BURLINGTON, VERMONT
1995
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 25, 1995
NOTICE OF MEETING
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 25, 1995
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 Sheraton Burlington Hotel & Conference Center, 870 Williston Road,
South Burlington, Vermont on Tuesday, April 25, 1995, at 10:00 a.m. for the
following purposes:
1. To elect the five individuals listed as nominees in the attached Proxy
Statement to the Board of Directors of the Company.
2. To act upon such other matters as may properly come before the Annual
Meeting of Shareholders or any postponements or adjournments thereof.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed the
close of business on March 15, 1995 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 Joseph L. Boutin
Chairman of the Board of Directors President & Chief Executive Officer
Burlington, Vermont
March 24, 1995
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
SOLICITED 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 8
Compensation of Principal Officers 8
Summary Compensation Table 9
Pension Plan Table 10
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
Other Matters 14
Submission of Shareholder Proposals for 1996 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
April 25, 1995
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 April 25, 1995 and at any
adjournments thereof. Shareholders of record at the close of business on March
15, 1995 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 March 24, 1995.
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 submitting a
written notice, addressed to Susan D. Struble, Secretary, at the principal
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 March 15, 1995, 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 organizations
known by the Company to be the beneficial owners of more than five percent
(5.00%) of the outstanding shares of Common Stock of the Company as of February
15, 1995.
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Beneficial Percent of Notes of
Beneficial Owner Ownership (1) Class Explanation
<S> <C> <C> <C>
General Educational 839,958 Shares 19.80% (2)
Fund Inc.
The Merchants Bank 504,900 Shares 11.90% (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 Vice President of the Bank and Director 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 individually.
During 1994 the General Educational Fund, Inc., sold 13,000 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 Senior Director
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 17 Field Point
Dr., Greenwich, CT., 06880, and is the son of Dudley H. Davis, Chairman of the
Board of the Company.
</FN>
</TABLE>
Except as set forth above, to the knowledge of the Company on February 15,
1995 no person was the record or beneficial owner of more than 5% of the
outstanding shares of Common Stock of the Company. For information relating to
ownership of Common Stock of the Company by directors and officers of the
Company, see "ELECTION OF DIRECTORS" below.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and 10% shareholders to file initial reports of
ownership and reports of changes of ownership of the Company's common stock
with the Securities & Exchange Commission. Based upon a review of copies of
such reports received by it or written representations from certain reporting
persons that no other reports were required, the Company believes that, during
1994, 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 24, 1995, the Board of Directors of the
Company unanimously voted to fix the number of directors at fourteen, and to
introduce for adoption at the Annual Meeting the following resolution:
RESOLVED: That Joseph L. Boutin, Jeffrey L. Davis, Michael G. Furlong,
Raymond C. Pecor, Jr., and Patrick S. Robins be elected to serve as Class II
directors of Merchants Bancshares, Inc., each for a three year term expiring
on the date of the Annual Meeting of Shareholders in 1998, 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 nominees
for director of the Company, their principal occupations, ages and periods of
service as directors of the Company, and information regarding their ownership
of shares of Common Stock of the Company as of February 15, 1995. The Class II
nominees have each been nominated for a three year term expiring in 1998.
Information as to beneficial stock ownership is based on data furnished by the
persons concerning whom such information is given.
<TABLE>
<CAPTION>
DirectorAmount 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>
II Joseph L. Boutin 47 President & CEO 1994 1,000 *
The Merchants Bank and
Merchants Bancshares, Inc.
II Jeffrey L. Davis 42 President, J.L. Davis, Inc. 1993 24,563 *
Burlington, VT
II Michael G. Furlong 44 Attorney, Sheehey 1991 3,023 *
Brue Gray & Furlong, P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 55 Chairman, 1978 111,077 2.62%
Lake Champlain
Transportation Co.
Burlington, VT
II Patrick S. Robins 56 President 1974 19,421 *
McAuliffe, Inc.
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, with the
exception of Mr. Boutin, whose appointment became effective on October 24, 1994.
(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.
</FN>
</TABLE>
The following biographical information is provided for the five nominees as
indicated above:
Joseph L. Boutin
Joseph L. Boutin is currently President and Chief Executive Officer of The
Merchants Bank and Merchants Bancshares, Inc. He was appointed by the Board of
Directors as a Director of the Bank and Company on October 24, 1994. He was
formerly associated with the Howard Bank, a subsidiary of Banknorth Group,
Inc., for twenty-five years, and had served as President of The Howard Bank
since 1989. Mr. Boutin is currently a director of Fletcher Allen Health Care,
Chairman and Director of the 1994 United Way Campaign, a director of the
Vermont Student Assistance Corporation, and a member and former Chairman of the
Communications Council of the American Bankers Association. Mr. Boutin
graduated from St. Michael's College with a B.A. in Economics and served in the
U.S. Army. He and his wife Dale reside at 63 Morrill Drive in Burlington, VT.
The Board of Directors has nominated Mr. Boutin to serve as a Class II director
for a three-year term expiring on the date of the Annual Meeting in 1998.
Jeffrey L. Davis
Jeffrey L. Davis has served as a director of the Bank and Company since
1993. He is President of J.L. Davis, Inc. a Burlington, VT based construction
and development firm. He is currently serving as President of Vermont Special
Olympics. The Board of Directors has nominated Mr. Davis to serve as a Class II
director for a three-year term expiring on the date of the Annual Meeting in
1998.
Michael G. Furlong
Michael G. Furlong has served as a director of the Bank and Company since
1991. He is a member of the Burlington, Vermont law firm of Sheehey Brue Gray
& Furlong P.C. He is President of the Chittenden County Bar Association, and a
director of Wake Robin Corporation. He resides with his wife Nancy and family
at 231 Lakewood Parkway, Burlington, Vermont. The Board of Directors has
nominated Mr. Furlong to serve as a Class II director for a three-year term
expiring on the date of the Annual Meeting in 1998.
Raymond C. Pecor, Jr.
Raymond C. Pecor, Jr. has served as a director of the Bank since 1978, and
as a director of the Company since 1984. He is Chairman of the Lake Champlain
Transportation Company, and has entrepreneurial interests in other companies
and developments, including the Lake Champlain CATV and the Jericho-Richmond
CATV. He is a trustee of Merchants Trust Company, and a director of Champlain
College, Burlington, VT and Vermont Teddy Bear Company, Shelburne, VT. The
Board of Directors has nominated Mr. Pecor to serve as a Class II director for
a three-year term expiring on the date of the Annual Meeting in 1998.
Patrick S. Robins
Patrick S. Robins has served as a director of the Bank since 1974, and as a
director of the Company since 1984. He is President of McAuliffe, Inc., a
distributor of office and paper products headquartered in Burlington, VT. He is
a director of Lake Champlain Transportation Company, a trustee of St. Michael's
College, a trustee of the Visiting Nurse Association, and a director of the
Vermont State Board of Education. The Board of Directors has nominated Mr.
Robins to serve as a Class II director for a three-year term expiring on the
date of the Annual Meeting in 1998.
As of February 15, 1995, to the knowledge of the company, the existing and
continuing directors, nominees for director, and principal officers of the
company and the bank as a group (29 persons) were the beneficial owners of
840,561 shares of common stock of the company, constituting 19.81% of the
outstanding number of shares. Mr. Edward W. Haase, Treasurer of the Company and
Bank, was the beneficial owner of 5,525 shares of common stock of the company,
constituting .13% 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.
Neither 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.
DIRECTORS CONTINUING IN OFFICE
CLASS III
The terms of the following Class III incumbent directors will expire on the
date of the 1996 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
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>
III Jack DuBrul II 61 President, Automaster 1978
123,015 *
Motor Company
Shelburne, VT
III Leo O'Brien, Jr. 63 Partner, O'Brien Brothers 1969 117,819 *
Agency (Real Estate)
So. Burlington, VT
III Benjamin F. Schweyer 69 Of Counsel, Eastman 1969
63,903 1.51%
& Sherrer, P.C.
Burlington, VT
III Robert A. Skiff, Ph.D. 53 President, Fellow for 1984 2,205
*
Economic Development,
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 Dr. Skiff, the principal
occupation and employment of each Class III director has been in the capacity
as set forth above. Dr. Skiff stepped down as President of Champlain College on
July 1, 1992 after serving in that capacity for fifteen years.
(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.
</FN>
</TABLE>
CONTINUING CLASS I DIRECTORS
The terms of the following Class I incumbent directors will expire on the date
of the 1997 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
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 47 Consultant, Bouyea-Fassetts 1994
32,514 *
Bakery, Inc.
South Burlington, VT
I Charles A. Davis 46 Senior Director, Goldman 1985 266,975 6.29%
Sachs & Co., 85 Broad St.
New York, NY
I Dudley H. Davis 73 Chairman of the Board 1956
61,250 (3) 1.44%
The Merchants Bank and
Merchants Bancshares, Inc.
I Thomas F. Murphy 52 President, Burlington News 1985 25,604
*
Agency, Colchester, VT
I Susan D. Struble 55 Vice President, 1989 10,195
*
The Merchants Bank,
Secretary of
Merchants Bancshares, Inc.
* Shareholdings represent less than 1.00% of class
<FN>
NOTES:
(1) During the past five years, with the following exceptions, the principal
occupation and employment of each Class I director has been in the capacity as
set forth above. Charles A. Davis became a Senior Director of Goldman Sachs &
Co., on December 1, 1994. On October 24, 1994, Dudley H. Davis stepped down as
President & Chief Executive Officer, and was appointed to serve as Chairman of
the Board of Directors.
(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 trust dated September 12, 1987 as to
which Mr. Davis has no voting or investment powers.
</FN>
</TABLE>
Attendance of Directors
During 1994, forty-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, and Raymond C. Pecor, Jr.
Compensation of Directors
For attendance during the first and second quarters of fiscal year 1994, the
directors of the Company were paid a quarterly retainer of $1,750 plus a fee of
$500 for each meeting attended during the fiscal year, up to a maximum of six
meetings. Payment of director's fees for attendance after June 30, 1994 was
suspended for all directors.
During fiscal year 1994, fees were paid to all Bank directors who were not
also officers of the Bank, based on a schedule of $250 for each board meeting
attended, up to a maximum limit of $10,000 per year. Directors who were also
officers of the Bank were paid fees based on this schedule for attendance
during the first and second quarters. Payments were suspended to these
individuals during the third and fourth quarters of the fiscal year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Bank has designated an Audit Committee, and a
Compensation Committee 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 1994 five meetings of the Audit Committee, consisting of Robert A.
Skiff, Chairman, Thomas F. Murphy, Leo O'Brien, Jr., Raymond C. Pecor, Jr. and
Benjamin 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
accountants 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 review 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)
review matters relative to security and insurance coverages and (ii) regulatory
compliance, including reports issued in accordance with Section 112 of the
Federal Deposit Insurance Corporation Improvement Act.
Compensation Committee:
During 1994 the Committee held one meeting. Since December 31, 1993, the
Committee has consisted of the following independent members of the Board of
Directors: Jack DuBrul II, Chairman, and Richard H. Wadhams, a director of The
Merchants Bank.
COMPENSATION OF PRINCIPAL OFFICERS
The following table sets forth aggregate cash compensation paid by the Bank
over the past three calendar years to the most highly compensated principal
officers of the Company or the Bank whose salary and bonus for 1994 exceeded
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards
Securities
Name and Underlying All Other
Principal Position Year Salary (1) Bonus Options
Compensation
<S> <C> <C> <C> <C> <C>
Dudley H. Davis 1994 $272,233 $ 0 0
$121,228 (2)
Former President, 1993 $311,336 $ 5,076 0
$119,397 (3)
Chairman Board of Directors 1992 $290,604 $10,398 0 $
9,844 (3)
Joseph L. Boutin 1994 $ 34,614 $ 0 20,000 $
0 (3)
President, and Director 1993 $ 0 $ 0 0 $
0 (4)
of the Company and Bank 1992 $ 0 $ 0 0 $
0 (4)
Edward W. Haase 1994 $103,790 $15,000 0 $
5,687 (4)
Senior Vice President, 1993 $196,933 $ 5,109 0 $
3,680 (5)
Treasurer and CFO 1992 $195,745 $ 5,815 0 $
3,821 (5)
Thomas R. Havers 1994 $100,688 $10,000 0 $
5,215 (5)
Executive Vice-President 1993 $ 94,739 $ 5,073 0 $
3,504 (3)
1992 $ 92,991 $ 6,737 0 $
3,901 (3)
William M. MacKinnon 1994 $ 98,627 $15,000 0 $
5,342 (6)
Senior Vice-President 1993 $ 91,382 $14,792 0 $
3,372 (4)
1992 $ 86,066 $15,326 0 $
3,452 (4)
Alfred C. Dostie 1994 $ 89,913 $15,000 0 $
4,967 (7)
Senior Vice-President 1993 $179,702 $ 4,867 0
$113,372 (5)
1992 $176,956 $ 4,154 0
$113,072 (5)
<FN>
Notes of Explanation:
(1) Includes Director's Fees as received from the Bank, the Company, and the
Merchants Trust Company, a wholly owned Bank subsidiary. Payment of a portion
of these fees were deferred at the election of Mr. Davis. Also includes
payments for the buyout of accrued vacation time.
(2) Includes Mr. Davis' 401(k) ESOP employer contributions for 1994 of $9,240;
$2,715 in premiums paid on split-dollar life insurance for 1994 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.
(3) Mr. Boutin commenced employment with the Bank on October 24, 1994.
(4) Includes Mr. Haase's 401(k) ESOP employer contributions for 1994 of $5,481
and $103 in group term life insurance premiums.
(5) Includes Mr. Havers' 401(k) ESOP employer contributions for 1994 of $5,116
and $99 in group term life insurance premiums.
(6) Includes Mr. MacKinnon's 401(k) ESOP employer contributions for 1994 of
$5,251 and $91 in group term life insurance premiums. Mr. MacKinnon terminated
employment with the Bank on January 27, 1995.
(7) Includes Mr. Dostie's 401(k) ESOP employer contributions for 1994 of
$4,845 and $122 in group term life insurance premiums.
</FN>
</TABLE>
<TABLE>
Options Granted in Last Fiscal Year
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Appreciation
Individual Grants For Option
Term
Number of % of Total
Securities Options
Underlying Granted To Exercise or
Options Employees Base Price Expiration
Name Granted Fiscal Year ($/Share) Date 5%
10%
<S> <C> <C> <C> <C> <C> <C>
Dudley H. Davis 0 0
Joseph L. Boutin (1)20,000 100 $11.00 10/31/01
$74,800 $208,800
Edward W. Haase 0 0
Thomas R. Havers 0 0
William M. MacKinnon 0 0
Alfred C. Dostie 0 0
<FN>
(1) Mr. Boutin's option becomes exercisable after 10/31/96. The option is
immediately exercisable if Mr. Boutin is terminated without just cause or due
to his disability, or in the event that any transaction occurs which results
in a change of control of the Merchants Bank or Merchants Bancshares, Inc.
from that existing at 10/31/94.
</FN>
</TABLE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<CAPTION>
Number of
Securities
Underlying
Unexercised
In-The-Money
Options
Options
Shares At Fiscal At
Fiscal
Acquired Value Year-End
Year-End
Name On Exercise Realized Exercisable Unexercisable
Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <
c>
Dudley H. Davis 0 0 0 0 0 0
Joseph L. Boutin 0 0 0 20,000 0 0
Edward W. Haase 0 0 0 0 0 0
Thomas R. Havers 0 0 0 0 0 0
William M. MacKinnon 0 0 0 0 0 0
Alfred C. Dostie 0 0 0 0 0 0
</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 $15,456 $23,184
$25,684
$75,000 $25,336 $38,004
$41,754
$100,000 $35,336 $53,004 $58,004
$125,000 $45,336 $68,004 $74,254
$150,000 $55,336 $83,004 $90,504
$175,000 $55,336 $83,004 $90,504
$200,000 $55,336 $83,004 $90,504
$225,000 $55,336 $83,004 $90,504
$250,000 $55,336 $83,004 $90,504
$275,000 $55,336 $83,004 $90,504
$300,000 $55,336 $83,004 $90,504
$325,000 $55,336 $83,004 $90,504
</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 $150,000 for
illustration purposes the final average compensation has been set equal to
$150,000; 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 1994. 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 1994
(subject to the maximum annual benefit limitations under Section 415 of the
IRS code). As of December 31, 1994, the credited years of service for Mr.
Davis, Mr. Boutin, Mr. Haase, Mr. Havers, and Mr. Dostie are 47.5, 0, 9, 23,
and 7, 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, Mr. Haase and Mr.
Havers are: $9,106, $5,122 and $5,671, respectively. Mr. Boutin and Mr. Dostie
do not participate in the Executive Salary Continuation Plan.
Compensation Committee Report:
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
The Merchants Bank's 1994 compensation program for executive officers (other
than the Chief Executive Officer who is compensated pursuant to an employment
agreement) consisted of a base salary.
For 1995 it is expected that the Bank's compensation program for executive
officers (other than the Chief Executive Officer who has elected not to be
included for 1995) will consist of two elements: a base salary and a variable
annual bonus. The Committee believes that this approach best serves the
interests of stockholders by ensuring that executive officers are compensated
in a manner that advances both the short- and long-term interests of stock-
holders. Thus, compensation for the Bank's executive officers for 1995 will
involve a proportion of pay which will be at risk: the variable annual bonus
will be tied primarily to the Bank's net income.
Salaries paid to executive officers (other than the Chief Executive Officer
who is employed pursuant to an employment agreement) are reviewed annually by
the Chief Executive Officer based upon his subjective assessment of the nature
of the position, and the contribution, experience and Bank tenure of the
executive officer. The Chief Executive Officer reviews all salary recommen-
dations with the Compensation Committee, which is responsible for approving or
disapproving those recommendations.
Chief Executive Officer Compensation
During 1994 the Merchants Bank experienced a change of its Chief Executive
Officer due to Dudley Davis' decision to retire as the Bank's Chief Executive
Officer and become the Chairman of the Bank's Board of Directors. Joseph L.
Boutin was named President and Chief Executive Officer for the Bank and Company
replacing Mr. Davis on October 24, 1994. Effective October 24, 1994 Mr. Davis'
annual base salary was reduced to $150,000, which will also be his effective
compensation through calendar year 1995.
Mr. Boutin serves the Bank pursuant to an employment agreement dated October
31, 1994, which provides for his employment as President and Chief Executive
Officer of the Bank and Company through October 31, 1997. The terms of Mr.
Boutin's contract were negotiated at arms-length in conjunction with his
leaving a competitor bank to join the company. Mr. Boutin's base salary is
$200,000 per year through calendar year 1995. In addition, Mr. Boutin has the
option to purchase 20,000 shares of common stock at the purchase price of
$11.00 per share. This option is exercisable at any time after two years and
until seven years from October 31, 1994, the date of the grant.
Members of the Compensation Committee
Jack DuBrul II, Chairman
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 1995, 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 1994 the Bank purchased office supplies and equipment on a
competitive bid basis from McAuliffe, Inc., valued at $203,969. Patrick S.
Robins, who is President of McAuliffe, Inc., is a Class II director of the
Company and the Bank.
The bank obtained legal services during 1994, and anticipates obtaining such
services during 1995, 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 1994 aggregated $112,599.
Compensation Committee Interlocks and Insider Participation
During 1994, the Compensation Committee included Jack DuBrul II and Richard
H. Wadhams.
During 1994, the Bank purchased automobiles and automotive services on a
competitive basis from Automaster, Inc., valued at $79,640. 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.
Performance Graph
A comparison of five year cumulative total return to shareholders of
Merchants 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
Corporation (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>
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
ASSUMES $100 INVESTED ON JAN. 1, 1989
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1994
<CAPTION>
Fiscal Year Ending
Company 1989 1990 1991 1992 1993
1994
<S> <C> <C> <C> <C> <C> <C>
Merchants Bancshares, Inc. $100.00 $72.06 $ 98.17 $133.95
$107.68 $ 81.76
Peer Group 100.00 60.87 70.63 102.61 132.91
158.10
Broad Market 100.00 81.12 104.14 105.16
126.14 132.44
</TABLE>
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 two
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
intended that the persons named in the accompanying 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.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of the
Company's shareholders at its Annual Meeting of Shareholders in 1996, scheduled
to be held on Tuesday, April 23, 1996, 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 6, 1995. 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, 1994, 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 Merchants
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 1993
and 1994.
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, 1994, 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
March 24, 1995
Mailing Address:
Merchants Bancshares, Inc.
123 Church Street
Burlington, Vermont 05401
Date: March 24, 1995
