Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS (CONTINUED)
INDUSTRY SEGMENTS MNC operates in two industry segments - financial services and residential mortgage banking. Please refer to Note X to the Consolidated Financial Statements for further information.
The primary businesses of the financial services segment are retail banking, commercial banking and investment banking. These businesses are operated by MNB. Independence One Bank of California (IOBOC) also operates retail and commercial banking businesses.
MNB also operates a residential mortgage banking business and offers residential mortgages to customers through MNB's branch network.
COMPETITION Michigan is a highly competitive financial services market. Michigan laws allow reciprocal interstate banking with the states of Illinois, Indiana, Minnesota, Ohio and Wisconsin. Federal laws, beginning in 1995, will allow interstate bank acquisitions, further expanding the banking market and heightening competitive forces. MNB competes primarily with other Michigan banks for loans, deposits and trust accounts. Further competition comes from a variety of financial intermediaries including investment companies, savings and loan associations, consumer finance companies, mortgage companies, and credit unions. IOBOC does business in the highly competitive southern California market. Financial institutions compete for deposit accounts, loans and other business on the basis of interest rates, fees, convenience and quality of service.
MNC's non-bank subsidiaries (included in the financial services industry segment), which are involved in leasing, insurance and investment management, face direct competition from leasing companies, brokerage houses, large retailers and commercial finance and insurance companies.
SUPERVISION AND REGULATION MNC is subject to supervision and regulation by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. Since it is a bank holding company, the services provided by the subsidiary banks and the operations of MNC are required to be closely related to the business of banking or related financial services.
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
ITEM 1. BUSINESS (CONTINUED)
MNC currently operates one national bank, which is a member of the Federal Reserve System, thereby supervised, regulated and subject to examination by the appropriate federal regulatory agencies. MNC also operates a federally-chartered stock savings bank which is regulated by the Office of Thrift Supervision.
In addition, MNC's bank subsidiary and savings bank subsidiary are members of the Federal Deposit Insurance Corporation. The electronic funds transfer services of these subsidiaries are governed by both state and federal laws.
During October 1994, the Central Office of the Comptroller of the Currency terminated the Memorandum of Understanding it entered into with MNB in August 1993.
PART I ITEM 2.














ITEM 10 (a) DIRECTORS OF THE CORPORATION
____________________
(1) Each of the Directors is also a Director of Michigan National Bank, the Corporation's principal banking subsidiary.
____________________
(2) Independence One Bank of California, FSB (formerly Beverly Hills Business Bank, FSB), Mission Viejo, CA; and Independence One Investment Services, Corp., Farmington Hills, MI, are wholly- owned subsidiaries of the Corporation. Lockwood Banc Group, Inc., Houston, TX, was a wholly-owned subsidiary of the Corporation until its sale, effective August 4, 1994.
PART III ITEM 10 (b) EXECUTIVE OFFICERS OF THE CORPORATION
________________
(1)Independence One Asset Management Corporation, Irvine, CA; Independence One Bank of California, FSB (formerly Beverly Hills Business Bank, FSB), Mission Viejo, CA; Independence One Holding Company (formerly BancA Corporation), Dallas, TX; Independence One Life Insurance Company, Phoenix, AZ; MNC Leasing Company, Detroit, MI; and MNC Operations and Services, Inc., Farmington Hills, MI, are wholly-owned subsidiaries of the Corporation. First State Bank and Trust Company of Port Lavaca, Port Lavaca, TX, was a wholly-owned subsidiary of the Corporation until its merger into International Bank of Commerce, Loredo, TX, effective September 1, 1994. Lockwood Banc Group, Inc. Houston, TX, was a wholly-owned subsidiary of the Corporation until its sale to Comerica Incorporated, Delaware, effective August 4, 1994.
(2)Executive Relocation Corporation, Farmington Hills, MI; General Audit Systems, Inc., Farmington Hills, MI; Independence One Brokerage Services, Inc., Farmington Hills, MI; Independence One Financial Services, Inc., Southfield, MI; and MNC Financial Services, Detroit, MI, are wholly-owned subsidiaries of Michigan National Bank. Independence One Mortgage Corporation, Southfield, MI, was a wholly-owned subsidiary of Michigan National Bank until its sale to Norwest Mortgage, Inc., effective October 1, 1994.
(3)See the section entitled "Directors of the Corporation" under Item 10 (a) for a description of Mr. Mylod's and Mr. Ebert's principal positions and offices with the Corporation, business experience, principal occupation and employment during the past five years.
PART III ITEM 10 (h) EXCHANGE ACT, SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors and officers, and persons who own more than ten percent of a registered class of the Corporation's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("Commission") and the National Association of Securities Dealers. Specific due dates for these reports have been established and the Corporation is required to report in this Annual Report on Form 10-K any failure to file by these dates during 1994. All of these filing requirements were satisfied by its officers and directors except that Morton E. Harris, Director and David M. Zarnoch, Senior Vice President(1) each failed to file on a timely basis one required report relating to one transaction involving Common Stock of the Corporation. William F. Pickard, Director, failed to file on a timely basis four required reports relating to four transactions involving Common Stock of the Corporation, all of which occurred in years prior to 1994. In making this statement, the Corporation has relied on the written representations of its incumbent directors and officers and copies of the reports that they have filed with the Commission.
__________________
(1) As a result of a reorganization announced on March 10, 1994, Mr. Zarnoch no longer serves as an executive officer of the Corporation.
PART III ITEM 11(a) AND 11(k)
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is composed of outside directors. The Compensation Committee's responsibilities include reviewing and approving recommendations from senior management and, in turn, making recommendations to the Board regarding the base salaries and the policies and procedures that govern the various compensation programs for the Chief Executive Officer and other executive officers of Michigan National Corporation. Specifically, the Compensation Committee recommends and the Board considers and approves: the corporate executive salary program; the corporate bonus plan; the deferred compensation plans; the corporate stock option and performance incentive plan; and all other plans that impact the Chief Executive Officer's and the executive officers' total compensation. The Board, when considering these matters, meets in executive session.
Michigan National Corporation's executive compensation programs are designed to attract, retain, motivate and reward highly talented executives who are capable of developing and achieving strategic business objectives that will allow the Corporation to remain highly competitive in a very complex and demanding industry.
On an annual basis, the Compensation Committee conducts a review of the Corporation's executive compensation programs. This review includes the presentation of salary survey information compiled by the Corporation's Human Resources Department. The Human Resources Department gathers survey data from independent sources it concludes are reliable for positions which are comparable to positions within the Corporation. This allows the Committee to evaluate competitive base salaries, bonuses and total compensation in establishing the compensation of the Corporation's executives. Data from three independent surveys covering regional banks with assets from $6 Billion to $20 Billion was utilized by the Committee in formulating its base salary and bonus recommendations for 1994(1). If survey data is not available for a specific position, the Human Resources Department analyzes the components of the position and makes a salary recommendation to the Committee.
Robert J. Mylod, Chairman and Chief Executive Officer, Douglas E. Ebert, President and Chief Operating Officer and Joseph J. Whiteside, Executive Vice President and Chief Financial Officer have employment agreements approved by the Compensation Committee establishing a starting salary and providing for participation in all other welfare, deferred benefits, salary, bonus and incentive plans, subject to Compensation Committee review and approval.
After reviewing the above described survey data in the context of the Corporation's profitability, quality of its balance sheet, results of internal and external audits and the position of the Corporation in its markets, the Committee recommended and the Board approved a 1994 base salary of $534,500 for Mr. Mylod(2). The
- ---------------
(1) Most of the banks included in the compensation surveys are not included in the Keefe, Bruyette & Woods Bank Stock Index (KBW 50 Index) which is the index to which the Corporation has compared the performance of its common stock against since 1992 when stock performance comparisons became a proxy statement requirement. See Stock Performance Chart under Item 11(l). The KBW 50 Index provides an appropriate index for stock comparison purposes but is less appropriate for compensation comparison purposes. For purposes of making compensation comparisons, the Corporation compares its compensation to the compensation of banks which more closely approximate its asset size.
(2) Mr. Mylod voluntarily reduced his 1994 base salary to $481,050.
Committee recommended and the Board approved 1994 base salaries of $450,000 for Mr. Ebert(3), $275,000 for Mr. Whiteside, $216,900 for Richard C. Webb, Senior Vice President and $194,900 for Lawrence L. Gladchun, Senior Vice President, General Counsel and Secretary.
Mr. Mylod and the other executive officers of the Corporation participate in the Corporation's bonus program. For 1994, the corporate bonus program provided for the payment of bonuses based upon corporate and individual performance. In analyzing the Corporation's performance, the Compensation Committee considered the achievement of predetermined return on asset (ROA) goals. A total of four progressively higher ROA goals were established with commensurately higher bonus potentials. If the Corporation's ROA was below the base level ROA goals, no bonuses would be paid. The bonus potential for the Chief Executive Officer ranged from a minimum of 22% of base salary to a maximum of 80% of base salary. The minimum bonus potential for the other executive officers ranged from 17% to 22% of base salary and the maximum bonus potential ranged from 45% to 70% of base salary. Under the program, 100% of the bonuses for the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer are tied to the Corporation's performance. For the other named executive officers, 75% of their bonus potential is tied to the Corporation's performance and 25% to business unit performance. The Committee and the Board considered numerous factors, including the following: (i) core earnings and ROA grew significantly; (ii) tax issues were resolved and several non-Michigan based businesses were sold, producing one-time profits of $131 million; (iii) the Corporation conceived and began the implementation of Project Streamline, which will produce an $85 million improvement in pre-tax profit when fully implemented; and (iv) the Corporation's stock price grew 30% during 1994. Based on this strong financial performance, and considering the individual contributions to this successful year, the Compensation Committee recommended and the Board awarded bonus payments of $250,000 (47% of base salary) for Mr. Mylod, $225,000 (50% of base salary) for Mr. Ebert, $125,000 (45% of base salary) for Mr. Whiteside, $65,000 (30% of base salary) for Mr. Webb and $78,500 (40% of base salary) for Mr. Gladchun.
The 1994 total compensation for Mr. Mylod, including base salary and bonus, is 85% of the average total compensation for chief executive officers indicated by the applicable salary surveys above described. The 1994 total compensation for other named executive officers fall within a range of 95% to 127% of the average total compensation indicated by such salary surveys.
The Compensation Committee recommended and the Board of Directors approved a corporate bonus program for 1995 which is similar to the 1994 program. The principal performance criteria will continue to be ROA. The bonus opportunity for the Chief Executive Officer and other named executive officers will be based primarily upon the Corporation's performance, with business unit performance considered as a factor for officers other than the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Similar to the 1994 program, no bonuses will be paid if the base level ROA target is not achieved. Once the base level target is achieved, the executive officers' bonus potential will increase with the achievement of each successive ROA goal, up to a maximum of 62.5% of base salary for the Chief Executive Officer and from 44% to 56% of base salary for the other named executive officers.
In 1985, the Corporation's shareholders approved the Michigan National Corporation Stock Option and Performance Incentive Plan. Under the Plan, the Corporation provides a report to the Compensation Committee
- ------------ (3) Mr. Ebert voluntarily reduced his 1994 base salary to $405,000.
setting forth its recommendations. Stock options are granted to officers by the Board of Directors upon a recommendation by the Compensation Committee. The stock options are intended to reward officers for diligent performance of their responsibilities and their contributions to the Corporation and to provide incentive for future performance by increasing their ownership interest in the Corporation. Historically, options are granted based upon grade level, typically Vice President and above, with each team member in a respective grade level being granted the same number of shares. Stock options are granted with an exercise price equal to the market value on the date of grant and are vested over a three-year period with a ten-year term. In 1994, the Compensation Committee approved the granting of stock options to Mr. Whiteside, as part of his employment agreement.
On an annual basis, the Compensation Committee reviews the qualified benefit plans under which the executive officers are covered participants. This review includes an analysis of any recommended plan amendments and how those amendments and/or the existing plan provisions impact the total deferred compensation of the executive officers. The plans included in this review are the Michigan National Corporation Employees' Pension Plan and Trust Agreement, the Michigan National Corporation Deferred Compensation Plan and Trust, the Michigan National Corporation Employee Stock Ownership Plan and the Michigan National Corporation Stock Option and Performance Incentive Plan. The Compensation Committee has concluded that, in the aggregate, the total compensation, including deferred compensation, of the named executive officers is appropriate, competitive with the market and meets the Corporation's compensation objectives.
Stanton Kinnie Smith, Jr., Chairman Sidney E. Forbes Gerald B. Mitchell Walter H. Teninga
PART III ITEM 11

ITEM 11 (b) EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation paid or accrued by the Corporation and its subsidiaries, to or on behalf of the Corporation's Chief Executive Officer and each of the five other most highly compensated executive officers of the Corporation (determined as of December 31, 1994) for the fiscal years ended December 31, 1992, 1993 and 1994.
SUMMARY COMPENSATION TABLE
1 Messrs. Mylod and Ebert voluntarily reduced their 1994 base salary on May 19, 1994 to $481,050 and $405,000, respectively.
2 The 1994 compensation figures of Messrs. Mylod, Ebert, Whiteside, Webb and Gladchun in the All Other Compensation column are equal to the annual contribution to the Employee Stock Ownership Plan (ESOP) for each executive officer.
3 The 1993 compensation figures in the All Other Compensation column are equal to the annual contribution to the ESOP for each executive officer.
4 The 1992 compensation figures of Messrs. Mylod and Booth in the Other Annual Compensation column are equal to the tax gross-up provided to them as a consequence of the Corporation's purchase of single premium annuities for them in 1992. For an explanation of the purchase, see the section entitled "Pension Plans" under Item 11 (f).
5 The 1992 compensation figures of Messrs. Mylod and Booth in the All Other Compensation column are equal to the premium expense of the single premium annuities purchased for them in 1992 (see reference in footnote #4) and the annual contribution to the ESOP for each of them. For Mr. Mylod, the premium expense was $1,232,630 and the ESOP contribution was $5,714. For Mr. Booth, the premium expense was $88,886 and the ESOP contribution was $5,714. The 1992 entries in this column for Messrs. Webb and Gladchun represent the annual ESOP contributions for their accounts.
6 Mr. Ebert joined the Corporation on December 13, 1993.
7 The 1994 compensation figures of Messrs. Ebert and Whiteside in the Other Annual Compensation column represent compensation relating to their relocation.
8 The 1993 compensation figure of Mr. Ebert in the Bonus column represents Mr. Ebert's signing bonus under his employment agreement.
9 The options of Mr. Ebert in the 1993 Options column were granted to Mr. Ebert pursuant to his employment agreement.
10 Mr. Whiteside joined the Corporation on March 2, 1994.
11 The 1994 compensation figure of Mr. Whiteside in the Bonus column represents Mr. Whiteside's $35,000 signing bonus under his employment agreement, plus a $125,000 performance bonus.
12 The options of Mr. Whiteside in the 1994 Options column were granted to Mr. Whiteside as part of his employment agreement.
13 As of October 21, 1994, Mr. Booth terminated his employment with the Corporation.
14 The 1994 compensation figure of Mr. Booth in the Bonus column represents the total of two bonuses paid to Mr. Booth; $135,000 as a stay-to-the-end bonus and $81,000 based on the value realized from the sale of substantially all of the assets of Independence One Mortgage Corporation (IOMC).
15 The 1994 compensation figure of Mr. Booth in the Other Annual Compensation column is equal to the tax gross-up provided to Mr. Booth as a consequence of the Corporation's purchase of a single premium annuity for him in 1994 as a result of his termination of employment with the Corporation subsequent to the sale of IOMC.
16 The 1994 compensation figure of Mr. Booth in the All Other Compensation column represents the premium expense of a single premium annuity of $1,186,900, a lump sum settlement payment of $291,500, and an ESOP contribution of $9,194.
PART III ITEM 11 (c) STOCK OPTION GRANTS
The following table provides information, with respect to the named executive officers, concerning the grant of stock options during the last fiscal year.
- ------------
(1) The 5% and 10% annual rates of stock price appreciation are hypothetical assumptions. If the transaction contemplated by the Agreement and Plan of Merger described under Item 12

Item 12 (c) is consummated, these options will have the following values: $2,187,000 for Mr. Mylod; $5,113,000 for Mr. Ebert; $1,140,625 for Mr. Whiteside; $2,144,066 for Mr. Webb; and $1,730,875 for Mr. Gladchun.
PART III ITEM 11 (f) PENSION PLANS
The Corporation also has a Supplemental Pension Agreement (Mylod Pension Agreement) dated January 16, 1985 with Mr. Mylod, under which he will be entitled to an annual contractual pension benefit equal to the vested portion of 60% of his average annual total compensation (salary plus bonus) for the 36 consecutive months his total compensation was the highest, less (i) the annual amount of any benefits he is then entitled to receive under the Corporation's Pension Plan, (ii) the annual amount of any benefits he is entitled to receive under Social Security, and (iii) the pre-tax equivalent of any annual benefits due him under any single premium deferred annuity contracts purchased by the Corporation on his behalf. Under the vesting schedule of the Pension Agreement, Mr. Mylod is currently 100% vested. Mr. Mylod will first be eligible to receive pension benefits at age 55, but such payment will be reduced by 2% for each year that the commencement of payments precedes his attainment of age 60.
If Mr. Mylod retires at age 60 with average annual total compensation of $714,428 and 15 years of service, his estimated annual contractual benefit under the Pension Agreement would be $357,083. In combination with the qualified pension plan and social security, his total estimated annual pension benefits would be $428,657. Pension benefits are paid for Mr.Mylod's life and then to his surviving spouse for life. If Mr. Mylod dies before receiving his benefit, his surviving spouse will receive his lifetime monthly benefit beginning at age 55.
The Corporation also has entered into Supplemental Pension Agreements and amendments thereto (Pension Agreements) with, of the other named executive officers, Messrs. Ebert, Whiteside, Webb and Gladchun. The Pension Agreements entitle each executive officer to an annual contractual pension benefit equal to the vested portion of a contractual benefit less (i) the annual amount of any benefits each is entitled to receive under the Corporation's Pension Plan, (ii) the annual amount of any benefit each is entitled to receive under Social Security, and (iii) the pre-tax equivalent of any annual benefits due him under any single premium deferred annuity contracts purchased by the Corporation on his behalf. The contractual benefit for each of the above individuals is as follows: Mr. Ebert (50% of his average total compensation for the 36 consecutive months his total compensation was the highest); Mr. Whiteside (40% of his average total compensation for the 36 consecutive months his total compensation was the highest); Mr. Webb ($100,000); Mr. Gladchun ($100,000); and Mr. Booth ($200,000)1. Messrs. Ebert and Whiteside are presently 0% vested; Mr. Booth is 100% vested; and Messrs. Webb and Gladchun are 40% vested. Messrs. Ebert and Whiteside are 0% vested for the first 3 years of service, 30% vested at the end of the third year, and then an additional 10% vested for each year of service from year 4 through year 10 until they are 100% vested. Messrs. Webb and Gladchun vest an additional 10% each year until they are fully vested. The Pension Agreements for Messrs. Webb and Gladchun will become 100% vested in the event of a change in control of the Corporation. The Pension Agreements for Messrs. Ebert and Whiteside will be 30% vested in the event of a change in control of the Corporation during the first three years of the Agreements, with no accelerated vesting if a change in control occurs thereafter. Generally, the pensions will be paid monthly for each executive officer's life, and then to his surviving spouse for life. If the executive officer dies before receiving his benefit, his surviving spouse will receive his lifetime monthly benefit beginning at or after age 55 or 60, whichever is applicable.
The Mylod Pension Agreement and the Pension Agreements allow for purchases of individual non-participating non-qualified deferred annuities to fund a portion of the Corporation's obligations under such agreements. The annuities so purchased are owned by the executive officer. Pursuant to the Mylod Pension Agreement and Mr. Booth's
Pension Agreement, the Corporation purchased single premium annuities for Messrs. Mylod and Booth.(1) There have been no discretionary annuity purchases for any of the other named executives officers.
The benefits purchased under the annuity policies will always be less than what the Corporation would have otherwise paid because, unlike supplemental retirement benefits paid directly by the Corporation, payments under the annuity policies will not be fully taxable to the executive officer upon receipt. Thus, the annuities purchased reflect the after-tax equivalent of benefits which would otherwise be paid by the Corporation on a pre-tax basis.
The purchase of annuity policies by the Corporation constitutes taxable income to the executive officer in the year of the purchase. The Corporation paid the federal and state taxes resulting both from the purchases and such tax payments.
There is an ongoing liability to the Corporation to purchase deferred annuities under the Mylod Pension Agreement and the Pension Agreements. As of December 31, 1994, if all five current executive officers with Supplemental Pension Agreements had terminated on that date, the total expense to purchase annuities, including gross-ups, would have been $6,418,824. This liability will increase on an annual basis as the vesting percentage in the individual pension goals increase.
- ------------
(1) As of October 21, 1994, Mr. Booth terminated his employment with the Corporation. Pursuant to Mr. Booth's Pension Agreement, the Corporation bought a single premium annuity for Mr. Booth, as described in footnote #15 to the Summary Compensation Table under Item 11 (b).
PART III ITEM 11 (g) DIRECTOR COMPENSATION
In 1994, the Board of Directors met on eighteen separate occasions. Outside directors of the Corporation received $13,500 as a retainer for their services. For their attendance at each board meeting, outside directors received $900. The retainer and board meeting fees include fees paid to outside directors for their service on the Board of Michigan National Bank. All outside directors who served on a committee were paid $800 for their attendance at each committee meeting. All outside directors who served on the Audit and Credit Committee were paid $2,000 for their attendance at each Audit and Credit Committee meeting, and the Chairman of the Audit and Credit Committee received a $5,000 retainer. These fees paid to outside directors will remain the same in 1995, except that beginning in April 1995, all outside directors will be paid $300 for their participation in any telephonic board meetings.
PART III ITEM 11 (h) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Corporation has an employment agreement dated January 16, 1985, with Mr. Mylod, under which Mr. Mylod will serve as Chairman of the Board of Directors and Chief Executive Officer of the Corporation. Under the contract, Mr. Mylod's current salary as of December 31, 1994 was $534,500(1). The current term of Mr. Mylod's employment agreement expires January 22, 1999. In addition to participation in all standard employee benefit plans, Mr. Mylod is entitled to other benefits afforded senior officers of the Corporation including participation in the Corporation's bonus plans. If Mr. Mylod's employment as an officer is terminated by the Corporation, other than for cause, as defined in the employment agreement, he will continue to receive his salary and benefits for the remaining term of the agreement. The employment agreement also provides for certain benefits to be paid in the event of disability or death. In addition to the employment agreement, Mr. Mylod has an Executive Change in Control Severance Agreement (Severance Agreement) and a Supplemental Pension Agreement with the Corporation, both of which are described below.
The Corporation has an employment agreement dated November 17, 1993 with Mr. Ebert, under which Mr. Ebert will serve as President and Chief Operating Officer of the Corporation. Under the contract, Mr. Ebert's salary as of December 31, 1994 was $450,000(2). The current term of Mr. Ebert's employment agreement expires December 31, 1997. In addition to participation in all standard employee benefit plans, Mr. Ebert is entitled to other benefits afforded senior officers of the Corporation including participation in the Corporation's bonus plans. If Mr. Ebert's employment as an officer is terminated by the Corporation other than for breach of his employment agreement, he will continue to receive his salary for the remaining term of the agreement. In addition to the employment agreement, Mr. Ebert has a Severance Agreement and a Supplemental Pension Agreement with the Corporation, both of which are described below.
The Corporation has an employment agreement dated March 2, 1994 with Mr. Whiteside, under which Mr. Whiteside will serve as Executive Vice President and Chief Financial Officer of the Corporation. Under the contract, Mr. Whiteside's salary as of December 31, 1994 was $275,000. The current term of Mr. Whiteside's employment agreement expires March 2, 1998. In addition to participation in all standard employee benefit plans, Mr. Whiteside is entitled to other benefits afforded senior officers of the Corporation including participation in the Corporation's bonus plans. If Mr. Whiteside's employment as an officer is terminated by the Corporation, he will continue to receive his salary for the remaining term of the employment agreement. In addition to the employment agreement, Mr.
------------
(1)Mr. Mylod voluntarily reduced his 1994 base salary to $481,050 on May 19, 1994, and it will be restored to $534,500 on April 20, 1995.
(2)Mr. Ebert voluntarily reduced his 1994 base salary to $405,000 on May 19, 1994, and it will be restored to $455,000 on April 20, 1995.
Whiteside has a Severance Agreement and a Supplemental Pension Agreement with the Corporation, both of which are described below.
The Corporation has entered into Severance Agreements with current executive officers of the Corporation including, of the named executive officers, Messrs. Mylod, Ebert, Whiteside, Webb and Gladchun in order to reinforce and encourage the continued dedication and attention of those executives as members of the Corporation's management without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Corporation. The Severance Agreements are operative upon the occurrence of a "change in control" of the Corporation, which would be deemed to occur (a) upon any person or group of persons other than the Corporation, its subsidiaries or employee benefit plans acquiring the beneficial ownership of 20% or more of the combined voting power of the Corporation's then outstanding voting securities; or (b) if during any two-year period during the term of the Severance Agreement, individuals who at the beginning of such period constitute the Corporation's Board of Directors, cease for any reason to constitute at least a majority thereof; or (c) upon a merger, consolidation or any sale, lease, exchange or other transfer of all or substantially all of the assets of the Corporation, or any other similar business combination or transaction other than any business combination or transaction which (i) would result in the outstanding voting securities of the Corporation immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than 75% of the combined voting securities immediately after such business combination or transaction or (ii) would be effected to implement a recapitalization of the Corporation in which no person or group of persons acquires 20% or more of the combined voting power of the outstanding voting securities of the Corporation; or (d) upon the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or (e) upon the occurrence of any other event that requires reporting in response to Item 6(e) of Schedule 14A of Regulation 14A of the Securities Exchange Act of 1934.
The Severance Agreements provide that, in the event of certain terminations of the executive's employment with the Corporation within two years of a change of control of the Corporation, the executive will be entitled to receive the following severance benefits: (1) a lump-sum payment equal to three times the greater of (i) the executive's annual salary in effect at the time of the notice of termination; or (ii) the executive's average salary based on the previous 5 calendar years; (2) a lump-sum payment equal to (i) two times the highest annual bonus paid during or with respect to the prior 5 calendar years plus (ii) a pro rata portion of any bonus the executive shall be deemed to have earned for the year termination occurred; (3) in addition to the executive's vested benefits under the Pension Plan, a supplemental cash benefit equal to the excess of (i) benefits payable under the Pension Plan if the executive continued to be employed for the remainder of the period under the Severance Agreement over (ii) the benefits actually payable under any such plan in addition to their fully vested benefits; (4) a payment of $10,000 for outplacement services; (5) an office, secretary and automobile for two years and (6) the continuation of equivalent life, health, hospitalization, disability and other similar benefits that the executive would have received prior to termination for the remainder of the period under the Severance Agreement. Benefits under the Severance Agreement, to the extent that
they conflict therewith, are paid in lieu of benefits provided under any other agreement with the executive.
Under the Severance Agreement, the executive is not required to mitigate the amount of payments by seeking employment or otherwise; nor shall the amount of any benefit be reduced by any compensation or benefit earned by the executive after termination. In addition, if an executive becomes subject to an excise tax under the Internal Revenue Code as a result of any payments or benefits received on a change in control, the Corporation will make an additional payment to the executive to make him whole after payment of the excise tax and any income taxes on the additional payment.
The Severance Agreement is inoperative when the termination of the executive is made (i) by the Corporation due to death, permanent disability or cause, or (ii) by the executive for other than "good reason". "Good reason" is broadly defined in the Severance Agreements to include any significant adverse alteration in duties or responsibilities of the executive, any reduction in compensation or benefits or involuntary relocation. The Severance Agreements terminate on their anniversary dates in 1997.
PART III ITEM 11 (l) STOCK PERFORMANCE CHART
Set forth below is a line-graph presentation comparing cumulative five-year stockholder returns on the Corporation's Common Stock against the cumulative total return of the NASDAQ Stock Market Index(1) and the Keefe, Bruyette & Woods Bank Stock Index (KBW 50 Index)(2) for the five-year period commencing December 31, 1989 and ending December 31, 1994.(3)
Total return includes reinvestment of dividends. All data as of full-year-end December 31.
- ----------------------
(1) The NASDAQ Stock Market Index, a broad market equity index, is made up of both U.S. and foreign companies listed on the NASDAQ exchange.
(2) The KBW 50 Index, a market-capitalization-weighted index, is made up of fifty of the nation's most important banking companies, including all money-center and most regional banks.
(3) Total return includes reinvestment of dividends. All data is as of fiscal year-end December 31.
Part III Item 12(a) and (b)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial ownership, as of February 4, 1995, of Common Stock of the Corporation by directors of the Corporation, the Corporation's five most highly compensated executive officers, and the Corporation's directors and executive officers as a group.
- ------------ 1 The beneficial ownership of shares shown in this column include currently exercisable Corporation Stock Options exercisable within 60 days of the filing, which were granted to various individuals named in this table, or included in the group, pursuant to the Corporation's Stock Plans. Corporation Stock Options currently exercisable or exercisable within 60 days of the filing, include 34,000 shares for Robert J. Mylod, 100,000 shares for Douglas E. Ebert, 24,500 shares for Lawrence L. Gladchun, 31,333 shares for Richard C. Webb, 25,000 shares for Joseph J. Whiteside and 13,351 shares held by the other executive officers in the group who are not named in the table.
The shares shown in this column also include shares allocated to the individual accounts of the named persons and all officers and directors included as a group in the table, which are held by Corporation Stock Plans or the ESOP. MNB is the "Trustee" of the Corporation Stock Plans. See "Other Ownership of the Corporation's Common Stock."
Fully vested amounts accrued pursuant to the Deferred Compensation Plan include 15 shares for Robert J. Mylod, 2,024 shares for Lawrence L. Gladchun, 5,291 shares for Richard C. Webb, and 9,840 shares held by the other executive officers in the group who are not named in the table. Fully vested amounts accrued pursuant to the ESOP include 3,007 shares for Robert J. Mylod, 1,082 shares for Lawrence L. Gladchun, 1,116 shares for Richard C. Webb, and 3,268 shares held by the other executive officers in the group who are not named in the table.
2 Includes 36,325 shares held by Spectrum Associates of which Mr. Harris is managing partner.
3 Includes 1,916 shares acquired by Mr. Mitchell and 1,985 shares acquired by Mr. Smith pursuant to their elections to defer fees into Common Stock pursuant to the Deferred Compensation Plan.
4 Includes 445 shares as to which Mr. Williams disclaims beneficial ownership.
5 For security ownership of Robert J. Mylod, Chairman and Chief Executive Officer, and Douglas E. Ebert, President and Chief Operating Officer, refer to their entries above with the list of directors.
* Less than 1% of the outstanding shares of Common Stock. OTHER OWNERSHIP OF THE CORPORATION'S COMMON STOCK
The following table sets forth information, as of December 31, 1994, concerning persons known to the Corporation to be the beneficial owners of more than 5% of the outstanding shares of Common Stock.
- ------------ (1)Heine Securities Corporation ("HSC") is an investment advisor registered with the SEC. The shares reported herein were beneficially owned by portfolios of Mutual Series Fund Inc., an investment company for whom HSC acts as investment advisor. Pursuant to an advisory contract, HSC had sole investment and voting power with respect to such shares. HSC disclaimed any beneficial ownership over any of the shares reported herein. As of February 7, 1995, Heine Securities ceased to hold or own, beneficially or otherwise, shares of Common Stock.
(2)Plan shares are held for the benefit of the participants in the Deferred Compensation Plan, and are voted by the Trustee -- Michigan National Bank, Trust Department, 77 Monroe Center, P.O. Box 1707, Grand Rapids, MI 49501.
The Deferred Compensation Plan participants have the right to direct the vote of all shares allocated to their accounts in the Defered Compensation Plan whether vested or unvested. Allocated shares (and in some instances certain unallocated shares) for which timely and proper directions are not received by the Trustee will be voted by the Trustee in the same proportion as it votes the shares as to which timely and proper directions are received. Shares allocated to the Payroll Based Stock Option Plan ("PAYSOP"), an account in the Deferred Compensation Plan, will not be voted at all unless timely and proper instructions are received by the Trustee. As of February 22, 1995, the total number of shares allocated to such PAYSOP account was 34,662. Participants must approve certain dispositions of the Corporation's stock by the Trustee of the Deferred Compensation Plan. Various officers of the Corporation who are named or included as a group in the section entitled "Security Ownership of Directors and Officers" are participants in the Deferred Compensation Plan.
(3)Trust shares are held for the benefit of the participants in the ESOP and are voted by the Trustee -- Michigan National Bank, Trust Department, 77 Monroe Center, P.O. Box 1707, Grand Rapids, MI 49501.
Participants have the right to direct the vote of all shares allocated to their accounts in the ESOP whether vested or unvested. Shares which are not allocated to the account of a particular participant, and allocated shares for which timely and proper directions are not received by the Trustee, will be voted by the Trustee in the same proportion as it votes the shares as to which timely and proper directions are received. Participants also have the right to respond to tender or exchange offers for the Common Stock allocated to their accounts. See "Security Ownership of Directors and Executive Officers."
As of the date hereof, the Corporation's management knows of no other beneficial owner of more than 5% of any class of voting security of the Corporation.
PART III ITEM 13

ITEM 13 (a), (b) AND (c) CERTAIN TRANSACTIONS
Directors and executive officers of the Corporation, certain beneficial owners of over 5% of the Corporation's Common Stock and members of their immediate families were customers of, and had transactions (including loans and loan commitments) with the Corporation and its subsidiaries during 1994. In the opinion of management, all such loan transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not affiliated with the Corporation or its subsidiaries, and did not involve more than the normal risk of collectibility or present other unfavorable features.
During 1994, certain subsidiaries of the Corporation made lease payments totalling $2,036,841 to FCN Associates, a general partnership in which Sidney E. Forbes, a Director of the Corporation, has a 15 1/2% interest.
During 1994, Amway Hotel Corporation ("Amway Hotel") received lease payments totalling $76,271 under a lease of a banking facility in the Amway Plaza Hotel, Grand Rapids, Michigan, to a subsidiary bank of the Corporation. Amway Hotel is a wholly-owned subsidiary of Amway Properties Corporation, which is a wholly-owned subsidiary of Amway Corporation. Stephen A. Van Andel, a Director of the Corporation, is Vice President and Chairman of the Executive Committee of Amway Corporation.
FIRST AMENDMENT TO PENSION AGREEMENT*
FIRST AMENDMENT dated as of February 4, 1995, to the Pension Agreement (the "Pension Agreement") dated as of January 19, 1994, by and between Michigan National Corporation, a Michigan corporation (the "Corporation"), and Douglas E. Ebert (the "Executive").
WHEREAS, the Corporation and the Executive are a party to the Pension Agreement; and
WHEREAS, the Corporation and the Executive desire to provide the Executive with security with respect his retirement benefits in the event of a Change in Control of the Corporation;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree to amend the Pension Agreement as follows:
1. Section 12 of the Pension Agreement is amended by adding new subsections (c) and (d) to read in their entirety as follows:
(c) Immediately upon a termination of employment of Employee following a Change in Control (as defined in the Employee's Executive Change in Control Severance Agreement dated January 14, 1994, and amended on March 14, 1994 and February 4, 1995) ("purchase date"), the Corporation (or its successor) shall purchase a Single Premium Annuity from an Insurer to fully guarantee the vested benefits accrued to the purchase date under this Agreement as described in sub-section (d) below.
(d) For purposes of this Section, the amount of the Single Premium Annuity shall be calculated to place the Employee and/or his Surviving spouse in the same after-tax position had no annuity been purchased, taking into account the fact that a portion of the annuity payment will be non-taxable to Employee (or Surviving Spouse). This will be deemed to occur if, once the actual annuity payment is known, the following formula is satisfied:
x = After-Tax Benefit -------------------- 1 - [(1 - ER) x ATR]
where:
- After-Tax Benefit is the annual benefit being purchased under Section 4 of this Agreement multiplied by the result obtained by subtracting the Applicable Tax Rate from one (1).
- ER is the exclusion ratio calculated under Section 72 of the Internal Revenue Code of 1986 (as amended from time to time) which is based upon Employee's age, the actual annuity payment, and its purchase price.
- ATR is the Applicable Tax Rate as of the date of purchase, and will not change thereafter.
- X is the annual amount of the Single Premium Annuity.
2. Except as expressly provided herein, the Pension Agreement shall remain in full force and effect in all respects.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
MICHIGAN NATIONAL CORPORATION
/s/ By: ______________________________ Robert J. Mylod, Chairman and Chief Executive Officer
EXECUTIVE
/s/ __________________________________ Douglas E. Ebert
* The First Amendment To Pension Agreement between Michigan National Corporation and Joseph J. Whiteside is substantially identical in all material respects to this amendment agreement and therefore, is not included as an exhibit.
SECOND AMENDMENT TO MICHIGAN NATIONAL CORPORATION EXECUTIVE CHANGE IN CONTROL AGREEMENT**
SECOND AMENDMENT dated as of February 4, 1995 to the Executive Change in Control Severance Agreement (the "Agreement") dated as of September 14, 1989, by and between Michigan National Corporation, a Michigan corporation (the "Corporation"), and Robert J. Mylod (the "Executive").
WHEREAS, the Corporation and the Executive are a party to the Agreement; and
WHEREAS, the Corporation and the Executive desire to amend the Agreement to represent more fully the original intent of the parties.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree to amend the Agreement as follows:
1. Section 5(b) of the Agreement is amended so that it reads in its entirety as follows:
(b) INCENTIVE AWARDS. The Executive shall receive a cash payment in a single sum, within 10 business days following the Executive's Date of Termination, in an amount equal to (i) 2 times the highest annual bonus paid to the Executive during or with respect to the prior 5 calendar years prior to the year in which the Date of Termination occurs plus (ii) a pro-rata annual bonus for the year in which the Date of Termination occurs pursuant to the terms of the Corporation's annual incentive plan for such year based on actual performance through the date of the Change in Control.
2. The first sentence of Section 5(i) of the Agreement is amended to read in its entirety as follows:
If any payments made to the Executive, whether pursuant to this Agreement or otherwise, are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, the Corporation shall pay to the Executive such additional amounts as are necessary (taking into account all Federal, state, and local income, excise and other taxes payable by the Executive as a result of the payment of such additional amounts) to place the Executive in the same after-tax position he would have been in had no such excise tax (or any interest or penalties thereon) been imposed on any such payments, including those made pursuant to this Section 5(i).
3. Except as expressly provided herein, the Agreement shall remain in full force and effect in all respects.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
MICHIGAN NATIONAL CORPORATION
/s/ By: __________________________ Lawrence L. Gladchun, Senior Vice President
EXECUTIVE
/s/ ______________________________ Robert J. Mylod
** The Second Amendment To Michigan National Corporation Executive Change In Control Agreements between Michigan National Corporation and four current executive officers including, Douglas E. Ebert, Richard C. Webb, Joseph J. Whiteside and Lawrence L. Gladchun are substantially identical in all material respects to this amendment agreement and therefore, are not included as exhibits.
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
PART IV ITEM 14