg,

Ohio from July 2001 through May 2003. Mr. George also served as Vice President
and Commercial Lender of The Commercial and Savings Bank from May 2000 through
July 2001. Prior to employment at The Commercial and Savings Bank of
Millersburg, Ohio, Mr. George held the position of Bank Examiner-in-Charge at
the Federal Reserve Bank of Cleveland from July 1997 through May 2000.

Jani L. Blake -- Age 44 -- Executive Vice President and Chief Operating Officer.
Ms. Blake has served as our and the Bank's Executive Vice President and Chief
Operating Officer since May 2003. Prior that time, Ms. Blake served as our and
the Bank's Executive Vice President and Executive Administrator from November
2002 through May 2003. Ms. Blake held the position of Executive Director of the
Marquette Community Foundation from 2000 through November 2002. From 1999
through 2000, Ms. Blake held the position of Executive Administrator at the
Bank.

EXECUTIVE OFFICERS AS OF THE EFFECTIVE DATE

Set forth below are the executive officers to be appointed in connection with
the Closing, and a brief explanation of their principal employment during the
last five years.

C. James Bess -- Age 66 -- President. See description above.

Eliot R. Stark -- Age 52 -- Executive Vice President and Chief Financial
Officer. From June of 1995 to January of 2001, Mr. Stark served as Executive
Vice President of Compuware Corporation. From January of 2001 to the present, he
has served as the Managing Director of Mackinac Partners Consultants.

Paul D. Tobias -- Age 53 -- Chairman of the Board and Chief Executive Officer.
Mr. Tobias served as Chief Executive Officer of Munder Capital Management from
April of 1995 to October 1999. From January of 2000 to the present, he has
served as Chairman and Chief Executive Officer of Mackinac Partners, LLC.

Joseph E. Petterson -- Age 58 -- Executive Vice President. See description
above.

Jani L. Blake -- Age 44 -- Senior Vice President. See description above.

INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT

Certain of our directors and officers have had, and are expected to have in the
future, transactions with the Bank, or have been directors or officers of
corporations, or members of partnerships or limited liability companies, which
have had and are expected to have in the future, transactions with the Bank.
Described below are certain transactions, since January 1, 2003 and certain
currently proposed transactions, involving indebtedness and transactions with
management.

In August 2002, the Bank renewed an inventory working capital line of credit,
originated in June 1999, to a limited liability company owned by Ron Ford and
director John Lindroth and two former Bank officers, secured by the inventory
and guaranteed by the principals. The highest aggregate principal amount
outstanding to the limited liability company since January 1, 2002 was $244,200.
The interest rate was prime plus one percent. This loan was paid off on April
28, 2003.

In August 2002, the Bank renewed a working capital line of credit, originated in
January 2001, and in June 2001 renewed a loan originated in August 1999, to
purchase a 68% interest in a hotel, to a limited liability company owned by
directors Lindroth, Gerou and former director Michael Henrickson, guaranteed by
the principals. Mr. Henrickson left the Board of Directors in 2002. The highest
aggregate principal amount outstanding to the limited liability company since
January 1, 2002 was $327,995, the interest rates were prime plus one percent and
the loans have been paid off.

In September 2002, the Bank renewed and increased a working capital line of
credit, originated in July 2001, to a company 46% owned by former director
Michael Henrickson, who left the board in September 2002. In December 1998, the
Bank approved a seven-year term loan to term out a line of credit for the
company. The loans are secured by accounts receivable and guaranteed by the
principals. The highest aggregate principal amount outstanding on the

loans was $3,140,802. The interest rates were prime plus one percent. These
loans were paid off on November 13, 2003.

Mr. Glen Tolksdorf, a former director who resigned in December 2002, has several
loans with the Bank for his various enterprises. In September 2002, the Bank
renewed two single payment notes to acquire real estate, which were originated
in August 2000. In August 2002, the Bank renewed a working capital line of
credit originated in April 1999 and extended a single payment note originated in
April 2001. The highest aggregate principal amount outstanding on the loans
since January 1, 2002 was $2,572,619. The interest rates were prime plus one
percent. These loans were paid off on March 31, 2004.

Mr. Wesley Hoffman, a former director who resigned in October 2002, and his
related interests have several loans with the Bank. The loans include a personal
loan to purchase real estate guaranteed by a related entity, which was approved
in June 2001; an unsecured personal line of credit approved in August 2002; a
secured 5-year term loan to a related entity approved in February 2001 and a
5-year term loan to a related entity, which is one-third owned by Mr. Hoffman,
approved in November 2000 to purchase real estate, secured by the real estate
and guaranteed by the principals. The term loan approved in November 2000 was
paid off in April 2003. The highest aggregate principal amount outstanding on
the loans since January 1, 2002 was $911,022. The interest rates were prime plus
one percent. The remaining loans to Mr. Hoffman were paid off on March 31, 2004.

In April 1999, the Bank approved a five-year term loan to term out a
construction loan and related expenses for a hotel to be owned and operated by a
limited liability company, 68% owned by a related interest of directors Gerou,
Lindroth and former director Henrickson. The loan was secured by the real estate
and all assets and guaranteed by the partners. The highest aggregate principal
amount outstanding since January 1, 2002 was $3,108,094 and the interest rate
was prime plus one percent. This loan was paid off on September 6, 2003.

In April 2002, the Bank approved a $6,000,000 unsecured line of credit to a
related party of director Bouschor. The purpose of the loan was for $1,000,000
in new funds to renovate a building and to refinance an existing loan,
originated in February 2000. The highest aggregate principal balance on the loan
since January 1, 2002 was $6,000,000, the interest rate is 5.5% tax exempt, and
the principal balance at November 17, 2004 was $4,798,507.77.

Mr. Stark and Mr. Tobias, who are to be named as directors as of the Effective
Date, each own a 50% interest in NCFC Recapitalization, LLC, which is a party to
the Stock Purchase Agreement.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires our Officers and
directors and persons who own more than 10% of the Common Stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on a review of filings furnished to it, we believe that
all reports required to be filed under Section 16(a) for 2003 were filed, except
that one report on Form 3 was filed late by each of C. James Bess, Kelly W.
George and Jani L. Blake.

AUDIT COMMITTEE

We currently have a separately designated standing Audit Committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act. The current members
of the Audit committee are Dennis Bittner (Chairman), Stephen Madigan (Vice
Chairman), and Spencer Shunk. The board has determined that it does not
currently have a member of the Audit Committee that is qualified as an audit
committee financial expert, as that term is defined in the rules of the
Securities and Exchange Commission. The board believes that the current Audit
Committee members have the overall business acumen to participate as a member of
the Audit Committee, based upon many years of direct business experience.

The Audit Committee met two times during the fiscal year ending December 31,
2003. The functions of the Audit Committee are to assist our board in overseeing
our accounting and financial reporting process, the audits of our financial
statements, and internal control and audit functions. The Audit Committee has
responsibility for:

- Appointing or replacing our independent auditors.

- Overseeing the work of the independent auditors (including
resolution of any disagreements between management and the
auditors regarding financial reporting).

- Reviewing the independent auditors' performance,
qualifications and independence.

- Approving all auditing and permitted non-auditing services to
be performed by the independent auditors with limited
exceptions.

- Reviewing our financial statements, internal audit function
and system of internal controls.

- Overseeing our compliance with legal and regulatory
requirements and with our Code of Business Conduct and Ethics.

- Producing the report required by federal securities
regulations for inclusion in our proxy statement.

The Audit Committee has reviewed and discussed our audited financial statements
with management.

The Audit Committee has discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61 (SAS 61),
"Communication with Audit Committees," as amended, by the Auditing Standards
Board of the American Institute of Certified Public Accountants. The Audit
Committee has considered the compatibility of the provisions of non-audit
services with maintaining the auditor's independence.

The Audit Committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board No. 1,
"Independence Discussions with Audit Committees," as amended, and has discussed
with the independent accountant the independent accountant's independence.

Based on the review and discussions referred to above, the Audit Committee
recommended to the board that the audited financial statements be included in
the Company's Annual Report on Form 10-K for 2003.

Our board has adopted a written charter for the Audit Committee. A copy of the
charter is set forth in Appendix B to our Proxy Statement for our May 18, 2004
Annual Meeting of Shareholders, as amended, and is incorporated herein by
reference.

Our board has determined that each of the current Audit Committee members is
independent, as independence for audit committee members is defined in the
listing standards of the Nasdaq Stock Market and the rules of the Securities and
Exchange Commission.

NOMINATING COMMITTEE

Our Nominating Committee is responsible for:

- Identifying new candidates who are qualified to serve as
directors.

- Recommending to our board the candidates for election to the
board and for appointment to the board's committees.

- Considering any nominations for director submitted by
shareholders.

The current members of the Nominating Committee are Spencer Shunk (Chairman) and
Steve Madigan. All members are independent under the NASDAQ Stock Market rules
defining independence. The Nominating Committee held no meetings in 2003.

Our board has adopted a Charter for the Nominating Committee. A copy of the
Charter is set forth in Appendix A to the Company's Proxy Statement for our May
18, 2004 Annual Meeting of Shareholders, as amended, and is incorporated herein
by reference.

In considering possible candidates for election as a director, the Nominating
Committee and the other directors recognize that the contribution of the board
will depend not only on the character and capacities of the directors taken
individually but also on their collective strengths. Our board should be
composed of directors who bring a variety of experience and backgrounds,
directors who will form a central core of business executives with substantial
senior management experience and financial expertise, and directors who will
represent the balanced, best interests of the shareholders as a whole. On an
individual basis, directors should be of the highest character and integrity and
have an inquiring mind, vision and the ability to work well with others.
Directors should also be free of any conflict of interest, which would violate
any applicable law or regulation or interfere with the proper performance of the
responsibilities of a director.

The Nominating Committee will consider as potential nominees persons recommended
by shareholders. Recommendations should be submitted to the Nominating Committee
in care of the Secretary of North Country Financial Corporation, 130 South Cedar
Street, Manistique, MI 49854. Each recommendation should include a personal
biography of the suggested nominee, an indication of the background or
experience that qualifies the person for consideration, and a statement that the
person has agreed to serve if nominated and elected.

Shareholders who themselves wish to effectively nominate a person for election
to our board, as contrasted with recommending a potential nominee to the
Nominating Committee for its consideration, are required to comply with the
advance notice and other requirements set forth in the Company's Restated
Articles of Incorporation, as amended.

COMPENSATION COMMITTEE

Decisions on the compensation of our executive officers are made by the board's
Compensation Committee comprised of nonemployee directors. This committee
currently consists of Stanley J. Gerou II (Chairman), Bernard A. Bouschor (Vice
Chairman) and Dennis Bittner.

The Compensation Committee met 4 times during the fiscal year ended December 31,
2003. The primary functions of the Compensation Committee are to recommend
annually to our board the salary of the executive officers, review with
management the annual projected salary ranges and recommend those for board
approval, and review the written personnel policy and the employee benefit
package annually. The primary responsibilities of the Compensation Committee are
to ensure that the compensation available to our board and officers:

- Enables us to attract and retain high quality leadership.

- Provides competitive compensation opportunities.

- Supports our overall business strategy.

- Maximizes our shareholder value.

COMPENSATION COMMITTEE REPORT

This committee report address our compensation policies and programs for the
year ended December 31, 2003.

Base Salary -- Excluding considerations of other relevant factors, which may
include individual performance, experience, expertise and tenure, our board
intends to maintain the base salaries of our executive officers and senior
managers within peer group levels.

The Compensation Committee considered numerous factors to determine the
compensation package and employment agreement relative to Mr. Bess. Factors
considered included Mr. Bess' prior experience with troubled institutions, his
previous success in turnaround of these institutions and our relative immediate
needs.

Annually, the committee reviews and approves our annual salary structure and
benefit programs for consideration by the entire board. The committee's
recommendation is based upon compensation levels established by our peers and
evaluations by consultants.

Long-Term Incentives -- To align the interests of its executive officers and
senior managers with our shareholders, our board's compensation strategy
provides for a 401(k) matching contribution and equity-based compensation under
our stock compensation plans. Each of our compensation plans has been adopted by
the board, and the equity-based compensation plans have been approved by our
shareholders.

COMPENSATION COMMITTEE
Bernard A. Bouschor Stanley J. Gerou II Dennis Bittner

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Members of the Compensation Committee during 2003 were Stanley J. Gerou, II
(Chairman), Bernard A. Bouschor (Vice Chairman) and John D. Lindroth.

Mr. Lindroth is the owner of the insurance agency that we use for purchasing
liability, property, casualty and automobile insurance. In 2003, Mr. Lindroth's
agency earned $62,574 in commissions for insurance sold to us and our
subsidiaries. For the period May 27, 2003 through August 1, 2003, Mr. Lindroth
served as interim CEO, however he did not receive additional compensation for
this position.

Mr. Bouschor is a related party to a tax-exempt loan from the Bank, which bears
interest at 5.5%. The principal balance at November 17, 2004 was $4,798,507.77.

ATTENDANCE OF DIRECTORS DURING OUR LASTS COMPLETED FISCAL YEAR

Our board held a total of 20 meetings during 2003. No director attended less
than 75% of the aggregate number of meetings of the board and the committees on
which he served in 2003, other than Mr. Bouschor, who attended 62% of the
meetings.

COMMUNICATION WITH DIRECTORS AND ATTENDANCE AT ANNUAL MEETINGS

Our board provides a process for shareholders to send communications to it or
any of the directors. Shareholders may send written communications to the board
or any one or more of the individual directors by mail, c/o Corporate Secretary,
North Country Financial Corporation, 130 South Cedar Street, Manistique, MI
49854. All communications will be compiled by our Corporate Secretary and
submitted to board or the individual directors on a regular basis unless such
communications are considered, in the reasonable judgment of the Corporate
Secretary, to be improper for submission to the intended recipient(s). Examples
of shareholder communications that would be considered improper for submission
include without limitation, customer complaints, solicitations, communications
that do not relate directly or indirectly to our business, or communications
that relate to improper or irrelevant topics.

Our policy is that all of the directors and nominees for election as directors
at the Annual Meeting attend the Annual Meeting except in cases of extraordinary
circumstances. All of the nominees for election at the 2004 Annual Meeting of
Shareholders and all other directors attended the 2004 Annual Meeting of
Shareholders except for director Bernard Bouschor. The Company expects all
nominees and directors to attend the 2005 Annual Meeting.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets out the compensation received by our President and
Chief Executive Officer, and any named executive officer of the Company which is
required to be disclosed, for the last three fiscal years ended December 31,
2003.

Annual Compensation Long-Term
Compensation
----------------------------------------------- ---------------
Name Other Annual All Other
And Compensation Number of Compensation
Principal Position Year Salary Bonus (1) (2) Options Granted (3)
------------------ ---- ------ --------- --- --------------- ---

C. James Bess
President and CEO of 2003 $152,163 $10,000 $5,000 0 $21,104
the Company and the
Bank

John D. Lindroth
Interim CEO and
Director of the 2003 $0 $0 $13,200 0 $0
Company and the
Bank(4)

Sherry L. Littlejohn
President and CEO of 2003 $116,357 $0 $5,200 0 $452
the Company and the
Bank (5) 2002 $250,000 $0 $7,200 0 $6,000

2001 $250,000 $0 $8,700 50,000 $10,500

(1) Represents a one-time signing bonus for Mr. Bess.

(2) Represents director fees paid. Perquisites and other personal benefits
(valued on the basis of incremental cost to the Company) did not exceed
the less of $50,000 or 10% of the salary and bonus for any of the named
executive officers for any year.

(3) The amounts shown include the taxable amount of group life insurance
cost paid by us for Mr. Bess $4,713 and Ms. Littlejohn $452. Other
compensation for Mr. Bess includes the amounts paid by us for housing
and the taxable portion of the benefit of a Company owned automobile
provided for Mr. Bess' use.

(4) Mr. Lindroth served as Interim CEO for the period of May 27, 2003
through August 1, 2003 at which time Mr. Bess assumed the CEO position.
The fees shown in the table, $13,200, represents director fees paid to
Mr. Lindroth for the entire 2003 year. Mr. Lindroth received no
compensation from us or the Bank for serving as "interim" CEO.

(5) Ms. Littlejohn resigned from her positions on May 21, 2003.

OPTION GRANTS IN LAST FISCAL YEAR

Our 2000 Stock Incentive Plan provides for the grant of options to key employees
as well as eligible directors. Options are granted at the discretion of the
Compensation Committee. The term of each option is up to ten (10) years, subject
to the earlier termination in certain events, and the option price is 100% of
fair market value on the date of the grant. The following table provides
information on options granted in 2003 to the executives listed in the Summary
Compensation Table the potential realizable value of the options.

Individual Grants
----------------------------------------------------------------------- Potential Realizable Value at
Percent of Assumed Annual Rates of Stock
Total Price Appreciation For Options
Number of Options/ Term
Securities SARs Granted --------------------------------
Underlying To Employees Exercise
Options/SARs In Fiscal Price Per Expiration
Name Granted Year Share Date 5% 10%
---- ------- ---- ----- ---- -- ---

C. James Bess 0 0% -- -- -- --
John D. Lindroth 0 0% -- -- -- --
Sherry L Littlejohn 50,000 100% $2.95 March 19, $92,762 $235,077
2013 (1)

(1) These same options had a scheduled expiration date of March 19, 2013,
however, they expired in 2003 as a result of the executive's
resignation.

AGGREGATED STOCK OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES

The following table provides information on the exercise of stock options during
2003 by the executives listed in the Summary Compensation Table and the value of
unexercised options at December 31, 2003.

Number of Securities Value of
Underlying Unexercised Unexercised
Options at In-the-Money
Shares 12/31/03 Options at 12/31/03(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -------------

C. James Bess 0 $0 0 / 0 $0 / $0
John D. Lindroth 0 $0 18,600 / 18,600 $0 / $0
Sherry L. Littlejohn 0 $0 0 / 0 $0 / $0

(1) Values are based on the difference between the last reported sale price of
our common stock on December 31, 2003 ($1.75), and the exercise price of
the options.

COMPENSATION OF DIRECTORS

Since November, 2002, our directors have not received any compensation for their
service as members of the board. The directors also serve on the board of
directors of the Bank, for which they were paid an annual fee for 2003 of $1,200
and a fee of $1,000 per month. For 2004, the directors of the Bank are expected
to receive an annual fee of $1,200, and a fee of $1,000 for each meeting that is
held of the board of directors of the Bank. Attendance is not a requirement in
order for the director to be paid the monthly fee.

Our 2000 Stock Incentive Plan provides for the grant of options to eligible
directors (i.e., nonemployee directors) in addition to key employees. Options
are granted at the discretion of the Compensation Committee. The term of each
option is ten (10) years, subject to earlier termination in certain events, and
the option price is 100% of fair market value on the date of grant. No options
were granted in 2003.

EMPLOYMENT AND CONSULTING AGREEMENTS

CURRENT CONTRACTS

We have entered into the employment contracts or other compensatory arrangements
with executive officers, as described below.

C. James Bess. Mr. Bess is a party to a two-year employment agreement with us
dated August 1, 2003 which was amended May 18, 2004. Under the terms of the
agreement, he is to receive a salary of $30,000 per month in base

pay. He also received a one-time signing bonus of $10,000. He is also entitled
to the use of a corporate owned auto and payment of all living expenses during
the term of his employment.

If we terminate his employment for any reason other than cause, as defined in
the agreement, or in the event of his resignation for good reason, as defined in
the agreement, he is entitled to receive the amount of his base pay and benefits
(including a cash payment for any unused vacation) through the stated expiration
date of the agreement, July 31, 2005.

If during the term of the agreement or within one year following the termination
date of the agreement, the Company engages in a change in control transaction as
defined in the agreement, his employment under the agreement will automatically
terminate two months following the consummation of the change in control
transaction and he will receive: (i) the payments provided to him upon a
termination without cause as set forth in the agreement, and (ii) two years of
his then base pay. In addition, if the Cease and Desist Order entered into
between the Bank, the Michigan Office of Financial and Insurance Services and
Federal Deposit Insurance Corporation in March 2003 (the "Cease and Desist
Order") is lifted during the term of his agreement, he is entitled to a bonus
equal to one-year's base salary. The Closing and the anticipated removal of the
Cease and Desist Order as part of the Closing, will trigger these change in
control and bonus payments and he will receive approximately $1,231,740 as a
result, which includes the bonus payment to him related to the removal of the
Cease and Desist Order. He has also entered into an amendment to this agreement,
as well as new employment agreement in connection with the Recapitalization, and
those agreements are described below.

Sherry L. Littlejohn. We have an Employment Agreement, dated September 30, 2000,
with Sherry L. Littlejohn, our former President and Chief Executive Officer.
This agreement was for a term of three years, with an automatic daily extension
of its term unless thirty days' notice was given by either party to the other to
discontinue the daily extensions. She resigned as our and the Bank's President
and Chief Executive Officer, and as our and the Bank's director, effective May
21, 2003, which ended any further extension of the agreement's term.

Her minimum annual salary under the Employment Agreement was $250,000, subject
to at least annual review by the Compensation Committee. She was entitled to
participate in various bonus, long-term incentive, retirement, employee benefit
and welfare plans available to our senior executives, received the use of an
automobile with a retail value of up to $50,000 and four weeks of paid vacation.

If she terminated her employment for Good Reason (defined as the material breach
by us of the Employment Agreement or the occurrence of certain events in
anticipation, or upon the occurrence, of a Change in Control) or we terminated
her employment without Cause (as defined in the Employment Agreement), upon her
execution and delivery of a release of all claims against us, the Bank, and
their respective current and former shareholders, directors, officers,
employees, and agents relating to or arising from her employment with us, she
would receive 12 quarterly payments, each in an amount equal to 25% of her then
annual base salary (or if the termination occurred after a Change in Control (as
defined in our 2000 Stock Incentive Plan) of the Company, the greater of her
annual base salary before or after the Change in Control), and for three years
following the termination date, she and her spouse and dependents would receive
medical and dental benefits under the our plans for active employees at our
expense. If, after a Change in Control, she terminated her employment for Good
Reason or we terminated her employment without Cause, she would receive the
following benefits in addition to those noted above: outplacement services up to
a maximum amount of 15% of her annual base salary (or if the termination
occurred after a Change in Control of the Company, the greater of her annual
base salary before or after the Change in Control), plus travel expense
reimbursement for job search travel of up to $5,000; the same counseling
services that may be available to our employees pursuant to the "Employee
Assistance Program"; and a cash payment within 90 days of the end of each of the
three (3) calendar years during which she receives payments from us under the
agreement in an amount equal to the amounts that we would have contributed to
our qualified retirement plan and Supplemental Executive Retirement Plan on her
behalf during each such calendar year if she had continued her employment for
the three-year period commencing on the date of her termination of employment
and had earned the annual base salary (or if the termination occurs after a
Change in Control, the greater of her annual base salary before or after the
Change in Control) and a bonus equal to the bonus earned by her for the fiscal
year ending immediately prior to the year in which the Change in Control
occurred.

If her employment were terminated by us for Cause, or by voluntary termination
by her other than for Good Reason, she would receive her annual base salary and
related benefits through the date of termination of her employment. If any
payments to her were subject to the golden parachute excise tax under Section
4999 of the Internal Revenue

Code, we would pay additional amounts, to her or to tax authorities; such that
the amount she received equaled the amount she would have received under the
agreement if an excise tax were not imposed. The Employment Agreement also
contained various non-competition, non-solicitation, and confidentiality
provisions restricting her activities during her employment and for three years
thereafter.

On December 9, 2003, she submitted to us a claim for additional compensation
under her Employment Agreement. In January, 2004, the FDIC advised us that any
payments under her Employment Agreement would require prior approval of the FDIC
under the "golden parachute" provisions of the FDIC Regulations. We subsequently
advised her counsel we will not make further payments under her Employment
Agreement.

CONTRACTS IN CONNECTION WITH THE CLOSING

Effective upon the Closing, certain other contracts or compensatory arrangements
with other executive officers will become effective. Those contracts or
compensatory arrangements are described below.

Tobias and Stark Employment Agreements. The agreements with Mr. Tobias and Mr.
Stark are essentially identical except as noted below. Mr. Tobias's agreement
provides for him to be employed and appointed as our Chairman of the board and
the Chief Executive Officer and the Chairman of the board of the Bank. He is to
receive an initial annual base salary of $225,000, subject to annual increases
by the board. We are to develop an incentive plan or plans for annual cash
bonuses to be awarded to eligible employees (including Mr. Tobias). His minimum
bonus for 2005 is to be $25,000.

Mr. Stark's agreement provides for him to be employed and appointed as our and
the Bank's Executive Vice President and Chief Financial Officer. He is to
receive an initial annual base salary of $200,000, subject to annual increase by
the board. His minimum bonus for 2005 is also to be $25,000.

Each of the employment agreements have initial three-year terms which renew for
an additional year on each anniversary date of the agreement unless we or the
executive elects to not renew at least sixty (60) days prior to the renewal
date.

In addition to the compensation noted above, each of the agreements provides for
health and other benefits to be provided to the executive at least substantially
equivalent to other management employees holding comparable positions. Each
agreement also requires us to reimburse the executive for all reasonable
out-of-pocket expenses in connection with his employment, including a car
allowance of $750 per month and a per diem allowance for living expenses while
in Manistique, Michigan, of at least $100 per day, not to exceed $1,000 in any
calendar month, but subject to upward adjustment upon demonstration that the
reasonable ordinary living expenses exceed the per diem amount. We have also
agreed in the employment agreement to pay the executive's reasonable costs of an
office in Oakland County and a personal secretary and other assistance unless we
otherwise provide him with an office and support staff in that county.

The agreements provide for Mr. Tobias to be awarded options under our 2000 Stock
Incentive Plan to purchase our shares of common stock in amounts equal to 4.375%
of the number of shares to be outstanding after the Closing (approximately
2,111,897 shares before, and 105,595 shares after, the reverse stock split) and
for Mr. Stark to be awarded options covering 3.125% of the shares to be
outstanding after the Closing (approximately 1,508,497 shares before, and 75,425
shares after, the reverse stock split). The exercise prices of the options are
to be the same as the purchase price of our common stock issued to purchasers
under the Stock Purchase Agreement. The options are to continue and be
exercisable in accordance with their terms if the agreement is terminated for
any reason other than death or for cause as if the employment had not
terminated. If employment is terminated due to death or for cause, the options
are to continue and may be exercised in accordance with terms to be negotiated
and set forth in the related option agreement.

Although the option agreements have not been finalized as of the date of this
Information Statement, it is currently anticipated that the options will vest in
accordance with a schedule that provides for the immediate vesting of 20% of
these options at the Closing, with the remaining 80% of the options vesting in
the future, if at all, in three approximately equal portions based upon
increases in the market price of our common stock during specific time periods.
Currently, it is anticipated that the final option agreements will provide that
one portion of the remaining options will vest each time the market price of our
common stock increases by an increment of 15% above the

purchase price per share paid by new investors under the Stock Purchase
Agreement.

If the agreement is terminated, we are to make termination payments in amounts
and in a lump sum or over time depending on the reason the agreement is
terminated. The table below summarizes the termination payments under the
agreements.

REASON FOR TERMINATION TERMINATION PAYMENTS
---------------------- --------------------

By us for cause No termination payments required

By us without cause and not due to Three years; base salary, highest bonus and benefits
disability, or by the executive for Good Reason

Death One year; base salary and benefits

Disability Two years; base salary and benefits, subject to
reduction for long term disability benefits
received by the executive

Following a Change in Control, either by Executive Lump sum; 300% of aggregate of base salary and
Good Reason or by us other than for cause highest bonus. Three years for benefits.
or disability

By Executive without Good Reason following a Lump sum; 100% of base salary and highest bonus
Change in Control

By mutual agreement Per the mutual agreement

Each agreement provides for a specified adjustment to the termination payments
should they be determined to constitute a parachute payment under Section 280G
of the Internal Revenue Code. Each agreement also provides for us to pay
interest at an annual rate equal to 120% of the applicable federal rate and to
indemnify the executive for expenses, including reasonable attorneys' and
consultants' fees, incurred to collect any unpaid amounts. We are also required
to indemnify the executive for costs and expenses, on an as incurred basis, as a
result of any dispute or controversy, regardless of the outcome of the dispute
or controversy.

Each agreement includes confidentiality obligations of the executive and
provides that the executive will not engage in competitive activities while
employed by us. If his employment is terminated, the restriction on executive's
competitive activities will continue after termination in certain instances for
a period of 1 to 3 years, depending on the reason for the termination.

Bess Amendment and Employment Agreement. For a description of Mr. Bess's
existing Employment Agreement see the discussion above. Under his existing
agreement, he will be entitled to change in control payments as a result of the
Closing in an aggregate amount of approximately $1,231,740. In connection with
our execution and delivery of the Stock Purchase Agreement, he entered into an
amendment of his existing employment agreement and a new employment agreement
that will become effective upon the Closing.

The amendment to the existing employment agreement provides that he will not be
entitled to receive any payment or other benefit under the agreement if the
payment or benefit would cause any payment to be considered as an excess
parachute payment under Section 280G of the Internal Revenue Code. In that
event, he will have the right to designate the payments or benefits to be
reduced or eliminated in order to avoid the payment being deemed an excess
parachute payment. Under the amendment, we also agree to indemnify him for all
taxes and reasonable legal, accounting and other professional fees and related
expenses incurred by him in connection with any tax audit or proceeding to the
extent attributable to the application of Section 280G or 4999 of the Internal
Revenue Code to the change in control payments made to him under the agreement.

The amendment further provides that upon payment of the change in control
payments following the Closing, including a bonus related to the removal of the
Cease and Desist Order, that the Company and Mr. Bess will have no

further rights or obligations under the agreement except for the indemnity
provision noted above and Mr. Bess's confidentiality obligations in the
agreement. If the Closing does not occur by December 31, 2004, the amendment
will no longer be effective.

The new employment agreement with Mr. Bess provides for him to be employed and
appointed as the President and Chief Executive Officer of the Bank. The
agreement has an initial 18 month term and will be extended for additional
one-year periods unless one of the parties elect to terminate the agreement at
the end of the then current term.

He is to receive base salary at the annual rate of $250,000 and an additional
incentive bonus in accordance with our or the Bank's policy or plan. In
addition, we are to provide him with a per diem allowance for living expenses
while in Manistique, Michigan, of at least $100 per day, not to exceed $1,000 in
any calendar month, but subject to upward adjustment upon demonstration that his
reasonable ordinary living expenses exceed the per diem amount. In addition, we
are to provide him with the use of the automobile presently used by him. He will
also be entitled to participate in our and the Bank's employee benefit plans as
are made generally available to the executives.

The agreement provides that if his employment is terminated as a result of his
disability, by us without cause or if we elect to not extend the term of the
agreement, he will be entitled to his base salary for a period of one year,
except that, if termination occurs during the initial 18 month employment
period, he will only be entitled to the payments for the shorter of one year or
the balance of the initial period. The agreement includes confidentiality
obligations, but does not include any non-competition provisions.

DATED: December 8, 2004
North Country Financial Corporation

/s/ James Bess
---------------------------------------------
C. James Bess, President and Chief Executive
Officer