PROXY STATEMENT
VERMONT FINANCIAL SERVICES CORP.
100 MAIN STREET
BRATTLEBORO, VERMONT 05301
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 25, 1995
Accompanying this Proxy Statement is a Notice of the Annual
Meeting of Stockholders (the "Meeting") of Vermont Financial Services Corp.
(the "Company") to be held at The Woodstock Inn, Woodstock, Vermont, on
April 25, 1995, at 10:00 a.m. Stockholders of record at the close of
business on February 28, 1995 will be entitled to vote at the Meeting.
GENERAL INFORMATION
Proxies in the form enclosed are solicited by the Board of
Directors of the Company. Any such proxy, if properly executed and
received in time for voting and not revoked, will be voted at the Meeting
in accordance with the instructions of the stockholder indicated thereon.
If no instructions are given on the proxy, an executed proxy will be
voted FOR the election of the four nominees named under the caption
"Election of Directors for Class II" below.
Management knows of no other matters to be presented at the
Meeting, but if other matters are properly presented, the persons named in
the proxy and acting thereunder will vote or refrain from voting in
accordance with their best judgment pursuant to the discretionary authority
conferred by the proxy.
The Proxy Statement and the accompanying form of proxy are being
first mailed or given to holders of the common stock, $1.00 par value, of
the Company (the "Common Stock") on or about March 10, 1995.
A proxy may be revoked at any time prior to its exercise (1) by
filing, at the principal office of the Company, a written notice revoking
such proxy, or a duly executed proxy bearing a later date, or (2) in open
meeting prior to the taking of a vote. Any stockholder of the Company
entitled to vote at the Meeting may attend the Meeting and vote in
person on any matter presented for a vote to the stockholders of the
Company at such meeting, whether or not such stockholder has
previously given a proxy. If a stockholder attends the Meeting and wishes
to vote in person, but has previously submitted his proxy, he or she must
revoke or withdraw such proxy before voting in person.
The Company maintains its principal executive offices at 100
Main Street, Brattleboro, Vermont 05301, and its telephone number is
802/257-7151. The Company is the owner of 100% of the outstanding capital
stock, of Vermont National Bank ("VNB") headquartered in Brattleboro,
Vermont and United Bank ("UB") headquartered in Greenfield,
Massachusetts.
<PAGE>
VOTING SECURITIES
As of February 28, 1995, the Company had 20,000,000 shares of
Common Stock authorized and 4,729,106* shares outstanding and entitled
to vote. In addition, there are 5,000,000 shares of Preferred Stock
authorized, none of which is outstanding. Each share of Common Stock
entitles the holder thereof to one vote on the matters to be voted upon at
the Meeting, with all stockholders voting as one class.
* Includes 114,189 shares which would have been issued to
certain stockholders of West Mass Bankshares, Inc. ("West Mass") in
connection with the June 1994 merger of West Mass into the Company had
not such stockholders perfected dissenters appraisal rights in respect
of the merger. As dissenters, such stockholders are entitled to
receive the cash fair value for their shares and an action for
determination of such value is currently pending in superior court in
Greenfield, Massachusetts. Until the appraisal action is resolved, the
Company's books assume for reporting purposes that the dissenting West
Mass stockholders received the same consideration in the merger as all
other West Mass stockholders.
As of February 28, 1995 the following beneficial owners were
known to control five percent or more of the outstanding shares of Common
Stock, $1 par value, of the Company. The information below was taken
from form Schedule 13Gs filed as of December 31, 1994 with the Securities
and Exchange Commission.
<TABLE>
<CAPTION> <C> <C>
Amount of
Beneficial Percent
Name and Address Ownership of Class
Vermont National Bank . . . . . . . . . . . 242,984 5.14% (1)
Trust Department
100 Main Street
Brattleboro, VT 05301
David L. Babson & Company, Inc. . . . . . . 251,600 5.32% (2)
One Memorial Drive
Cambridge, MA 02142-1300
</TABLE>
(1) Includes sole voting power for 17,608 shares, shared voting
power for 225,376 shares, sole dispositive power for 139,907 shares and
shared dispositive power for 103,077 shares.
(2) Includes sole voting power for 158,600 shares, shared voting
power for 93,000 shares and sole dispositive power for 251,600 shares.
PROPOSAL 1
ELECTION OF DIRECTORS FOR CLASS II
The Board of Directors of the Company consists of fifteen
Directorships, divided into three classes. The terms of office of the
Directors in Class II expire in 1995. The terms of the Directors in
Class III expire in 1996, and Class I in 1997. The nominees for Class II,
for election for terms to expire at the Company's 1998 Annual Meeting or
until their successors are elected and qualified, are as follows: Allyn
W. Coombs, James E. Griffin, Daniel C. Lyons, and Stephan A. Morse.
As currently constituted, each of Classes I, II and III
presently has five directors. One Class II director, Robert C. Cody, has
notified the Board that he plans to retire and does not wish to stand for
reelection in 1995. If all nominees for Class II are elected at the
Annual Meeting, there will be one vacancy in Class II. Pursuant to the
Company's By-laws, this vacancy can be filled by the Board, although there
are no immediate plans to do so.
Although all nominees have agreed to serve if elected, if, at
the time of the Meeting, any of the nominees should be unable to serve or
should decline to serve, the discretionary authority provided in the
proxy may be exercised by the proxies named therein to vote for a
substitute or substitutes designated by the Board of Directors of the
Company.
A majority of the shares of Common Stock of the Company,
issued and outstanding and entitled to vote at the Meeting, is necessary
to constitute a quorum for the transaction of business. Shares of Company
Common Stock which are present in person or by proxy but abstain from
voting at the Meeting will be included for purposes of determining a
quorum at the Meeting. The vote of a majority of the quorum, represented
in person or by proxy at the Meeting, is necessary to elect the four
nominees for Class II named above. There is no cumulative voting in
elections of directors of the Company. The Board of Directors of the
Company recommends that you vote "FOR" the election of these four
directors.
MANAGEMENT OF THE COMPANY
Stock Ownership of Management
The following table sets forth the name and address of each
director, nominee for director or executive officer of the Company, his
or her age and principal occupation, all positions or offices held by
such individual within the Company, the year in which he or she first
became a director of the Company or its predecessors, the number of whole
shares of Common Stock of the Company beneficially owned by each at the
close of business on February 28, 1995, and the percent of class so
owned. The business address of each of the directors, nominees and
executive officers is the Company's address except as otherwise noted.
It is anticipated that each of the nominees will continue to act as
Directors of VNB and/or UB. No family relationship exists between any
director or persons nominated by the Company to become directors.
<TABLE>
<CAPTION> <C> <C> <C>
Class and Shares of Percent
Name, Age and Principal Year First Common Stock of
Occupation or Employment and Became Beneficially Common
Offices held with the Company (1) Director Owned (2) Stock
Anthony F. Abatiell (55) . . . . . . III 59,169(3) 1.25%
Attorney, Partner, Abatiell, 1982
Wysolmerski & Valerio Law Offices,
Rutland, VT
Zane V. Akins (54) . . . . . . . . . I 1,383(4) 0.03%
President, Akins & Associates; 1987
Director, Anitech International,
Inc., Brattleboro, VT
Brattleboro, VT
Charles A. Cairns (53) . . . . . . . I 4,027(5) 0.09%
President, Champlain Oil Co., Inc. and 1986
Coco Mart, Inc., South Burlington, VT
Robert C. Cody (70)+ . . . . . . . . II 15,196(6) 0.32%
President, Cody Chevrolet, Inc.; 1974
Chairman, Cody Management Associates
(Real Estate Ownership & Management),
Montpelier, VT
Allyn W. Coombs (60)*. . . . . . . . II 8,070(7) 0.17%
President, Treasurer of 1994
Allyn W. Coombs, Inc. (Real Estate
Development & Management), Amherst, MA
Beverly G. Davidson (63) . . . . . . I 2,417(8) 0.05%
Secretary, Treasurer of RCAS, Inc., 1980
(Vermont State Fair); Treasurer,
N.M. & B, Ltd. (Nutrisystem Weight Control),
Rutland, VT
James E. Griffin (67)* . . . . . . . . II 2,579(9) 0.05%
President, J. R. Resources, Inc. 1972
(Business Consultants), Rutland, VT
John D. Hashagen, Jr. (53) . . . . . . I 13,349(10) 0.28%
President & Chief Executive Officer of 1987
Vermont Financial Services Corp.,
Brattleboro; President & Chief Executive
Officer, Vermont National Bank,
Brattleboro, VT
Francis L. Lemay (62). . . . . . . . . III 73,164(11) 1.55%
Chairman, United Savings Bank, 1994
Greenfield, MA
Daniel C. Lyons (64)*. . . . . . . . . II 9,712(12) 0.21%
Lyons Pontiac-Cadillac GMC Trucks; 1974
Toyota Inc., Berlin, VT
Kimball E. Mann (60) . . . . . . . . . I 11,013(13) 0.23%
President, J. E. Mann, Inc., (Women's 1969
Department Store), Brattleboro, VT
Stephan A. Morse (48)* . . . . . . . . II 4,948(14) 0.10%
President and CEO, The Windham 1986
Foundation Inc., Grafton, VT
Donald E. O'Brien (69) . . . . . . . . III 4,586(15) 0.10%
Attorney, Burlington, VT 1978
Roger M. Pike (54) . . . . . . . . . . III 6,735(16) 0.14%
Vice President, Kinney, Pike, Bell & 1980
Conner, Inc. (Insurance), Rutland, VT
Mark W. Richards (49). . . . . . . . . III 24,829(17) 0.53%
President, Richards, Gates, Hoffman 1988
& Clay (Insurance), Brattleboro, VT
Executive Officers
Kenneth R. Cole (48) . . . . . . . . . 17,936(18) 0.38%
President, United Savings Bank
Louis J. Dunham (40) . . . . . . . . . 2,808(19) 0.06%
Executive Vice President, VNB
Senior Credit Officer
W. Bruce Fenn (53) . . . . . . . . . . 8,050(20) 0.17%
Executive Vice President, VNB Regional
Banking Executive
William H. George (50) . . . . . . . . 5,825(21) 0.12%
Executive Vice President, VNB Regional
Banking Executive
Richard O. Madden (46) . . . . . . . 2,185(22) 0.05%
Executive Vice President, Treasurer and
Secretary
Robert G. Soucy (49) . . . . . . . . 8,795(23) 0.19%
Executive Vice President, VNB Senior
Banking Executive
</TABLE>
__________
* Nominee for election at 1994 Annual Meeting
+ Not standing for reelection in 1994
(1) During the past five years, the principal occupation and
employment of each director and executive officer has been as set forth
above, except as follows: Francis L. Lemay was President & Chief Executive
Officer and Chairman of West Mass until June 14, 1994 and was President
and Chief Executive Officer of UB until December 31, 1994; Zane V. Akins
was Chief Executive Officer, Holstein-Friesian Association of America;
Executive Vice President Holstein-Friesian Services, Inc., (Cattle
Registration) until December 31, 1990; Richard O. Madden became
Secretary of the Company on May 1, 1993; Robert G. Soucy became Executive
Vice President of the Company in July, 1992.
(2) Beneficial ownership means sole voting and investment powers,
unless otherwise noted.
(3) Includes 813 shares held jointly with a family member in which
Mr. Abatiell shares voting and investment power. Also includes 54,012
shares held in a custodial capacity in VNB's trust department in which
Mr. Abatiell has sole voting and investment powers. Does not include
options to acquire 1,500 additional shares, exercisable within sixty
(60) days, pursuant to the Directors' Non-Qualified Stock Option Plans.
(4) Does not include options to acquire 1,500 shares, exercisable
within sixty (60) days, pursuant to the Directors' Non-Qualified Stock
Option Plans.
(5) Does not include options to acquire 1,500 shares, exercisable
within sixty (60) days, pursuant to the Directors' Non-Qualified Stock
Option Plans.
(6) Includes 10,372 shares held jointly with a family member in which
Mr. Cody shares voting and investment powers. Does not include options to
acquire 1,500 shares, exercisable within sixty (60) days, pursuant to
the Directors' Non-Qualified Stock Option Plans.
(7) Includes 8,070 shares held jointly with a family member in which
Mr. Coombs shares voting and investment powers. Does not include options
to acquire 500 shares, exercisable within sixty (60) days, pursuant to the
Directors' Non-Qualified Stock Option Plans.
(8) Ms. Davidson shares voting and investment powers on 2,417 shares.
Does not include options to acquire 1,500 shares, exercisable within
sixty (60) days, pursuant to the Directors' Non-Qualified Stock Option
Plans.
(9) Does not include options to acquire 1,500 shares, exercisable
within sixty (60) days, pursuant to the Directors' Non-Qualified Stock
Option Plans.
(10) Includes 224 shares held by a family member in which Mr. Hashagen
has no voting or investment powers and as to which Mr. Hashagen
disclaims beneficial ownership. Also includes 200 shares held in the
name of Green Mountain Investment Club in which Mr. Hashagen shares
voting and investment powers and 8,577 shares held in the VNB Profit
Sharing Plan. Does not include options to acquire 12,300 shares,
exercisable within sixty (60) days, pursuant to the Officers'
Non-Qualified Stock Option Plans.
(11) Includes 73,164 shares held jointly with family members in which
Mr. Lemay shares voting and investment powers. Does not include options to
acquire 35,667 shares, exercisable within sixty (60) days, pursuant to
the Inventive Stock Option Plan granted by West Mass (See "Option
Exercises and Year-end Value Table" following).
(12) Includes 2,512 shares held jointly with a family member in which
Mr. Lyons shares voting and investment powers. Also includes 7,200 shares
held by a family member in which Mr. Lyons has no voting or investment
powers and in which Mr. Lyons disclaims beneficial ownership. Does not
include options to acquire 1,500 shares, exercisable within sixty (60)
days, pursuant to the Directors' Non-Qualified Stock Option Plans.
(13) Includes 9,379 shares held jointly with a family member in which
Mr. Mann shares voting and investment powers. Also includes 814 shares
held by a family member in which Mr. Mann has no voting or investment
powers and as to which Mr. Mann disclaims beneficial ownership. Does
not include options to acquire 1,500 shares, exercisable within sixty (60)
days, pursuant to the Directors' Non-Qualified Stock Option Plans.
(14) Includes 2,507 shares held jointly with a family member. Also
includes 505 shares held by a family member in which Mr. Morse has no
voting or investment powers and as to which Mr. Morse disclaims
beneficial ownership. Does not include options to acquire 1,500
shares, exercisable within sixty (60) days, pursuant to the
Directors' Non-Qualified Stock Option Plans.
(15) Does not include options to acquire 1,500 shares, exercisable
within sixty (60) days, pursuant to the Directors' Non-Qualified Stock
Option Plans.
(16) Includes 777 shares held jointly with family members and 1,157
shares held by Kinney, Pike, Bell & Conner, Inc. in which Mr. Pike
shares voting and investment powers. Also includes 997 shares held by a
family member in which Mr. Pike has no voting power and as to which Mr.
Pike disclaims beneficial ownership. Does not include options to
acquire 1,500 shares, exercisable within sixty (60) days, pursuant to
the Directors' Non-Qualified Stock Option Plans.
(17) Includes 24,829 shares held jointly with family members in which
Mr. Richards shares voting and investment powers. Does not include options
to acquire 1,500 shares, exercisable within sixty (60) days, pursuant to
the Directors' Non-Qualified Stock Option Plans.
(18) Includes 14,095 shares held jointly with family members in which
Mr. Cole shares voting and investment powers. Also includes 3,841 shares
in UB's Employee Stock Ownership Plan.
(19) Includes 2,808 shares in the VNB Profit Sharing Plan. Does not
include options to acquire 8,700 shares exercisable within sixty (60)
days pursuant to the Officers' Non-Qualified Stock Option Plans.
(20) Includes 97 shares in which Mr. Fenn has no voting or investment
powers. Also includes 2,153 shares held jointly with a family member in
which Mr. Fenn shares voting and investment powers, and 5,800 shares in
the VNB Profit Sharing Plan. Does not include options to acquire 10,600
shares, exercisable within sixty (60) days pursuant to the Officers'
Non-Qualified Stock Option Plans.
(21) Includes 2,016 shares held jointly with family members in which
Mr. George shares voting and investment powers. Also includes 3,809 shares
in the VNB Profit Sharing Plan. Does not include options to acquire
9,700 shares, exercisable within sixty (60) days pursuant to the
Officers Non-Qualified Stock Option Plans.
(22) Includes 27 shares held jointly with a family member in which Mr.
Madden shares voting and investment powers. Also includes 2,158 shares
held in the VNB Profit Sharing Plan. Does not include options to acquire
10,600 shares exercisable within sixty (60) days pursuant to the
Officers' Non-Qualified Stock Option Plans.
(23) Includes 346 shares held by a family member in which Mr. Soucy
has no voting or investment powers. Also includes 3,841 shares in the
VNB Profit Sharing Plan. Does not include options to acquire 11,100
shares, exercisable within sixty (60) days pursuant to the
Officers' Non-Qualified Stock Option Plans.
On February 28, 1995, the directors and officers of the
Company as a group (21) had beneficial ownership of 286,776 shares of
Company Common Stock, amounting to 6.06% of the outstanding shares.
This does not include options to acquire 122,167 shares, or 2.58% of the
outstanding shares, exercisable within sixty (60) days, pursuant to the
Directors' and Officers' Non-Qualified Stock Options Plans.
Directors' Non-Qualified Stock Option Plan
The Company maintains a Directors' Non-Qualified Stock Option
Plan under which Directors have been granted options to acquire an
aggregate of 12,000 shares of the Company's Common Stock at a price of $19
per share. The exercise price of these options was equal to the fair
market value of the Company's Common Stock on the date of grant. All
options are exercisable for a period of five years from the date of grant.
Officers' Non-Qualified Stock Option Plan
The Company maintains an officers' Non-Qualified Stock Option
Plan under which officers have been granted options to acquire an aggregate
of 36,000 shares of the Company's Common Stock at a price of $19 per share.
The exercise price of these options was equal to the fair market value of
the Company's Common Stock on the date of grant. All options are
exercisable for a period of five years from the date of grant.
1994 Stock Option Plan
The Company maintains a stock option plan for key employees,
officers and directors of the Company or its subsidiaries which was
approved by stockholders at the 1994 Annual Meeting ("1994 Plan").
Under the 1994 Plan, officers and directors have been granted options
to acquire an aggregate of 48,000 and 6,500 shares, respectively, of the
Company's Common Stock at prices of $19.00 and $20.25 per share,
respectively. The exercise price of these options was equal to the fair
market value of the Company's Common Stock on the date of grant. All
options are exercisable for a period of ten years from the date of the
grant.
Attendance of Directors
The Board of Directors met fifteen (15) times during calendar
year 1994. During 1994, all directors of the Company attended at least 75%
of the aggregate of (1) the total number of meetings of the Board of
Directors of the Company, and (2) the total number of meetings held by
all committees and subcommittees of the Board of Directors of the Company
on which he or she served.
Certain Committees
The management of the Company is the responsibility of the
Board of Directors. In carrying out this responsibility, the Board
is authorized to establish certain committees with the duties described
below. In 1994, the Board of Directors of the Company held 15 meetings.
The Board of Directors maintains an Executive Committee which has
Board of Director nominating, investment portfolio strategy and review, and
non-executive officer review functions. Directors serving on the Executive
Committee during 1994 were Anthony F. Abatiell, Zane V. Akins, Robert C.
Cody, Beverly G. Davidson, James E. Griffin, John D. Hashagen, Jr.
(President & CEO), Daniel C. Lyons, and Donald E. O'Brien. The Committee
met 12 times during 1994. The Executive Committee determines
personnel policies and has authority to appoint officers and to fix their
compensation until the next meeting of the Board of Directors. The
Committee also considers nominees for election to the Board of Directors.
Shareholders who wish to suggest qualified candidates should write to the
Secretary of the Company at 100 Main Street, Brattleboro, Vermont 05301,
stating in detail the qualifications of such persons for consideration by
the Committee, together with all other information specified in the
Company's By-Laws. Nominations must be received by the Secretary
not less than 60 days nor more than 90 days prior to the meeting; but if
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, nominations must be received
within 10 days of the date the notice of the meeting was mailed or such
public disclosure was made, whichever occurs first.
The Company has an Audit Committee whose members are appointed
annually by the Board of Directors. During 1994, these Directors
served on the Audit Committee: Zane V. Akins, Robert C. Cody, Daniel
C. Lyons, Stephan A. Morse and Mark W. Richards. The Audit Committee
appoints Independent Public Accountants and supervises the Audit function
of the Company.
Compensation of Directors
Each director who is not an officer of VFSC, VNB or UB
receives an annual retainer of $4,800 and, in addition, a $400 fee for
each regular monthly Board of Directors' meeting attended, and a $300 fee
for each meeting of a committee of the Board he or she attends. In
addition, the Chairman of the Board receives an annual retainer of $4,000
and each committee chairperson receives an annual retainer of $500.
Compensation Committee Report
The Company's executive compensation program is administered
by the Compensation Committee of the Board of Directors ("the
Committee") which is comprised of four independent, non-employee
directors: Charles A. Cairns, Chairman, Anthony F. Abatiell, James E.
Griffin and Daniel C. Lyons. The Committee is responsible for evaluating
the performance of the executive officers of the Company and for setting
compensation, subject to consideration and review by the full Board
of Directors. The executive officers of the Company subject to
Compensation Committee review include the 3 executive officers of the
holding company, VFSC, as well as certain officers of the Company's
subsidiaries, VNB and UB, who perform policy-making functions either for
the banks or the holding company. During 1994, the only officer of UB
who fit this definition of executive officer was Francis L. Lemay, whose
compensation for 1994 was established pursuant to an employment and
consulting agreement entered into in conjunction with the Company's
acquisition of United Bank's former corporate parent, West Mass in June
of 1994. Mr. Lemay's employment agreement is discussed in further
detail elsewhere in this report.
The Committee, with concurrence from the Company's Board of
Directors, has established the following principal objectives of the
executive compensation program:
o Attract and retain quality management
o Increase management's focus on maximizing current earnings
o Encourage management to develop long-term earnings growth plans
o Motivate management to take actions that will enhance long-term
stockholders' value
o Link executive compensation to the financial performance of
the Company and/or its subsidiaries and the Company's stock
value
The Committee has engaged The Wyatt Company of Wellesley,
Massachusetts to assist in the development of the executive compensation
program. Wyatt Company representatives have attended Committee meetings,
have consulted with the Committee by telephone and have provided peer
group information and written recommendations for the main components of
the executive compensation program.
The Committee has designed the Company's executive compensation
program based on the principle that the total compensation of each
executive shall be comparable to that of similar executives of banking
companies in the Company's peer group of commercial banking institutions in
the Northeast with comparable financial performance and characteristics.
The Committee has determined that total compensation for the
executive officers shall consist of three components: base salary, an
annual incentive payment, and stock options. A discussion of each of
these components follows.
Base Salary. It is the policy of the Committee to set base
salaries of the executive officers somewhat below the median base salary
levels of similar executives in the northeastern commercial bank peer
group used for comparison. The Committee's objective is to decrease the
proportion of fixed compensation and have a larger proportion of
compensation on a variable, or at risk, basis. Base salaries shall be
reviewed annually and increases or decreases may be granted by the
Committee and the Board dependent on individual performance, the
Company's and/or its subsidiaries' performance and peer group salary
levels.
The Committee recommended, and the Board approved, an increase
in Mr. Hashagen's base salary from $184,000 in 1993 to $200,000 in 1994.
The Committee based this increase on Mr. Hashagen's contribution to the
Company, the improved financial performance of the Company, its
increased stock price and an analysis of base salaries of other
Presidents and CEOs in the Company's peer group. Mr. Hashagen's 1994
base salary was set below the peer group's 1994 median base salary of
$256,000 in accordance with the Committee's objective regarding base
salary levels. The base salaries of the other executive officers of the
Company and its subsidiaries were established in a similar manner.
Annual Incentive Payment. The Committee recommended, and the
Board approved, a 1994 annual incentive plan for the President and CEO
and five other executive officers of the Company and its subsidiaries.
This plan established four levels of potential incentive payouts ranging
from 5% to 20% of base salary, dependent upon the Company and/or its
subsidiaries achieving certain return on assets targets. The Company
increased its return on assets from 0.64% in 1993 to 1.00% in 1994 and
exceeded its profit plan return on assets goal of 0.95%. As a result,
all six executive officers referenced above received an annual incentive
payment for 1994 of 15% of base salary.
Stock Options. The Company's stockholders ratified and
approved the Vermont Financial Services Corp. 1994 Stock Option Plan at
the Annual Meeting of stockholders in August, 1994. This Plan provides
for the granting of stock options, not to exceed 225,000 shares of
common stock in aggregate, to key employees, officers and directors of
the Company and its subsidiaries at option prices no less than 100% of
market value on the day granted. During 1994, the Board of Directors,
based on the Committee's recommendation, issued non-qualified stock
options for 54,500 shares. Mr. Hashagen was granted options for 12,300
shares, five other executive officers were granted options on 35,700
shares in aggregate and each of 13 non-employee directors was granted an
option for 500 shares.
The compensation of Mr. Lemay for 1994 as Chairman, President and
Chief Executive Officer of United Bank was established by the Board of
Directors of United Bank prior to its becoming a subsidiary of the Company
in June, 1994. That Board based Mr. Lemay's compensation on his long and
successful tenure as Chief Executive Officer, the Bank's consistently
above peer group performance and the increased stockholder value created by
his efforts, including the operating performance of the bank and the
added stockholder value created by its holding company agreement to
merge into Vermont Financial Services Corp.
The Committee has concluded that the Company's financial
performance and the returns to its stockholders showed substantial
improvement in 1994. In its judgment the total compensation for
executive management for 1994 was appropriate for such performance and to
retain and motivate these executives for the future.
Vermont Financial Services Corp. Compensation Committee
Charles A. Cairns, Chairman
Anthony F. Abatiell
James E. Griffin
Daniel C. Lyons
Executive Officers
The following tables contain a three-year summary of the total
compensation paid to the CEO of the Company and the other four most
highly paid executive officers.
I. SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation
<CAPTION> <C> <C> <C> <C>
Other
Annual
Salary Bonus Compensation
Year $ $ $ (1)
John D. Hashagen 1994 $200,000 $30,000 N/A
President and 1993 184,000 7,360 $25,785
Chief Exec. Officer 1992 184,000 N/A 4,685
Francis L. Lemay 1994 $213,692 $26,700 $ 7,630
Chairman, UB Pres. 1993 195,338 33,500 6,834
& Chief Executive 1992 183,531 N/A 6,175
Richard O. Madden 1994 $108,000 $16,200 N/A
Exec. Vice Pres. 1993 99,209 4,040 $12,760
Treas., Secretary 1992 96,000 N/A 1,786
Robert G. Soucy 1994 $115,000 $17,250 N/A
Exec. Vice Pres. 1993 110,000 4,400 $15,732
VNB Senior Banking 1992 105,671 N/A 2,339
Executive
W. Bruce Fenn 1994 $108,000 $16,200 N/A
VNB Exec. Vice Pres.1993 105,000 2,100 $17,717
and Regional 1992 105,000 N/A 3,347
</TABLE>
SUMMARY COMPENSATION TABLE (CONTINUED)
<TABLE>
Long Term Awards Compensation Payouts
<CAPTION> <C> <C> <C> <C> <C>
Options LTIP All Other
Year Restricted SARs Payouts Compensations
$ # $ $
John D. Hashagen 1994 N/A 12,300 sh N/A $ 7,298 (2)(4)
President and 1993 N/A 5,000 N/A 2,249 (2)
Chief Executive 1992 N/A N/A N/A N/A
Officer
Francis L. Lemay 1994 N/A N/A N/A N/A
Chairman, UB Pres. 1993 N/A N/A N/A $20,675 (3)
& Chief Executive 1992 N/A N/A N/A 9,325 (3)
Richard O. Madden 1994 N/A 10,600 sh N/A $ 4,111 (2)
Exec. Vice Pres. 1993 N/A N/A N/A 1,488 (2)
Treas., Secretary 1992 N/A N/A N/A N/A
Robert G. Soucy 1994 N/A 7,100 sh N/A $ 3,620 (2)
Exec. Vice Pres. 1993 N/A 4,000 N/A 1,100 (2)
VNB Senior Banking 1992 N/A N/A N/A N/A
Executive
W. Bruce Fenn 1994 N/A 6,600 sh N/A $ 4,065 (2)
VNB Exec. Vice Pres.1993 N/A 4,000 N/A 1,575 (2)
and Regional 1992 N/A N/A N/A N/A
</TABLE>
(1) In December, 1993 the discount rate used to compute the liability
under the officers' deferred compensation plan (See "Deferred Compensation
Agreements" following) was reduced from 9% to 7-1/2%. The associated
expenses attributable to Messrs.. Hashagen, Madden, Soucy and Fenn due to
this change were $19,597, $10,799, $12,211 and $13,998, respectively for
1993.
(2) Represents the 25% Company match of the respective employees' 401k
contribution and the employees portion of the Company's contribution to the
Employees Profit Share Plan. No Profit Sharing Plan contribution was made
in 1993 or 1992.
(3) Represents the market value as of December 31 of each year of the
shares allocated to the officers account under the UB ESOP plan for the
respective year.
(4) Includes $778 discount received on purchases of common stock under
the Company's Employee Stock Purchase Plan.
II. OPTION/SAR GRANTS TABLE
<TABLE>
Option/SAR Grants in Last Fiscal Year
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
for Option Term (1)
Individual Grants
<CAPTION><C> <C> <C> <C> <C> <C>
% of Total
Options/SARs
# of Granted to Exercise
Securities Employees or base
Underlying in Fiscal Price Expiration
Name Options Granted Year ($/Sh) Date 5% ($) 10%($)
John D.
Hashagen 12,300 25.6% $19.00 7/13/04 $146,973 $372,458
Francis L.
Lemay 0 0 N/A N/A N/A N/A
Richard O.
Madden 10,600 22.1 19.00 7/13/04 126,659 320,980
Robert G.
Soucy 7,100 14.8 19.00 7/13/04 84,838 214,996
W. Bruce
Fenn 6,600 13.8 19.00 7/13/94 78,863 199,855
</TABLE>
(1) The assumed growth rates in price in the Company's stock are not
necessarily
indicative of actual performance that may be expected.
III. OPTION EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
<TABLE>
<CAPTION> <C> <C> <C> <C>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options at Options at
FY-End (#) RY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable(2)
John D.
Hashagen N/A N/A 17,300/0 $ 30,275/$0
Francis L. 24,333 $286,203 (1) 35,667/0 $472,588/$0
Leman
Richard O.
Madden N/A N/A 10,600/0 $ 18,550/$0
Robert G.
Soucy N/A N/A 11,100/0 $ 19,425/$0
W. Bruce
Fenn N/A N/A 10,600/0 $ 18,550/$0
</TABLE>
(1) Represents the difference between the aggregate exercise price
and the aggregate market value on the date of the exercise.
(2) Represents the difference between the aggregate exercise price
and the aggregate market value as of December 31, 1994.
Performance Graph
The following graph compares the cumulative total stockholder
return (return) of the stockholders of Vermont Financial Services Corp.
(VFSC) to the return of the NASDAQ Stock Market U. S. Index (NASDAQ),
which is a broad-based market index, and to the return of the NASDAQ
Bank Stock Index (NBS), a national peer group index.
Assumes $100 invested on December 31, 1989 in the common stock of VFSC,
NASDAQ and NBS
* Total return assumes reinvestment of dividends.
** Fiscal year ending December 31.
Table of Graph Points in Performance Graph
Investment Value at December 31,
<TABLE>
<CAPTION> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994
VFSC $100 $ 42.33 $ 58.64 $ 96.24 $108.48 $134.07
NASDAQ 100 84.92 136.28 158.58 180.93 176.92
NBS 100 73.23 120.17 174.87 199.33 198.69
</TABLE>
Deferred Compensation Agreements
VNB has entered into Executive Deferred Compensation Agreements
with certain officers, including Mr. Hashagen and the other executive
officers in the group referred to in the above table. The agreements
provide for monthly payments for a ten-year period from retirement after
age 60 but before age 65, and for a fifteen-year period from retirement
after age 65, subject to certain conditions. The conditions include the
requirements that the officer refrain from competitive activities, be
available for certain advisory and consulting services subsequent to
retirement and continue in the employment of VNB until retirement. The
agreements also provide for payments upon disability prior to retirement
and payments to beneficiaries of the officers under certain
circumstances. Mr. Hashagen's agreement provides for payments in the
amount of $1,944.44 per month, and the agreements of Messrs. Madden, Soucy
and Fenn provide for payments of $1,388.89 per month. Vermont National
Bank has purchased life insurance policies on the lives of these officers
which, in effect, will provide the funds to make payments to reimburse
VNB for payments made under the agreements.
Mr. Lemay is covered under a Supplemental Executive Retirement
Plan (SERP) which is designed to augment his retirement benefit from UB's
pension plan and his social security benefit so that his aggregate annual
retirement benefit will approximate 70% of his highest 3-year average
salary prior to retirement. Under the terms of his SERP, it is
anticipated that Mr. Lemay will receive an annual supplemental
retirement benefit of $64,378 at age 65. UB has purchased a
split-dollar life insurance policy which will provide a benefit this Mr.
Lemay.
Management Continuity Agreements
The Company and VNB have entered into agreements with VNB's
six executive officers, Messrs. Hashagen, Madden, Soucy, Fenn, Dunham and
George whichprovide for the payment of certain severance benefits if such
officer's employment with the Company or VNB is terminated within
thirty-six months after a change of control of the Company or VNB. The
agreements provide for severance payments to Mr. Hashagen equal to 250% of
his base salary upon termination after a change of control and for
payments to each of the other executive officers equal to 200% of his base
salary upon termination after a change of control as defined in the
agreements.
The management continuity agreements do not provide for
severance benefits in instances where termination is due to death,
disability or retirement. Further, no benefits are payable in instances
of termination for cause, or after a change of control if the officer
voluntarily terminates his employment with both the Company and VNB,
unless such termination is for a "good reason" as defined in the
agreements.
Severance benefits payable in the event of a qualifying
termination after a change of control are to be paid in equal consecutive
biweekly installments. If severance payments due in the event of
termination after a change of control were payable to each of the executive
officers on the date of this filing, the aggregate amount of such severance
payments would be $1,626,000. These severance payments are subject to up
to a 50% reduction if the officer works for or participates in the
management, operation or control of a commercial or savings bank, or bank
holding company, which does business in Vermont, unless such officer's
activities are substantially outside Vermont. Additionally, the
officer will be entitled to continuation of life, disability, accident and
health insurance benefits and a cash adjustment to compensate the
executive for the market value of any stock options under the Company's
Officers' or Directors' Non-Qualified Stock Option Plans in excess of
their exercise price.
The agreements contain each officer's undertaking to remain
in the employ of the Company and VNB if a potential change of control
occurs until the earlier of six months, retirement (at normal age),
disability or the occurrence of a change of control.
Similar agreements have been executed by certain employees of
VNB and the Company which provide for severance payments ranging from
100% to 150% of the employee's base salary upon termination after a change
in control.
The Company and UB have entered into agreements with UB's five
executive officers, Messrs. Lemay, Cole, Neill, Phillips and Noska. It
was agreed that Mr. Lemay would be President and Chief Executive Officer of
UB until December 31, 1994. Thereafter, the Company has agreed that Mr.
Lemay would continue as Chairman and a Director of UB until December 31,
1997. Mr. Lemay's contract also provides hat he will serve as a
consultant to the Company from December 31, 1994 through December 31,
1997. Mr. Lemay's compensation for consulting services after December 31,
1994 is to be $25,000 per year. Mr. Lemay is also on the Company's Board
of Directors. Currently, each director of the Company who is not an
officer of the Company or a subsidiary receives an annual retainer of
$4,800 and, in addition, a $400 fee for each regular monthly Board
meeting attended as well as a $300 fee for each meeting of a committee of
the Board attended. Mr. Lemay did not receive any such director's fees
while serving as an operating officer of UB.
Additionally, the Company and UB entered into agreements to
employ the following UB officers: Kenneth R. Cole as Senior Vice President
& Treasurer of UB; James Neill as Senior Vice President of UB; and Robert
W. Phillips and Matthew W. Noska as Vice Presidents of UB. Under these
agreements, Mr. Cole was to receive a base salary of $82,500, Mr. Neill a
base salary of $76,300, Mr. Phillips a base salary of $59,700 and Mr.
Noska a base salary of $52,000, all subject to annual increases. Each
agreement is to expire May, 1997, except that Mr. Noska's agreement
is to expire May, 1995. On January 1, 1995, Mr. Cole became President
and Chief Executive Officer of UB at an annual salary of $110,000.
In addition to and as part of the foregoing agreements, Messrs.
Cole, Neill, Phillips and Noska have entered management continuity
agreements which are similar in form to agreements currently in force
between the Company and VNB and their senior officers. Each
agreement's term ends on January 31, 1995 and is automatically renewable
thereafter unless the Company and UB elect not to renew it. Under the
management continuity agreements, the above officers would be entitled to
the following severance payments if terminated under certain circumstances
after a change of control of the Company or UB: Messrs. Cole, Phillips and
Neill - 200% of base salary at the time of termination; Mr. Noska - 100% of
base salary at the time of termination.
The management continuity agreements define a "change of control"
as (i) the acquisition by a person or group of 25% of the combined voting
power of the Company's or UB's then outstanding securities; (ii) during
any two-year period those persons, who at the beginning of such period
were members of the Company's or UB's Board of Directors and any new
director whose election was approved by at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination was previously so
approved, cease to constitute a majority of such board; or (iii) the
stockholders of the Company or UB approve a merger or consolidation of
the Company or UB which would result in such stockholders holding less
than 70% of the combined voting power of the surviving entity immediately
thereafter, or if such stockholders approve the sale of all or
substantially all of the assets of the Company or UB.
The management continuity agreements do not provide for
severance benefits in instances where termination is due to death,
disability or retirement. Further, no benefits are payable in instances
of termination for cause, defined as (i) the willful and continued failure
of the officer to perform his duties and (ii) willful conduct materially
injurious to the Company or UB.
Profit-Sharing Plan
Each employee of VNB and UB, including executive officers,
becomes eligible to participate in the Company's Profit-Sharing Plan on
January 1 of the Plan year in which he or she completes one full year of
continuous service of 1,000 hours or more. Upon completion of three years
of continuous service, a participant becomes 30% vested, increasing to 40%
after four years, 60% after five years, 80% after six years, and fully
vested after seven years. Vested participants may elect to receive, in
cash, up to 50% of their annual allocation of the Company's
contribution to the Profit-Sharing Plan. Vested amounts not so received in
cash are distributed to participants upon their retirement or earlier
upon termination of employment. During 1994, the Company made a
contribution of approximately $250,000 to the Profit-Sharing Plan.
Retirement Plan
The VNB Retirement Plan covers substantially all eligible
employees of the Bank, including officers, and provides for payment of
retirement benefits generally based upon an employee's years of credited
service with the Bank and his or her salary level, reduced by a portion of
the Social Security benefits to which it is estimated the employee will be
entitled.
The following table represents estimated annual benefits upon
retirement at age 65 to employees at specified salary levels (based upon
the average annual rate of salary during the highest five years within
the final ten years of employment) at stated years of service with the
Bank. The amounts shown are after deduction of estimates for Social
Security reductions based on the Social Security law as of January 1, 1995.
Estimated Annual Benefits at Retirement
by Specified Remuneration and
Years of Service Classification
<TABLE>
<CAPTION> <C> <C> <C> <C> <C>
Final Average
Compensation 5 YRS 10 YRS 15 YRS 20 YRS 25 YRS
$ 20,000 1,481 2,962 4,442 5,923 7,404
40,000 3,464 6,929 10,393 13,858 17,322
60,000 5,761 11,522 17,284 23,045 28,806
80,000 8,161 16,322 24,484 32,645 40,806
100,000 10,561 21,122 31,684 42,245 52,806
120,000 12,961 25,922 38,884 51,845 64,806
140,000 15,361 30,722 46,084 61,445 76,806
160,000 * 17,761 35,522 53,284 71,045 88,806
180,000 * 20,161 40,322 60,484 80,645 100,806
200,000 * 22,561 45,122 67,684 90,245 112,806
220,000 * 24,961 49,922 74,884 99,845 124,806 *
240,000 * 27,361 54,722 82,084 109,445 136,806 *
260,000 * 29,761 59,522 89,284 119,045 148,806 *
</TABLE>
* Under current regulations of the Internal Revenue Code, the
maximum annual benefit payable from a defined benefit plan during 1995 is
$120,000 payable as a life annuity for retirements at age 65. In
addition, the maximum annual compensation may not exceed $150,000. The
amounts shown above in excess of $120,000 and those using compensation in
excess of $150,000 are shown for exhibit purposes only.
The description of the Retirement Plan in this Proxy
Statement is intended solely to provide stockholders of the Company with
general information concerning the Plan as it relates to management
remuneration. Under no circumstances should the description be construed
as indicative of the rights of any particular employee, or as conferring
any right upon any employee, which rights will in all cases be determined
by the appropriate legal documents governing the Plan.
UB provides a retirement plan for all eligible employees
through the Savings Bank Employees Retirement Association ("SBERA"),
an unincorporated association of savings banks operating within
Massachusetts and other organizations providing services to or for
savings banks SBERA's sole purpose is to enable the participating
employers to provide pensions and other benefits for their employees.
Each UB employee age 21 or older who has completed at least 1,000
hours of service in the last 12 month period beginning with such
employee's date of employment becomes a participant of the retirement
plan. All participants are fully vested when they have been credited with
three (3) years of service or at age 62 if earlier.
The retirement plan is a qualified defined benefit plan which
does not require an employee to make any contributions to become a
participant and earn benefits under the Plan. The benefits provide
for a pension equal to 1.25% of Average Compensation (the average of
the three highest consecutive years of Compensation) for each year of
service up to 25 years, plus .6% of compensation above the Covered
Compensation (defined below) for each year of service up to 25 years. For
example, under the above benefit formula, a Participant attaining age 65 in
1995 with 25 years of service, will be entitled to a benefit equal to
31.25% (1.25% x 25 years) of Average Compensation plus 15% (.6% x 25
years) of the difference (if any) between the participant's Average
Compensation and the Covered Compensation for a participant turning age 65
in 1994 which is $24,312. Covered Compensation is the average of the 35
years of Social Security taxable wages up to and including the year in
which a Participant reaches Social Security retirement age. Normal
retirement age under the plan is 65; a reduced early retirement benefit is
payable from age 50 to 65 under certain conditions. On December 31, 1994,
the latest date for which retirement plan information is available, the
present value of accumulated benefits was fully funded by the market value
of plan assets. The Bank made no contribution to the Pension Plan during
1994:
The following table illustrates annual pension benefits for
retirement at age 65 under the most advantageous plan provisions available
for various levels of compensation and years of service. The figures in
this table are based upon the assumption that the plan continues in its
present form and certain other assumptions regarding compensation trends
and social security.
Annual Pension Benefit Based on Years of Service
<TABLE>
<CAPTION> <C> <C> <C> <C>
Average Compensation 10 years 15 years 20 years 25 years
$ 20,000 $ 2,500 $ 3,750 $ 5,000 $ 6,250
40,000 5,941 8,912 11,883 14,853
60,000 9,641 14,462 19,283 24,103
80,000 13,341 20,012 26,683 33,353
100,000 17,041 25,562 34,083 42,603
120,000 20,741 31,112 41,483 51,853
140,000 24,441 36,662 48,883 61,103
* 150,000 26,291 39,437 52,583 65,728
</TABLE>
* Federal law does not permit defined benefit pension plans to
recognize compensation in excess of $150,000 for plan years beginning in
1994 (11/01/94 for SBERA).
As of December 31, 1994 Messrs. Lemay, Cole, and Neill had 39, 9
and 11 years of credited service, respectively.
Interest of Directors and Officers in Certain Transactions
Some directors and officers of VNB, UB and the Company and
their associates were customers of and had transactions with the Banks and
the Company in the ordinary course of business during 1994. Additional
transactions may be expected to take place in the ordinary course of
business in the future. Some of the Company's directors are directors,
officers, trustees, or principal security holders of corporations or
other organizations which were customers of or had transactions with the
Banks in the ordinary course of business during 1994. All outstanding
loans and commitments included in such 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 and did not involve more than
the normal risk of collectibility nor present other unfavorable features.
In addition to banking and financial transactions, the Banks
and the Company have had other transactions with, or used products or
services of, various organizations of which directors of the Company are
directors or officers. The amounts involved have in no case been
material in relation to the business of the Banks or the Company, and
it is believed that they have not been material in relation to the
business of such other organizations or to the individuals concerned.
It is expected that the Banks and the Company will continue to have similar
transactions with, and use products or services of, such organizations in
the future.
Two directors of the Company are attorneys who have been retained
in the past to represent VNB or the Company in appropriate circumstances.
During 1994, no director was retained by the Banks or Company as legal
counsel.
INDEPENDENT PUBLIC ACCOUNTANTS
For several years, the Company has employed the accounting
firm of Coopers & Lybrand to serve as tax consultants, to prepare
annually its federal and state income tax returns, to conduct an annual
examination of the Company and to certify its financial statements. It is
anticipated that Coopers & Lybrand will be employed by the Company in 1995
to audit the consolidated financial statements of the Company, and for
other services.
Representatives of Coopers & Lybrand will be present at the
Meeting, will have the opportunity to make a statement if they desire to do
so, and will be available to respond to questions directed to them.
OTHER MATTERS
The Board of Directors knows of no business which will be
presented for consideration at the Meeting other than those items set
forth in this Proxy Statement. The enclosed proxy confers upon each
person entitled to vote the shares represented thereby discretionary
authority to vote such shares in accordance with his or her best judgment
with respect to any other matter which may be properly presented for
action at the meeting.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholders who may desire to submit proposals for the
consideration of the Company's stockholders at its Annual Meeting of
Stockholders in 1996, scheduled to be held on April 30, 1996, will be
required, pursuant to Rule 14a-8 of the Securities and Exchange
Commission, to deliver the proposal to the Company on or prior to
November 13, 1995.
EXPENSES OF SOLICITATION
Solicitations of the proxies will be made initially by mail.
The proxies may also be solicited personally by telephone or by
telegraph by the directors, officers, and other employees of the
Company, VNB or UB. The Company will bear the cost of printing,
assembling, and mailing this Proxy Statement, the enclosed form of
proxy, and the related proxy materials, and other charges and expenses
incurred in connection with the solicitation of the stockholders of the
Company, including the expenses, charges, and fees of brokers, custodians,
nominees, and other fiduciaries who, at the request of the management of
the Company, mail material to, or otherwise communicate with, the
beneficial owners of the shares of Common Stock of the Company held of
record by such brokers, custodians, nominees, or other fiduciaries.
<PAGE>
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10k for the year
ending December 31, 1994, as filed with the Securities & Exchange
Commission, may be obtained, without charge, by any stockholder of the
Company on written request to the Treasurer of the Company, at the address
indicated above.
Your continued interest in and support of the Company is
sincerely appreciated. Your management has prepared an interesting
and informational presentation about the Company's performance, and we
urge you to attend the Annual Meeting. Please join us for a continental
breakfast preceding the meeting at 9:00 a.m.
By Order of the Board of Directors
John D. Hashagen, Jr., President
Brattleboro, Vermont
Dated: March 10, 1995
