MERCHANTS BANCSHARES, INC.
BURLINGTON, VERMONT
1994 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF MEETING
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 24, 1994
To the Shareholders of
MERCHANTS BANCSHARES, INC.
Notice is hereby given that the regular Annual Meeting of Shareholders of
Merchants Bancshares, Inc., a Delaware corporation (the ''Company''), will be
held at the Ramada Inn, 1117 Williston Road, South Burlington, Vermont on Tues-
day, May 24, 1994, at 4:00 p.m. for the following purposes:
1. To elect the five individuals listed as nominees in the at-
tached Proxy Statement to the Board of Directors of the Com-
pany.
2. To ratify the appointment of the firm of Arthur Andersen & Co.,
as independent auditors of the Company for the year 1994.
3. To act upon such other matters as may properly come before the
Annual Meeting of Shareholders or any postponements or adjourn-
ments thereof.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
the close of business on April 8, 1994 as the record date for the determination
of shareholders entitled to notice of and to vote at the Annual Meeting. The
Bylaws require that the holders of a majority in interest of all stock issued,
outstanding and entitled to vote be present in person or represented by proxy
at the Annual Meeting in order to constitute a quorum for the transaction of
business.
BY ORDER OF THE BOARD OF DIRECTORS
Dudley H. Davis
President
Burlington, Vermont
April 21, 1994
YOUR ATTENTION IS INVITED TO THE PROXY STATEMENT WHICH FOLLOWS AND TO THE
ENCLOSED PROXY CARD. IN ORDER THAT YOUR SHARES MAY BE VOTED BY PROXY AS SOLIC-
ITED BY THE BOARD OF DIRECTORS OF THE COMPANY, PLEASE COMPLETE, DATE AND SIGN
THE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY REVOKE ANY
PROXY GIVEN BY YOU AND VOTE YOUR SHARES IN PERSON.
TABLE OF CONTENTS
PROXY STATEMENT Page Numbers
General Information 1
Voting Securities 2
Election of Directors (Proposal 1) 3
Nominees for Directors of the Company 4
Directors Continuing in Office 6
Committees of the Board of Directors 7
Compensation of Principal Officers 8
Summary Compensation Table 9
Pension Plan Table 9
Alternative Pension Plan Disclosure 10
Compensation Committee Report 11
Related Party Transactions with Management 12
Compensation Committee Interlocks and Insider Participation 12
Performance Graph 13
Ratification of Appointment of Independent Auditors (Proposal 2) 14
Other Matters 14
Submission of Shareholder Proposals for 1995 Annual Meeting 14
Annual Report 14
Form 10-K Report 15
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
123 Church Street
Burlington, Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
May 24, 1994
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies to be used at the Annual Meeting of Shareholders of Merchants Banc-
shares, Inc. (the ''Company'') to be held on May 24, 1994 and at any adjourn-
ments thereof. Shareholders of record at the close of business on April 8,
1994 will be entitled to vote at the Annual Meeting. This Proxy Statement and
the accompanying form of proxy are first being mailed or given to holders of
common stock, par value $0.01 per share, of the Company (the ''Common Stock'')
on or about April 21, 1994.
Proxies in the form enclosed are solicited by the Board of Directors of
the Company. Any such proxy, if received in time for voting and not revoked,
will be voted at the Annual Meeting in accordance with the instructions of the
shareholder. If no instructions are given on the proxy, the proxy will be voted
FOR the election, as directors of the Company, of the nominees named within,
and FOR the other proposals described within. At present, management knows of
no additional matters to be presented at the Annual Meeting, but if other mat-
ters are 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.
A proxy may be revoked at any time prior to its exercise (i) by submit-
ting a written notice, addressed to Susan D. Struble, Secretary, at the princi-
pal office of the Company, revoking such proxy, or (ii) in open meeting prior
to the taking of a vote. Any shareholder of the Company entitled to vote at the
Annual Meeting may attend the Annual Meeting and vote in person on any matter
presented for a vote to the shareholders of the Company at the Annual Meeting,
whether or not such shareholder has previously given a proxy.
Solicitation of proxies will be made initially by mail. Proxies may also
be solicited personally, by telephone or by facsimile transmission by the
directors, officers and other employees of the Company or of the Company's
subsidiary, The Merchants Bank (the ''Bank''). The Company will bear all costs
and expenses incurred in connection with this solicitation, including the cost
of printing and mailing these proxy materials and 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.
Written notice of the results of the voting at the Annual Meeting or
adjournments thereof will not be mailed to shareholders, but will be available
upon request, without charge.
The Company maintains its principal executive offices at 123 Church
Street, Burlington, Vermont 05401, and its telephone number is (802) 658-3400.
VOTING SECURITIES
As of April 8, 1994, the record date for the Annual Meeting, there were
4,242,927 shares of Common Stock of the Company outstanding, with 4,242,594 of
those shares entitled to vote at the Annual Meeting. Fractional shares are not
entitled to be voted, but each full share of Common Stock of the Company
entitles the holder thereof to one vote on all matters properly brought before
the Annual Meeting. At present, the Common Stock is the only class of capital
stock of the Company that is issued and outstanding.
The following table provides information regarding persons or organiz-
ations known by the Company to be the beneficial owners of more than five per-
cent (5.00%) of the outstanding shares of Common Stock of the Company as of
March 15, 1994.
<TABLE>
Amount and
Nature of
Name of Beneficial Percent of Notes of
Beneficial Owner Ownership (1) Class Explanation
<S> <C> <C> <C>
General Educational 852,958 Shares 20.10% (2)
Fund Inc.
The Merchants Bank 506,102 Shares 11.93% (3)
401(k) Employee Stock
Ownership Plan
Charles A. Davis 266,975 Shares 6.29% (4)
<FN>
Notes of Explanation
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares are shown as beneficially owned if the person named in the table
has or shares the power to vote or to direct the voting of, or the power to
dispose or to direct the disposition of, such shares. Inclusion of shares in
the table does not necessarily mean that the persons named have any economic
beneficial interest in shares set opposite their respective names.
(2) The General Educational Fund, Inc., located at 164 College Street,
Burlington, Vermont was established in perpetuity in 1918 for the purpose of
providing financial assistance to full-time students attending institutions of
higher education. The Board of Trustees of the General Educational Fund, Inc.,
consists of the following individuals, who also serve the Company and/or the
Bank in the capacities as indicated: Ethan A. Allen, Jr., Senior Vice President
of the Bank; Kathryn T. Boardman, Executive Vice President of the Bank; and
Susan D. Struble, Director and Executive Vice President of the Bank and Direc-
tor and Secretary of the Company. The number of shares indicated above does not
include shares of Common Stock of the Company owned by the Trustees indivi-
dually.
During 1993 the General Educational Fund, Inc., sold 45,089 shares of
Merchants Bancshares, Inc., common stock to the 401(k) Employee Stock Ownership
Plan, or to individual investors. Prices per share were determined by averaging
the bid and asked valuations per share for five days preceding the date of
sale.
(3) While participants in the 401(k) Employee Stock Ownership Plan have
the right to designate how shares allocated to their respective accounts are
to be voted, the Plan Administration Committee is authorized to determine the
voting of shares for which no such designation is made by participants. The
401(k) Employee Stock Ownership Plan is administered at 164 College Street,
Burlington, VT.
(4) Included are shares owned by Charles A. Davis; shares in custody for
sons, Tucker and Tyler, and the Charles and Marna Davis Foundation. Shares
owned by his wife Marna Davis are not included. Mr. Davis is a General Partner
of Goldman Sachs & Co., a New York based investment banking firm located at 85
Broad Street, New York, New York 10004. Mr. Davis resides at 1165 Fifth Avenue,
New York, New York 10029, and is the son of Dudley H. Davis, President of the
Bank and the Company.
</TABLE>
Except as set forth above, to the knowledge of the Company on March 15,
1994 no person was the record or beneficial owner of more than 5% of the out-
standing shares of Common Stock of the Company. For information relating to
ownership of Common Stock of the Company by directors and officers of the Com-
pany, see ''ELECTION OF DIRECTORS'' below.
Section 16(a) of the Securities Exchange Act of 1934 requires the Com
pany's executive officers, directors, and 10% shareholders to file initial re-
ports of ownership and reports of changes of ownership of the Company's common
stock with the Securities & Exchange Commisison. Based upon a review of copies
of such reports received by it or written representations from certain repor-
ting persons that no other reports were required, the Company believes that,
during 1993, all Section 16(a) filing requirements applicable to its executive
officers and directors were complied with.
ELECTION OF DIRECTORS
(Proposal Number 1)
The By-laws of the Company stipulate that the business and affairs of the
Company shall be managed by a Board of Directors, which shall consist of not
less than nine or more than twenty-one individuals divided into three classes
as nearly equal in size as possible.
At a meeting held on February 11, 1994, the Board of Directors of the
Company unanimously voted to fix the number of directors at thirteen, and to
introduce for adoption at the Annual Meeting the following resolution:
RESOLVED: That Peter A. Bouyea, Charles A. Davis, Dudley H. Davis,
Thomas F. Murphy, and Susan D. Struble be elected to serve as Class I directors
of Merchants Bancshares, Inc., each for a three year term expiring on the date
of the Annual Meeting of Shareholders in 1997, or until their successors are
duly elected and qualified in accordance with the By-laws of the Company.
NOMINEES FOR DIRECTORS OF THE COMPANY
The following table sets forth the names and addresses of the five nomi-
nees for director of the Company, their principal occupations, ages and periods
of service as directors of the Company, and information regarding their owner-
ship of shares of Common Stock of the Company as of March 15, 1994. The Class I
nominees have each been nominated for a three year term expiring in 1997.
Information as to beneficial stock ownership is based on data furnished by the
persons concerning whom such information is given.
<TABLE>
Director Amount and
of Nature of
Name and Principal Company Beneficial Percent of
Class address Age Occupation (1) Since Ownership (2) Class
<S> <C> <C> <C> <C> <C> <C>
I Peter A. Bouyea 46 President, Bouyea-Fassetts, Inc. nominee 27,927 *
111 South Cove Road South Burlington, VT
Burlington, VT
I Charles A. Davis 45 General Partner, Goldman 1985 266,975 6.29%
1165 Fifth Ave. Sachs & Co., 85 Broad St.
New York, NY New York, NY
I Dudley H. Davis. 72 President & CEO 1956 60,348 (3) 1.42%
Sunset Cliff The Merchants Bank and
Burlington, VT Merchants Bancshares, Inc.
I Thomas F. Murphy 51 President, Burlington News 1985 25,604 *
5 Driftwood Lane Agency, Colchester, VT
Burlington, VT
I Susan D. Struble 54 Executive Vice President, 1989 9,180 *
33 South Bay Circle Senior Real Estate Loan
Colchester, VT Officer, The Merchants
Bank, Secretary of
Merchants Bancshares, Inc.
<FN>
NOTES:
(1) During the past five years, the principal occupation and employment of each
Class I director has been in the capacity as set forth above.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
shares are shown as beneficially owned if the person named in the table has
or shares the power to vote or to direct the voting of, or the power to dispose
or to direct the disposition of, such shares. Inclusion of shares in the table
does not necessarily mean that the persons named have any economic beneficial
interest in shares set opposite their respective names.
(3) Does not include 52,393 shares held in a trust dated September 12, 1987 as
to which Mr. Davis has no voting or investment powers.
</TABLE>
The following biographical information is provided for the five nominees as
indicated above:
Peter A. Bouyea
While Peter A. Bouyea is a new nominee for director of the Company he has
served as a director of the Bank since 1993. He is President of Bouyea-Fassetts
Inc., a wholly owned indirect subsidiary of Philip Morris Corporation. He is a
director of the American Bakeries Cooperative, and the secretary/treasurer, and
a director of the Ronald McDonald House of Burlington, Vermont. He is 46 years
of age, and resides with his wife Linda and family at 111 South Cove Road, Bur-
lington, Vermont. The Board of Directors has nominated Mr. Bouyea to serve as a
Class I director for a three-year term expiring on the date of the Annual Mee-
ting in 1997.
Charles A. Davis
Charles A. Davis has served as a director of the Company since 1985. He is
a General Partner in Goldman Sachs & Company, 85 Broad Street, New York, New
York. He is 45 years of age, and resides with his wife Marna, and sons Tucker
and Tyler, at 1165 Fifth Avenue, New York, New York. The Board of Directors has
nominated Mr. Davis to serve as a Class I director for a three-year term ex-
piring on the date of the Annual Meeting in 1997.
Dudley H. Davis
Dudley H. Davis has served as a director of the Bank since 1956, and as
Chief Executive Officer and President of the Bank since 1968. He has been a
Director and President of Merchants Bancshares, Inc., since its inception on
January 27, 1984. He is 72 years of age, and resides at Sunset Cliff, Burling-
ton, Vermont. The Board of Directors has nominated Mr. Davis to serve as a
Class I director for a three-year term expiring on the date of the Annual Meet-
ing in 1997.
Thomas F. Murphy
Thomas F. Murphy has served as a director of the Bank and Company since
1985. He is President of Burlington News Agency, Inc., Daytona News, Inc.,
Plattsburgh News Company, and Todd Realty. He is 51 years of age and resides
with his wife Jane and family at 5 Driftwood Lane, Burlington, Vermont. The
Board of Directors has nominated Mr. Murphy to serve as a Class I director for
a three-year term expiring on the date of the Annual Meeting in 1997.
Susan D. Struble
Susan D. Struble has served as a director of the Bank and Company since
1989. She has been employed by The Merchants Bank since 1978 and is an Execu-
tive Vice President with responsibility for all real estate lending activities.
She is President of Merchants Properties, Inc., a Director of Queneska Capital
Corporation, President of the General Educational Fund, Inc., and a Trustee of
Merchants Bank Foundation, Inc. She is 54 years of age and resides with her
husband Robert at 33 South Bay Circle, Colchester, Vermont. The Board of Direc-
tors has nominated Mrs. Struble to serve as a Class I director for a three-year
term expiring on the date of the Annual Meeting in 1997.
As of March 15, 1994, to the knowledge of the company, the existing and
continuing directors, nominees for director, and principal officers of the com-
pany and the bank as a group (28 persons) were the beneficial owners of 785,711
shares of common stock of the company, constituting 18.52% of the outstanding
number of shares. Mr. Edward W. Haase, Treasurer of the Company and Bank, was
the beneficial owner of 4,244 shares of common stock of the company, constitu-
ting .10% of the outstanding number of shares.
If at the time of the Annual Meeting any of the nominees should be unable
to serve or should decline to serve, the discretionary authority provided in
the proxies may be exercised to vote for a substitute or substitutes, who would
be designated by the Board of Directors of the Company, and would be elected to
the same class or classes as the nominees for whom they are substituted. Nei-
ther the Bylaws of the Company nor applicable law restrict the nomination of
other individuals to serve as directors, and any shareholder present at the
Annual Meeting may nominate another candidate, or candidates, at the Annual
Meeting.
An affirmative vote of a majority of the shares of Common Stock of the
Company represented in person or by proxy at the Annual Meeting is necessary
for the election of the individuals named above. There is no cumulative voting
in elections of directors of the Company. Shares for which authority to vote
for any nominee is withheld on a proxy will have the effect of negative votes
as to that nominee. The Board of Directors of the Company recommends that you
vote ''FOR'' the election of the nominees listed above.
<TABLE>
DIRECTORS CONTINUING IN OFFICE
CLASS II
<CAPTION>
The terms of the following Class II incumbent directors will expire on the date
of the 1995 Annual Meeting of Shareholders.
Amount and
Director of Nature of
Name and Principal Company Beneficial Percent of
Class Address Age Occupation (1) Since Ownership (2) Class
<S> <C> <C> <C> <C> <C> <C>
II Jeffrey L. Davis 41 President, J.L. Davis, Inc. 1993 24,563 *
Underhill Center, VT Burlington, VT
II Michael G. Furlong 43 Attorney, Sheehey 1991 13,023 *
231 Lakewood Parkway Brue Gray & Furlong, P.C.
Burlington, VT Burlington, VT
II Raymond C. Pecor, Jr. 54 President 1978 111,077 2.62%
Pine Haven Shore Lake Champlain
Shelburne, VT Transportation Co.
Burlington, VT
II Patrick S. Robins 55 President 1974 119,421 *
1 Juniper Terrace McAuliffe, Inc.
Burlington, VT Burlington, VT
* Shareholdings represent less than 1.00% of class
<FN>
NOTES:
(1) During the past five years, the principal occupation and employment of each
Class II director has been in the capacity as set forth above.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
shares are shown as beneficially owned if the person named in the table has or
shares the power to vote or to direct the voting of, or the power to dispose or
to direct the disposition of, such shares. Inclusion of shares in the table
does not necessarily mean that the persons named have any economic beneficial
interest in shares set opposite their respective names.
</TABLE>
RETIRING DIRECTOR
Remo R. Pizzagalli, Executive Vice President, Pizzagalli Construction Company
of South Burlington, VT, resigned as a director on December 31, 1993. Mr.
Pizzagalli had served as a director of the Company, and the Bank, since 1987.
<TABLE>
CONTINUING CLASS III DIRECTORS
<CAPTION>
The terms of the following Class III incumbent directors will expire on the
date of the 1996 Annual Meeting of Shareholders.
Director Amount and
of Nature of
Name and Principal Company Beneficial Percent of
Class Address Age Occupation (1) Since Ownership (2) Class
<S> <C> <C> <C> <C> <C> <C>
III Jack DuBrul II 60 President, Automaster 1978 23,015 *
Harbour Road Motor Company
Shelburne, VT Shelburne, VT
III Leo O'Brien, Jr. 62 Partner, O'Brien Brothers 1969 17,819 *
200 Old Farm Road Agency (Real Estate)
So. Burlington, VT So. Burlington, VT
III Benjamin F. Schweyer 68 Of Counsel, Eastman 1969 64,253 1.51%
41 Brewer Parkway & Sherrer
So. Burlington, VT Burlington, VT
III Robert A. Skiff 52 President, Fellow for 1984 2,205 *
303 Swift Street Economic Development,
So. Burlington, VT University of Vermont
Burlington, VT
* Shareholdings represent less than 1.00% of class
<FN>
NOTES:
(1) During the past five years, with the exception of Mr. Skiff, the principal
occupation and employment of each Class III director has been in the capacity
as set forth above. Mr. Skiff stepped down as President of Champlain College
on July 1, 1992 after serving in that capacity for the past fifteen years. He
is now associated with the University of Vermont, Burlington, VT.
(2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
shares are shown as beneficially owned if the person named in the table has
or shares the power to vote or to direct the voting of, or the power to dispose
or to direct the disposition of, such shares. Inclusion of shares in the table
does not necessarily mean that the persons named have any economic beneficial
interest in shares set opposite their respective names.
</TABLE>
Attendance of Directors
During 1993, twenty-three meetings of the Board of Directors of
Merchants Bancshares, Inc., were held. The following directors of Merchants
Bancshares, Inc., attended fewer than seventy-five percent of the meetings of
the Company: Charles A. Davis, Thomas F. Murphy, Leo O'Brien, Jr., Raymond C.
Pecor, Jr., and Remo Pizzagalli.
Compensation of Directors
The directors of the Company are paid a retainer of $7,000.00 annually
and $500.00 for each of the first six board meetings attended during the fiscal
year. The directors of the Bank receive a fee of $250.00 for each meeting of
the board attended, up to a maximum limit of $10,000.00 per year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Bank has designated an Audit, Regulatory Over-
sight and Implementation, and Compensation Committees whose composition and
objectives are as described below. The Compensation Committee of the Bank also
serves in effect as the Compensation Committee of the Company.
Audit Committee:
During 1993 nine meetings of the Audit Committee, consisting of Robert A. Skiff
Chairman, Thomas F. Murphy, Leo O'Brien, Jr., Raymond C. Pecor, Jr. and Ben-
jamin F. Schweyer, were held.
The functions of the audit committee are (i) to serve as the primary means of
communication between the board of directors and both the independent account-
ants and the internal auditor, (ii) to assist and make recommendations to the
board of directors in fulfilling its responsibilities relating to the Bank's
financial reporting and internal control policies and practices, (iii) to re-
view with the independent accountants and the internal auditor the scope of the
annual audit plan, the results of the annual audit and the adequacy of the
Bank's internal accounting controls, (iv) to make recommendations to the board
of directors with respect to the selections of independent accountants, (v) to
review any non-audit services rendered by the independent accountants, (vi) to
monitor compliance with the Bank's business ethics policies and (vii) to engage
independent accountants and other professional advisors to conduct such special
reviews or studies as the committee deems appropriate in fulfilling its
responsibilities.
Other areas covered by the Audit Committee on a regular basis are: (i) reviews
of management's analysis of loan assets, (ii) evaluation of the adequacy of
loan loss reserves, (iii) regulatory compliance, including reports issued in
accordance with Section 112 of the Federal Deposit Insurance Corporation Im-
provement Act, (iv) security and (v) insurance coverages.
Regulatory Oversight and Implementation Committee:
During 1993, fifteen meetings of the Regulatory Oversight and Imple-
mentation Committee, consisting of directors Raymond C. Pecor, Jr., chairman,
Michael G. Furlong, Jeffrey L. Davis, Thomas F. Murphy and Jack DuBrul II,
were held.
The committee's primary function is to direct the overall thrust of the
Company's efforts in responding to regulatory concerns and to monitor progress
in meeting goals. Specifically, the comittee's duties include the establishment
of goals to respond to the regulatory concerns, identify specific tasks, set
priorities and timetables, provide resources needed (including outside consult-
ing and legal needs), monitor progress, review the reporting and evaluate
management's performance in the response process. Additional responsibilities
include the monitoring of costs of compliance and the reporting of the activi-
ties to the full Board.
Compensation Committee:
During 1993 the Committee held one meeting. Since December 23, 1992, the
Committee has consisted of the following independent members of the Board of
Directors: Jack DuBrul II, Chairman, Michael G. Furlong, and Richard H.
Wadhams.
<TABLE>
COMPENSATION OF PRINCIPAL OFFICERS
The following table sets forth aggregate cash compensation paid by the
Bank over the past three calendar years to the three most highly compensated
principal officers of the Company or the Bank whose salary and bonus for 1993
exceeded $100,000.
Summary Compensation Table
<CAPTION>
Annual Compensation
Name and All Other
Principal Position Year Salary (1) Bonus Compensation
<S> <C> <C> <C> <C>
Dudley H. Davis 1993 $311,336 (2) $ 5,076 $119,397 (3)
President and Director 1992 $290,704 (2) $ 10,398 $119,844 (3)
of the Company and Bank 1991 $284,816 (2) $ 2,027 $113,176 (3)
Susan D. Struble 1993 $128,896 (2) $ 5,380 $114,367 (4)
Executive Vice President, 1992 $125,885 (2) $ 9,300 $114,474 (4)
Director of the Company 1991 $117,817 (2) $ 6,754 $114,503 (4)
and Bank and Senior Real
Estate Loan Officer
Edward W. Haase 1993 $196,933 (2) $ 5,109 $113,680 (5)
Senior Vice President, 1992 $195,745 (2) $ 5,815 $113,821 (5)
Treasurer and Controller 1991 $190,962 (2) $ 2,700 $114,163 (5)
<FN>
Notes of Explanation:
(1) Includes Director's fees as received from the Bank, the Company, and for
Mr. Davis, the Merchants Trust Company, a wholly owned Bank subsidiary. Payment
of a portion of these fees were deferred at the election of Mr. Davis and Mrs.
Struble.
(2) Payment in the amount of $26,000 represents director's fees paid during
1993, but which were earned for previous years of service.
(3) Includes Mr. Davis' 401(k) ESOP employer contributions for 1993 of $7,375;
$2,749 in premiums paid on split-dollar life insurance for 1993; and $109,273
allocated pursuant to the terms of the Executive Salary Continuation Plan, a
description of which is contained under "Alternative Pension Plan Disclosure."
(4) Includes Mrs. Struble's 401(k) ESOP employer contributions for 1993 of
$4,027; and $340 in group term life insurance premiums.
(5) Includes Mr. Haase's 401(k) ESOP employer contributions for 1993 of $3,584;
and $96 in group term life insurance premiums.
</TABLE>
<TABLE>
Pension Plan Table
<CAPTION>
Estimated Annual Retirement Benefit
for Specified Years of Credited Service
Annual Compensation 20 30 40
<S> <C> <C> <C>
$50,000 $15,516 $23,274 $25,774
$75,000 $25,412 $38,118 $41,868
$100,000 $35,412 $53,118 $58,118
$125,000 $45,412 $68,118 $74,368
$150,000 $55,412 $83,118 $90,618
$175,000 $65,412 $98,118 $106,868
$200,000 $75,412 $113,118 $115,641
$225,000 $85,412 $115,641 $115,641
$250,000 $89,748 $115,641 $115,641
$275,000 $89,748 $115,641 $115,641
$300,000 $89,748 $115,641 $115,641
$325,000 $89,748 $115,641 $115,641
</TABLE>
The above table shows the estimated annual retirement benefits payable
upon retirement to persons in a specified compensation and years of credited
service classification. The assumptions are: that they retire at age 65 during
1994; that each member's final average compensation is equal to his or her
annual compensation amounts provided that, if annual compensation exceeds
$235,840 for illustration purposes the final average compensation has been set
equal to $235,840; and that they elect a straight life annuity form of payment.
The retirement benefits listed in the table take into consideration the Social
Security offset amount which is based on the law in effect on January 1, 1994
and assumes an employee earned the annual compensation listed on the table for
the calendar year 1993. The maximum annual benefit limitations as set forth in
the plan and under Section 415 of the Internal Revenue Service Code have also
been accounted for in the table.
The compensation used to determine the estimated pension benefits due to
the officers listed in the Summary Compensation Table is that disclosed in the
''Salary'' column of that table and is equal to base salary earned for 1993
(subject to the maximum annual benefit limitations under Section 415 of the IRS
code). As of December 31, 1993, the credited years of service for Mr. Davis,
Ms. Struble and Mr. Haase are 47.5, 15.5 and 8, respectively.
ALTERNATIVE PENSION PLAN DISCLOSURE
The Company adopted an Executive Salary Continuation Plan in 1986 which
provides for a monthly benefit payable for 15 years to the officers named in
the Summary Compensation Table, upon each officer's normal retirement date at
age 65 (age 73 in the case of Mr. Davis). The plan employs a step-vesting
schedule which begins at age 55. The monthly benefits payable at age 65 (age 73
for Mr. Davis) for a period of 15 years for Mr. Davis, Ms. Struble and Mr.
Haase are: $9,106, $4,479 and $5,122, respectively.
Compensation Committee Report:
In 1993 the Compensation Committee of the Board of Directors (the "Com-
mittee") was composed of three non-employee directors: Jack DuBrul II, Chair-
man, Michael G. Furlong and Richard H. Wadhams. Mr. Furlong resigned from the
Committee effective December 31, 1993; a successor will be named by the Board
of Directors in 1994.
The Committee is responsible for setting and administering executive
officer salaries and long-term incentive plans that govern the compensation
paid to all senior managers of the Bank. In addition, the Committee recommends
to the full Board the general compensation levels of the Bank and is respon-
sible for reviewing performance appraisals of all senior managers.
The following report describes the policies of the Committee regarding
compensation paid to the named officers during 1993.
The key factor used by the Committee in determining its recommendation
to the Board was its subjective assessment of management's overall ability and
dedication to enhancing the long-term value of the Bank, not based on any
specific or objective criteria.
Based upon the Committee's recommendations, the Board approved a merit
pool equal to 3.5% of aggregate salaries, to be awarded to Bank employees based
on subjective individual performance evaluations. Applying subjective criteria,
the Chief Executive Officer reviewed the individual performance of each execu-
tive officer (other than himself) and submitted his recommendations as to the
allocation of this pool to the Committee for consideration and presentation to
the entire Board.
Generally, compensation for the Chief Executive Officer is based upon
qualitative factors using subjective criteria as reflected by the Bank's
profitability, and individual performance. The CEO's salary for 1993 was frozen
at his request for the third consecutive year. During 1993 bonus awards were
paid to the three named executive officers under a profit sharing plan which
encompassed virtually all employees of the Bank. Under the plan, all eligible
full-time employees received one week's salary as a bonus. In addition, the CEO
was allowed a discretionary "pool" from which to pay out bonuses to individuals
who, in his judgement, using subjective criteria, deserved additional compensa-
tion based upon their individual performance during the year. The CEO did not
share in the discretionary bonus pool.
The Compensation Committee has not yet had occasion to adopt any policy
on the new tax law disallowing deductions on annual compensation in excess of
$1 million for certain executives of public companies. The Company believes
that compensation expected to be paid during 1994 will be below the compensa-
tion limitation.
Jack DuBrul II, Chairman
Michael G. Furlong
Richard H. Wadhams
Related Party Transactions
As described below under "Compensation Committee Interlocks and Insider
Participation," the Bank engages in banking transactions with directors and
officers of the Company, and with their associates, and also obtained, and
anticipates obtaining in fiscal 1994, legal services from a law firm of which
Michael G. Furlong, a director of the Company and the Bank, is a director, as
well as obtaining automobiles and related services from a company affiliated
with Jack DuBrul II, a director of the Company and the Bank.
During 1993 the Bank purchased office supplies and equipment on a com-
petitive bid basis from McAuliffe, Inc., valued at $658,932. Patrick S. Robins,
who is President of McAuliffe, Inc., is a Class II director of the Company and
the Bank.
Compensation Committee Interlocks and Insider Participation
During 1993, the Compensation Committee included Jack DuBrul II, Michael
G. Furlong and Richard H. Wadhams.
During 1993, the Bank purchased automobiles and automotive services on a
competitive basis from Automaster, Inc., valued at $98,905. Jack A. DuBrul II,
who is President of Automaster, Inc., is a Class III director of the Company
and the Bank. Mr. DuBrul is chairman of the Compensation Committee.
The bank obtained legal services during 1993, and anticipates obtaining
such services during 1994, from the firm of Sheehey, Brue, Gray & Furlong, P.C.
of which Michael G. Furlong is a partner. Fees paid to this firm by the Bank
for services and expenses in 1993 aggregated $123,834.
Performance Graph
A comparison of five year cumulative total return to shareholders of Mer-
chants Bancshares, Inc., to a group of bank holding companies selected by the
Company, and to the NASDAQ market index is indicated below. Data is shown both
in tabular format and in the following graph. The peer group of bank holding
companies consists of the following: Arrow Financial Corporation (AROW);
Chittenden Corporation (CNDN); Eastern Bancorp, Inc., (VFBK); Evergreen Corpo-
ration (EVGN); and Vermont Financial Services Corporation (VFSC). These are
five of the six large financial institutions with which the Bank believes it
competes most directly for market share.
<TABLE>
FIVE YEAR COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<CAPTION>
ASSUMES $100 INVESTED ON DEC. 31, 1988
WITH ALL DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1993
Table
Fiscal Year Ending
Company 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Merchants Bancshares, Inc. $100.00 $106.41 $ 76.68 $104.47 $142.54 $114.58
Peer Group 100.00 92.80 57.06 65.67 95.21 124.24
Broad Market 100.00 112.89 91.57 117.56 118.71 142.40
</TABLE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal Number 2)
The Board of Directors of the Company has selected Arthur Andersen & Co.,
independent certified public accountants, to audit the books, records and
accounts of the Company and the Bank for the year ending December 31, 1994.
Arthur Andersen & Co. has served as independent auditors for the Bank and Com-
pany since 1974, and has no direct financial interest in the Company or the
Bank.
Representatives of Arthur Andersen & Co., are not scheduled to be present
at the Annual Meeting of Shareholders.
Ratification of the appointment of Arthur Andersen & Co., as the Com-
pany's independent accountants for the 1994 calendar year will require the
affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting. Abstentions and broker non-votes will
have the effect of negative votes on this matter.
The Board of Directors recommends that stockholders vote ''FOR'' ratific-
ation of the appointment of Arthur Andersen & Co., as the Company's independent
accountants for the 1994 calendar year.
OTHER MATTERS
The Board of Directors of the Company know of no additional matters which
are likely to be presented for action at the Annual Meeting other than the
three proposals specifically set forth in the Notice and referred to herein. If
any other matter properly comes before the Annual Meeting for action, it is in-
tended that the persons named in the accompanying proxy and acting thereunder
will vote or refrain from voting in accordance with their best judgment pur-
suant to the discretionary authority conferred by the proxy.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of the
Company's shareholders at its Annual Meeting of Shareholders in 1995, scheduled
to be held on Tuesday, April 25, 1995, will be required, pursuant to a rule of
the Securities and Exchange Commission, to deliver the proposal to the Company
on or prior to December 23, 1994. Please forward any shareholder proposals to
the Secretary of the Company at the address indicated below.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1993, which includes financial statements, has been mailed to all
shareholders with this Proxy Statement. The Annual Report is not to be regarded
as proxy soliciting material. Additional copies of the Annual Report may be
obtained by shareholders of the Company without charge on written request to
the Secretary of the Company at the address indicated below.
ANNUAL DISCLOSURE STATEMENT
Pursuant to 12 CFR 350 of FDIC Rules & Regulations, a copy of The Mer-
chants Bank's Annual Disclosure Statement may be obtained without charge by
contacting the person indicated below. The Annual Disclosure Statement presents
the Bank's financial condition, and results of operation for the fiscal years
ended 1992 and 1993.
The Merchants Bank
F.G. Smith, SVP & Compliance Officer
123 Church Street
Burlington, Vermont 05401
Tel. (802) 658-3400
FORM 10-K REPORT
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, as filed with the Securities and Exchange Commission, may be
obtained without charge by any shareholder of the Company on written request to
the Secretary of the Company at the address indicated below.
By Order of the Board of Directors
Susan D. Struble
Secretary
Merchants Bancshares, Inc.
123 Church Street
Burlington, Vermont 05401
April 21, 1994
Mailing Address:
Merchants Bancshares, Inc.
123 Church Street
Burlington, Vermont 05401
Date: April 21, 1994
