MERCHANTS BANCSHARES, INC.
BURLINGTON, VERMONT
1995
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1996
NOTICE OF MEETING
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 30, 1996
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 30, 1996, at
10:00 a.m. for the following purposes:
1. To elect the three 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, 1996 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 26, 1996
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 9
Summary Compensation Table 9
Pension Plan Table 10
Alternative Pension Plan Disclosure 11
Compensation Committee Report 12
Related Party Transactions with Management 13
Compensation Committee Interlocks and Insider Participation 13
Performance Graph 14
Other Matters 15
Submission of Shareholder Proposals for 1997 Annual Meeting 15
Annual Report 15
Form 10-K Report 15
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
123 Church Street
Burlington, Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
April 30, 1996
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
Bancshares, Inc. (theCompany'') to be held on April 30, 1996 and at any
adjournments thereof. Shareholders of record at the close of business on
March 15, 1996 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 29, 1996.
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
matters 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 Jennifer L. Varin, 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, 1996, the record date for the Annual Meeting, there were
4,434,620 shares of Common Stock of the Company outstanding, with 4,434,344
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, 1996.
Amount and
Nature of
Name of Beneficial Percent of Notes of
Beneficial Owner Ownership (1) Class Explanation
General Educational 822,958 Shares 18.56% (2)
Fund Inc.
The Merchants Bank 598,959 Shares 13.51% (3)
401(k) Employee Stock
Ownership Plan
Charles A. Davis 266,975 Shares 6.02% (4)
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: Joseph L. Boutin, President, Chief
Executive Officer and Director of the Bank and Company; Geoffrey R. Hesslink,
Vice President of the Bank; Michael R. Tuttle, Executive Vice President of the
Bank. The number of shares indicated above does not include shares of Common
Stock of the Company owned by the Trustees individually.
During 1995 the General Educational Fund, Inc., sold 12,000 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.
Except as set forth above, to the knowledge of the Company on February 15,
1996 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 these filings
for 1995, the Company notes that Patrick S. Robins filed a Form 4 report three
months late with respect to the purchase of 2,100 shares.
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 22, 1996, the Board of Directors of the Company
unanimously voted to fix the number of directors at twelve, and to introduce
for adoption at the Annual Meeting the following resolution:
RESOLVED: That Leo O'Brien, Jr., Benjamin F. Schweyer and Robert A. Skiff, Ph.D
be elected to serve as Class III directors of Merchants Bancshares, Inc., each
for a three year term expiring on the date of the Annual Meeting of
Shareholders in 1999, 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 three 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, 1996. The Class III
nominees have each been nominated for a three year term expiring in 1999.
Information as to beneficial stock ownership is based on data furnished by the
persons concerning whom such information is given.
<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>
III Leo O'Brien, Jr. 65 Partner, Vice President 1969 18,819 *
O'Brien Brothers Agency, Inc.
South Burlington, VT
III Benjamin F. Schweyer 70 Attorney, Latham, Eastman, 1969 63,703 1.44%
Schweyer & Tetzlaff, P.C.
Burlington, VT
III Robert A. Skiff, Ph.D. 54 University of Vermont's 1984 1,606 *
Presidential Fellow for
Economic Development
Burlington, VT
</TABLE>
NOTES:
(1) During the past five years, the principal occupation and employment of each
Class III director has been in the capacity as set forth above, with the
exception of Dr. Skiff. 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.
The following biographical information is provided for the three nominees as
indicated above:
Leo O'Brien, Jr.
Leo O'Brien, Jr. has served as a Director of the Bank since 1969, and as a
Director of the Company since 1984. He is currently a partner of O'Brien
Brothers and Vice President of O'Brien Brothers Agency, Inc. with offices in
South Burlington, Vermont. Both organizations are primarily engaged in
agriculture and real estate development. The Board of Directors has nominated
Mr. O'Brien to serve as a Class III Director for a three-year term expiring on
the date of the Annual Meeting in 1999. He is married and 65 years of age.
Benjamin F. Schweyer
Benjamin F. Schweyer has served as a Director of the Bank since 1969 and
as a Director of the Company since 1984. He is a member of the law firm of
Latham, Eastman, Schweyer & Tetzlaff, P.C., located in Burlington, Vermont.
The Board of Directors has nominated Mr. Schweyer to serve as a Class III
Director for a three-year term expiring on the date of the Annual Meeting
in 1999. He is married and is 70 years of age.
Robert A. Skiff, Ph.D.
Robert A. Skiff, Ph.D. has served as a Director of the Bank and of the
Company since 1984. He is University of Vermont's Presidential Fellow for
Economic Development. On July 1, 1992, Mr. Skiff stepped down after serving
as President of Champlain College for fifteen years. The Board of Directors
has nominated Mr. Skiff to serve as a Class III Director for a three-year
term expiring on the date of the Annual Meeting in 1999. He is married and
54 years of age.
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 I
The terms of the following Class I incumbent directors will expire on the date
of the 1997 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>
I Peter A. Bouyea 48 Consultant, Bouyea-Fassetts 1994 47,055 1.06%
Bakery, Inc.
South Burlington, VT
I Charles A. Davis 47 Senior Director, Goldman 1985 266,975 6.02%
Sachs & Co., 85 Broad St.
New York, NY
I Dudley H. Davis 74 Chairman of the Board 1956 52,718 (3) 1.19%
Merchants Bancshares, Inc.
Burlington, VT
I Thomas F. Murphy 53 President, 1985 25,605 *
Burlington News Agency
Colchester, VT
</TABLE>
* Shareholdings represent less than 1.00% of class
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.
CONTINUING CLASS II DIRECTORS
The terms of the following Class II incumbent directors will expire on the date
of the 1998 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>
II Joseph L. Boutin 48 President & CEO 1994 8,141 *
The Merchants Bank
Burlington, VT
II Jeffrey L. Davis 43 President, 1993 24,563 *
J.L. Davis, Inc.
Burlington, VT
II Michael G. Furlong 45 Attorney, Sheehey Brue 1991 4,523 *
Gray & Furlong, P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 56 Chairman, Lake Champlain 1978 125,080 2.82%
Transportation Co.
Burlington, VT
II Patrick S. Robins 57 CEO & Treasurer, 1974 21,997 *
SymQuest Group, Inc.
Burlington, VT
</TABLE>
* Shareholdings represent less than 1.00% of class
NOTES:
(1) During the past five years, with the following exceptions, the principal
occupation and employment of each Class II director has been in the capacity
as set forth above. Joseph L. Boutin's appointment became effective on
October 24, 1994. Patrick S. Robins became Treasurer and Chief Executive
Officer of SymQuest Group, Inc., a company specializing in computer education
and service and facsimile and copier machine services, on February 9, 1996.
(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.
Attendance of Directors
During 1995, eighteen 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, Raymond C. Pecor, Jr., Jack DuBrul II
and Benjamin F. Schweyer.
Compensation of Directors
Payment of Directors fees for the fiscal year 1995 was suspended for all
Directors of the Company.
Through October 1995, 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
in the months of January and February and $500 for each board meeting attended
thereafter, up to a maximum limit of $10,000 per calendar year. In October,
1995, the Directors elected to modify the compensation structure to allow
for an annual retainer of $4,000 plus $500 for each board meeting attended and
$250 for each committee meeting attended.
Through December, 1995, the Bank maintained a Deferred Compensation Plan
for Directors. In December of 1995 the Bank and participants in the Fixed
Growth program of the Deferred Compensation Plan for Directors agreed to
amend or terminate the existing plans. In satisfaction of all liabilities
under those plans, the Bank agreed to make payments to, or credits for, the
participants. The Bank has established and funded grantor trusts which hold
shares of Merchants Bancshares, Inc. stock that the Bank is obligated to deliver
under these arrangements.
In addition, the Company continues to maintain the floating growth (savings)
program of the deferred compensation plan for Directors. Benefits accrue based
on the Directors' fees deferred and a monthly allowance for interest at a rate
that is fixed from time to time in the discretion of the Board of Directors.
The benefits under the Savings Program of the Deferred Compensation Plan for
Directors and the New Plans are generally payable starting on the January 2
following a participant's 65th birthday or earlier death, and will be
distributed to the participant (or upon the participant's death, to the
participant's designated beneficiary) in accordance with the plan.
The Board of Directors of the Bank has designated an Audit Committee, Human
Resources and Nominating Committee, and Shareholder Value Committee whose
composition and objectives are as described below. The Human Resources and
Nominating Committee of the Bank also serves in effect as the Compensation
Committee of the Company.
Audit Committee:
During 1995, six meetings of the Audit Committee were held. The Committee
consisted of Robert A. Skiff, Chairman, Thomas F. Murphy, Leo O'Brien, Jr.,
Raymond C. Pecor, Jr. and Benjamin F. Schweyer from January to October, at
which time Directors Peter A. Bouyea, Jeffrey L. Davis, and Parnell C. Kirby
replaced members Murphy, O'Brien and Pecor.
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 1995 the Committee held six meetings. The Committee consists of the
following independent members of the Board of Directors: Michael G. Furlong,
Chair, Jack A. DuBrul II, Leo O'Brien, Jr., and Patrick S. Robins.
Shareholder Value Committee:
The function of the Shareholder Value Committee is to consider and make
recommendations to the Bancshares Board on proposals which effect the value
of Shareholders' investment in Bancshares.
The Committee was established in October, 1995 and the following Directors
were appointed to serve on the Committee: Joseph L. Boutin, Peter A. Bouyea,
Charles A. Davis, Thomas F. Murphy, and Benjamin F. Schweyer.
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 1995 exceeded
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Name and Underlying LTIP All Other
Principal Position Year Salary Bonus Options Payouts(6) Compensation
<S> <C> <C> <C> <C> <C>
Joseph L. Boutin 1995 $203,838 $ 0 0 0 $ 18,880 (1)
President, and Director 1994 $ 34,614 $ 0 20,000 0 $ 0
of the Company and Bank 1993 $ 0 $ 0 0 0 $ 0
Thomas R. Havers 1995 $101,531 $ 0 5,000 $84,416 $ 9,616 (2)
Executive Vice-President 1994 $ 98,070 $10,000 0 0 $ 5,215
1993 $ 94,739 $ 5,073 0 0 $ 3,504
Michael R. Tuttle 1995 $110,765 $ 0 10,000 0 $ 9,972 (3)
Executive Vice-President
Dudley H. Davis 1995 $152,894 $ 0 0 0 $127,753 (4)
Former President, 1994 $264,120 $ 0 0 0 $121,228
Chairman Board of
Directors 1993 $311,336 $ 5,076 0 0 $119,397
Edward W. Haase 1995 $102,312 $ 0 0 $62,512 $136,340 (5)
Former Chief Financial 1994 $100,316 $15,000 0 0 $ 9,162
Officer 1993 $ 96,933 $ 5,109 0 0 $ 3,680
</TABLE>
Notes of Explanation:
(1) Includes Mr. Boutin's 401(k) ESOP employer contributions for 1995 of
$18,358 and $522 in group term life insurance premiums.
(2) Includes Mr. Havers' 401(k) ESOP employer contributions for 1995 of $9,445
and $171 in group term life insurance premiums.
(3) Includes Mr. Tuttle's 401(k) ESOP employer contributions for 1995 of $9,972.
(4) Includes Mr. Davis' 401(k) ESOP employer contributions for 1995 of $18,480
and $109,273 distributed pursuant to the terms of the Executive Salary
Continuation Plan, a description of which is contained under "Alternative
Pension Plan Disclosure".
(5) Includes Mr. Haase's 401(k) ESOP employer contributions for 1995 of $16,565
and $177 in group term life insurance premiums. Also includes $38,698 paid out
in settlement of the Executive Salary Continuation Plan, a description of which
is contained under "Alternative Pension Plan Disclosure". Mr. Haase terminated
employment with the Bank on December, 15, 1995. As part of this termination he
was paid a severance equal to 42 weeks salary totaling $81,077.
(6) The obligations of the Bank to certain participants in the Phantom Stock
Plan were settled in December, 1995 and paid out in January, 1996.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
Number of % of Total
Securities Options
Underlying Granted To Exercise or
Options Employees In Base Price Expiration
Name Granted Fiscal Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Boutin 0 0
Thomas R. Havers (1) 5,000 33.3 $14.88 12/29/02 $30,300 $85,100
Michael R. Tuttle(1) 10,000 66.7 $10.00 01/30/02 $40,700 $94,900
Dudley H. Davis 0 0
Edward W. Haase 0 0
</TABLE>
(1) Mr. Havers' option becomes exercisable after 12/29/97. Mr. Tuttle's option
becomes exercisable after 1/23/97. The options are immediately exercisable if
Mr. Havers or Mr. Tuttle are terminated without just cause or due to their
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 December 29, 1995 or January 23, 1995, respectively.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
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>
Joseph L. Boutin 0 0 0 20,000 0 $53,800
Thomas R. Havers 0 0 0 5,000 0 $ 0
Michael R. Tuttle 0 0 0 10,000 0 $36,900
Dudley H. Davis 0 0 0 0 0 $ 0
Edward W. Haase 0 0 0 0 0 $ 0
</TABLE>
Pension Plan Table
Estimated Annual Retirement Benefit
for Specified Years of Credited Service
Annual Compensation 20 30 40
$150,000 $15,456 $23,184 $25,684
$175,000 $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
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 1995; 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
The annual retirement benefits payable at age 65 to Mr. Boutin, Mr. Havers,
Mr. Tuttle, Mr. Davis and Mr. Haase are $0, $28,212, $0, $126,451, and
$13,726, respectively.
ALTERNATIVE PENSION PLAN DISCLOSURE
Through December, 1995, the Bank maintained an Executive Salary Continuation
Plan. In December, 1995 the Bank and participants in the Plan agreed to amend
or terminate the existing plans. In satisfaction of all liabilities under
those plans, the Bank agreed to make payments to, or credits for, the
participants. Pursuant to these agreements the Bank established a new plan
and funded grantor trusts which hold shares of Merchants Bancshares, Inc.
stock. The Bank has agreed to deliver to Mr. Davis on January 2, 1997 and
January 2, 1998, 7,079.5 shares (an aggregate of 14,159 shares) of
Merchants Bancshares, Inc., as well as any earnings or distributions on
those shares. The Bank has also agreed to pay Mr. Davis an amount that is
precisely linked to the investment performance of a $700,000 grantor trust
(the Variable Account) established by the Bank for this purpose.
The distributions from the Variable Account are to commence on January 2,
1999 for a period of ten years. Mr. Davis received $109,273 as a
distribution from the former executive salary continuation plan during 1995.
The Bank has agreed to deliver to Mr. Havers on a deferred basis, and in
installments, an aggregate of 3,245 shares of Merchants Bancshares, Inc.,
respectively, and any earnings or distributions on or on account of those
shares. The distributions or payments to Mr. Havers are to commence at age
65 and are payable for 15 years.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of Common
Stock of the Company as of February 15, 1996 by each of the named executive
officers and the directors and executive officers as a group.
Amount and Nature of
Name Beneficial Ownership (1) Percent of Class
Thomas R. Havers 16,603 *
Michael R. Tuttle 762 *
Edward W. Haase 6,498 *
Directors and Executive
Officers as a Group 766,230 17.28%
* Shareholdings represent less than 1.00% of class
NOTE:
(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.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of Merchants Bancshares, Inc. consists of four
directors who are not officers or employees of the Company; Michael G.
Furlong, Chair, Jack A. DuBrul II, Leo O'Brien, Jr., and Patrick S. Robins.
The Committee also acts as the Human Resources and Nominating Committee of
Merchants Bank.
The Committee's primary responsibilities are to: Provide independent review
and oversight and promote corporate accountability for executive compensation;
approve performance and base compensation policies for executive management and
employees; approve incentive plans; and to provide oversight of company benefit
programs.
Merchants Bank's 1995 compensation program for executive officers consisted
of a base salary. For 1996 the Bank's compensation program for executive
officers will consist of two elements: a base salary and specific
bonuses based on the achievement of defined corporate objectives. The Committee
believes that this approach best serves the interests of shareholders by
ensuring that executives are compensated in a manner that advances both the
short- and long-term interests of stockholders. Thus, compensation for the
Bank's executive officers for 1996 will involve a proportion of pay which will
be at risk: the bonuses will be tied primarily to improvements in the Bank's
asset quality and the corporation'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
recommendations with the Human Resources and Nominating Committee, which is
responsible for approving or disapproving those recommendations.
Chief Executive Officer Compensation
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. Mr. Boutin's base salary is
$200,000 per year through calendar year 1996. 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
seven years from October 31, 1994, the date of the grant.
Members of the Compensation Committee
Michael G. Furlong, Chair
Jack A. DuBrul II
Leo O'Brien, Jr.
Patrick S. Robins
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.
During 1995 the Bank purchased office supplies and equipment on a
competitive bid basis from McAuliffe, Inc., valued at $206,050. Patrick S.
Robins, who was President of McAuliffe, Inc. in 1995, is a Class II director of
the Company and the Bank.
During 1995, the Bank purchased automobiles and automotive services on a
competitive basis from Automaster, Inc., valued at $36,019. Jack A. DuBrul II,
who is President of Automaster, Inc., is a Class III director of the Company and
the Bank.
The bank obtained legal services during 1995, and anticipates obtaining
such services during 1996, from the firm of Sheehey, Brue, Gray & Furlong,
P.C., of which Michael G. Furlong is a principal partner. Mr. Furlong is
Chairman of the Compensation Committee. Fees paid to this firm by the Bank
for services and expenses in 1995 aggregated $96,174.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Compensation Committee included Michael G. Furlong,
Chairman, Jack DuBrul II, Leo O'Brien, Jr. and Patrick S. Robins.
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); BancNorth Group, Inc. (BKNG); Chittenden Corporation (CNDN); Eastern
Bancorp, Inc., (VFBK); Evergreen Corporation (EVGN); and Vermont Financial
Services Corporation (VFSC). These are six of the largest financial
institutions with which the Bank believes it competes most directly for market
share.
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
500
D 450
X
O 400
L 350
L 300
A 250 X
X @
R 200
* @ *
X @
S 150 *
*
@ @ *
100 X
50
1991 1992 1993 1994 1995
* Merchants Bancshares X Peer Group Index
@ NASDAQ Market Index
ASSUMES $100 INVESTED ON JAN. 1, 1990
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1995
<TABLE>
<CAPTION>
Table
Fiscal Year Ending
Company 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Merchants Bancshares,
Inc. $100.00 $136.24 $185.88 $149.43 $113.46 $166.03
Peer Group 100.00 106.31 158.63 215.08 255.47 429.86
Broad Market 100.00 128.38 129.64 155.50 163.26 211.77
</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
one proposal 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 1997 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of the
Company's shareholders at its Annual Meeting of Shareholders in 1997,
scheduled to be held on Tuesday, April 22, 1997, 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 4, 1996. 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, 1995, 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 1994
and 1995.
The Merchants Bank
Andrew T. Kloeckner, AVP & Compliance Officer
275 Kennedy Drive
S. Burlington, Vermont 05403
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, 1995, 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
123 Church Street Jennifer L. Varin
Burlington, Vermont 05401 Secretary
March 29, 1996 Merchants Bancshares, Inc.
Mailing Address:
Merchants Bancshares, Inc.
123 Church Street
Burlington, Vermont 05401
Date: March 29, 1996
