MERCHANTS BANCSHARES, INC.
164 College St.
Burlington, Vermont 05401
(802) 658-3400
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 21, 1998
Notice is hereby given that the Annual Meeting of Shareholders of
Merchants Bancshares, Inc., a Delaware corporation (the "Company"), will be
held at the Ramada Inn & Conference Center, 1117 Williston Road, South
Burlington, Vermont on Tuesday, April 21, 1998, at 10 a.m. for the following
purposes:
1. To elect five Directors of the Company, four of whom will serve
for a three-year term, and one of whom will serve for a two-year
term;
2. To transact any other business which may properly come before the
meeting or any adjournment thereof.
The close of business on March 6, 1998 has been fixed as the record
date for determination of stockholders 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
/s/ Raymond C. Pecor, Jr. /s/ Joseph L. Boutin
Raymond C. Pecor, Jr. Joseph L. Boutin
Chairman of the President and
Board of Directors Chief Executive Officer
Burlington, Vermont
March 20, 1998
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
164 College Street
Burlington Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
April 21, 1998
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. (the "Company") to be held on April 21, 1998 and at any
adjournments thereof. Shareholders of record at the close of business on
March 6, 1998 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 20, 1998.
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. 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, 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 bank 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 164 College Street, Burlington, Vermont 05401, and its
telephone number is (802) 658-3400.
VOTING SECURITIES
As of March 6, 1998, the record date for the Annual Meeting, there
were 4,430,294 shares of Common Stock of the Company outstanding, with all
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 March 6, 1998.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of Notes of
Name of Beneficial Owner Ownership (1) Class Explanation
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Educational Fund Inc. 598,790 13.52% (2)
Merchants Bank 401(k) Employee Stock
Ownership Plan 305,925 6.90% (3)
Charles A. Davis 276,896 6.25% (4)
- --------------------
<F1> 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.
<F2> 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 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 Company and the Bank, Michael R. Tuttle, Executive
Vice President of the Bank and Geoffrey R. Hesslink, 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. See
"Security Ownership of Certain Beneficial Owners and Management".
<F3> While participants in the Bank's 401(k) Employee Stock Ownership Plan
(the "401(k) Plan") have the right to designate how shares allocated
to their respective accounts are to be voted, the Plan Administration
Committee of the 401(k) Plan is authorized to vote the shares for
which no such designation is made by participants.
<F4> Includes (i) 4,296 shares held in trust for Mr. Davis' two minor sons;
(ii) 1,094 shares held directly by Mr. Davis' two minor sons; (iii)
10,525 shares held by Mr. Davis as trustee of the Charles and Marna
Davis Foundation and (iv) 9,776 shares owned by Mr. Davis' wife, Marna
Davis. See "Continuing Directors" for Mr. Davis' biography.
</TABLE>
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 nor more than twenty-one individuals divided into three
classes as nearly equal in size as possible.
At a meeting held on January 21, 1998, the Board of Directors of the
Company unanimously voted to fix the number of directors at ten, and to
introduce for adoption at the Annual Meeting the following resolution:
RESOLVED: That 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
2001, or until their successors are duly elected and qualified
in accordance with the By-laws of the Company. That Joseph L.
Boutin be elected to serve as a Class I director of Merchants
Bancshares, Inc. for a two year term expiring on the date of the
Annual Meeting of Shareholders in 2000, or until his successor
is 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. Information regarding their
ownership of shares of Common Stock of the Company as of March 6, 1998 may
be found at "Security Ownership of Certain Beneficial Owners and
Management". The Class II Nominees have each been nominated for a three-year
term expiring in the year 2001. The Class I nominee has been nominated for a
two-year term expiring in the year 2000. The Board has moved Joseph L.
Boutin to Class I to more evenly divide membership in the classes, in
accordance with the by-laws of the Company.
<TABLE>
<CAPTION>
Director of
Principal Company
Class Name Age Occupation Since
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I Joseph L. Boutin 50 President & CEO of the Company and the Bank 1994
II Jeffrey L. Davis 45 President-J.L. Davis, Inc. Burlington, VT 1993
II Michael G. Furlong 47 Attorney-Sheehey Brue Gray & Furlong P.C. 1991
Burlington, VT
II Raymond C. Pecor, Jr. 58 Chairman-Lake Champlain Transportation Co. 1984
Burlington, VT
II Patrick S. Robins 59 Treasurer-SymQuest Group, Inc. 1984
South Burlington, VT
</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 Company and the Bank. He was appointed by the Board of Directors as a
director of the Company and Bank on October 24, 1994. He was formerly
associated with The Howard Bank, a subsidiary of Banknorth Group, Inc., for
twenty-five years, and served as President of The Howard Bank from 1989
until 1994. Mr. Boutin is currently a director of the Vermont Student
Assistance Corporation and a member and former Chairman of the
Communications Council of the American Bankers Association.
Jeffrey L. Davis
Jeffrey L. Davis has served as a director of the Company and Bank
since 1993. He is President of J.L. Davis, Inc. a Burlington, VT based
construction and development firm. He is a trustee of Merchants Trust
Company and is currently serving as President of the Vermont Special
Olympics.
Michael G. Furlong
Michael G. Furlong has served as a director of the Company and Bank
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. He is a trustee of Merchants Trust Company, a director of Wake
Robin Corporation and several other Vermont non-profit organizations. Mr.
Furlong is a graduate of Middlebury College and Cornell Law School.
Raymond C. Pecor
Raymond C. Pecor, Jr. has served as Chairman of the Board of Directors
of the Company since July 1996 and has been a director of the Company since
1984 and a director of the Bank since 1978. 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, Vermont.
Patrick S. Robins
Patrick S. Robins has served as a director of the Company since 1984
and a director of the Bank since 1974. He is Treasurer of SymQuest Group,
Inc., a company specializing in computer education and services and
facsimile and copier machine services. He is a trustee of Merchants Trust
Company, a director of Lake Champlain Transportation Company and a trustee
of St. Michael's College.
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.
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. Unless otherwise specified,
proxies will be voted in favor of the nominated individuals.
The Board of Directors of the Company recommends that the stockholders
vote "FOR" the election of the nominees listed above.
Continuing Directors
The following table sets forth certain information about those
Directors of the Company whose terms of office do not expire at the Annual
Meeting and who consequently are not nominees for re-election at the Annual
Meeting.
<TABLE>
<CAPTION>
Director of Term of
Principal Company Office will
Class Name Age Occupation(1) Since Expire
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
III Benjamin F. Schweyer 72 Retired, formerly an Attorney, Latham, 1984 1999
Eastman, Schweyer & Tetzlaff, P.C.
Burlington, VT
III Leo O'Brien, Jr. 67 Partner, Vice President, O'Brien 1984 1999
Brothers Agency, Inc.
South Burlington, VT
III Robert A. Skiff, Ph.D. 56 Headmaster, Vermont Commons School 1984 1999
Burlington, VT(1)
I Charles A. Davis 49 Senior Director, Goldman Sachs & Co. 1985 2000
New York, NY(2)
I Peter A. Bouyea 50 Consultant to the Baking Industry 1994 2000
South Burlington, VT(3)
- --------------------
<F1> Dr. Skiff has been Headmaster of the Vermont Commons School in
Burlington, Vermont since July 1996. Prior to such time, Dr. Skiff was
the University of Vermont's Presidential Fellow for Economic
Development.
<F2> Prior to being named a Senior Director of Goldman Sachs & Co. Mr.
Davis was a partner at Goldman Sachs & Co.
<F3> Mr. Bouyea has been a consultant to the baking industry since December
1994. Prior to that time, he was President of Bouyea-Fassetts, Inc., a
wholly owned indirect subsidiary of Philip Morris, Inc.
</TABLE>
Except as indicated above, each Director has been employed during the
past five years in his respective position.
Bank Directors
All of the above-named Directors of the Company are also Directors of
the Bank. In addition to the above-named Directors, Lorilee A. Lawton and
Carole A. Ziter are also Directors of the Bank. Ms. Lawton, who is 50 years
old, is a majority owner of Red Hed Supply, Inc., a wholesaler of
underground pipeline materials, located in Burlington, Vermont. Ms. Ziter,
who is 55 years old, is President of Sweet Energy, a mail order food
company, located in Burlington, Vermont. Shareholders of the Company will
not be voting on directors of the Bank.
Other Information About the Board and its Committees
Attendance of Directors
During 1997, five meetings of the Board of Directors of the Company
(the "Company Board") were held. The following Directors of the Company
attended fewer than seventy-five percent of the meetings of the Company
Board: Benjamin F. Schweyer.
Compensation of Directors
During 1997, Directors of the Company were paid a quarterly retainer
of $1,000. In addition, Directors received an attendance fee for every
meeting attended of $500, unless the Company Board meeting was held
simultaneously with a regular meeting of the Board of Directors of the Bank
(the "Bank Board"), in which case the fee was $250.
During 1997, all Bank directors, who were not also officers of the
Bank, were paid a $4,000 annual retainer, payable in quarterly installments,
plus $500 for each Bank Board meeting attended. Committee members were paid
$250 for each committee meeting attended, unless the Committee meeting was
held simultaneously with a regular meeting of the Board of Directors of the
Bank (the "Bank Board"), in which case the fee was $125.
The Shareholders and Board of Directors of the Company and the Board
of Directors of the Bank voted at their meetings on April 29, 1997, February
20, 1997 and January 21, 1997, respectively, to adopt the Merchants
Bancshares, Inc. 1996 Compensation Plan for Non-Employee Directors. The plan
permits non-employee directors of both the Company and the Bank to defer
receipt of their annual retainer and meeting fees by receiving those fees in
the form of restricted shares of the Common Stock of the Company. If a
participating Director elects to have all or a specified percentage of his
or her compensation for a given year deferred in Common Stock then the
Director shall be credited with a number of shares of the Company's stock
equal in value to up to 125% of the amount deferred. The additional 25%
reflects a "risk premium", reflecting the Director's commitment to the value
of the Company's stock over the deferral period, as well as the risk of
forfeiture under certain circumstances.
Until July 1, 1997, Directors of the Bank were entitled to defer a
portion of their compensation into a Deferred Compensation Plan for
Directors known as the "Floating Growth (savings)" program. The Board of
Directors of the Bank voted at their meeting on February 20, 1997 to amend
the Plan to provide that no additional compensation may be deferred into the
Floating Growth (savings) program after July 1st, 1997. Benefits accrue
based on a monthly allowance for interest at a rate that is fixed from time
to time in the discretion of the Bank Board. There are currently three
participants in the savings program, one of whom is a current director. The
benefits under the Floating Growth (savings) program 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.
Committees Of The Boards Of Directors
The Bank Board has designated the following committees, both of which
also serve as the committees of the Company Board: an Audit Committee and a
Compensation Committee. Additionally, the Company has designated a
Shareholder Value Committee. The composition and objectives of these
committees are as described below.
Audit Committee:
The primary function of the Audit Committee is to promote quality and
reliable financial reporting and adequate and effective internal controls
for the Company and its subsidiaries. The Committee is responsible for
establishing and maintaining adequate, independent and objective internal
and external audit and loan review functions and promoting the effective
identification and management of risks throughout the organization.
During 1997, five meetings of the Audit Committee were held. The
Committee consisted of Robert A. Skiff, Peter A. Bouyea, Jeffrey L. Davis,
Lorilee A. Lawton and Benjamin F. Schweyer.
Compensation Committee:
The Compensation Committee is responsible for establishing the
compensation of the Company's and the Bank's directors, officers and
employees, including salaries, bonuses, commissions, benefit plans, the
grant of options and other forms of, or matters relating to compensation.
During 1997, six meetings of the Compensation Committee were held. The
Committee consists of the following non-employee members of the Bank Board:
Michael G. Furlong, Chair, Leo O'Brien, Jr., Patrick S. Robins and Carole A.
Ziter.
Shareholder Value Committee:
The function of the Shareholder Value Committee is to consider and
make recommendations to the Company Board of Directors on proposals, which
effect the value of shareholders' investment in Company Common Stock.
During 1997, the Committee held one meeting. The Committee consists of
the following independent members of the Board of Directors: Peter A.
Bouyea, Charles A. Davis, Raymond C. Pecor, Jr. and Benjamin F. Schweyer.
Compensation of Principal Officers
Compensation of principal officers is paid by the Bank. The following
table sets forth aggregate 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 1997 exceeded $100,000
("Named Principal Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------
Name and Securities
Principal Underlying LTIP All Other
Position Year Salary Bonus Options Payouts(9) Compensation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Boutin 1997 $199,992 $ 0(1) 15,000 0 $12,842(4)
President, and Director of 1996 $199,992 $100,000 15,000 0 $14,022
the Company and Bank 1995 $203,838 $ 0 0 0 $18,880
Michael R. Tuttle 1997 $132,625 $ 0(1) 10,100 0 $12,708(5)
Executive Vice-President of 1996 $119,991 $ 75,000 5,000 0 $13,972
the Bank 1995 $110,765 $ 0 10,000 0 $ 9,972
Thomas R. Havers 1997 $101,449 $ 0(1) 7,770 0 $ 9,390(6)
Senior Vice-President of 1996 $102,542 $ 20,000 0 0 $13,671
the Bank 1995 $101,531 $ 0 5,000 $84,416 $ 9,616
Thomas S. Leavitt 1997 $102,603 $ 11,855(2) 7,770 0 $15,169(7)
Senior Vice-President of 1996 $ 94,626 $ 13,334 10,000 0 $51,698
the Bank
William R. Heaslip 1997 $ 97,481 $ 25,044(3) 7,380 0 $ 9,671(8)
President, Merchants Trust 1996 $ 91,870 $ 20,000 5,000 0 $ 7,143
Company
- --------------------
<F1> Under their respective employment agreements with the Bank, Messrs.
Boutin, Tuttle and Havers are entitled to an annual bonus based on the
performance of the Bank during 1997. These bonuses will be determined
and paid during 1998.
<F2> Of the amount listed as Bonus paid to Mr. Leavitt in 1997, $10,000 was
not paid until January 1998.
<F3> Of the amount listed as Bonus paid to Mr. Heaslip in 1997, $18,044 was
not paid until February 1998.
<F4> Includes contributions made by the Bank on behalf of Mr. Boutin
pursuant to the 401(k) Plan of $12,268 for 1997.
<F5> Includes contributions made by the Bank on behalf of Mr. Tuttle
pursuant to the 401(k) Plan of $12,544 for 1997.
<F6> Includes contributions made by the Bank on behalf of Mr. Havers
pursuant to the 401(k) Plan of $9,220 for 1997.
<F7> Includes contributions made by the Bank on behalf of Mr. Leavitt
pursuant to the 401(k) Plan of $9,435. Additionally, the Company made
payments on his behalf related to his relocation in the amount of
$5,661.
<F8> Includes contributions made by the Bank on behalf of Mr. Heaslip
pursuant to the 401(k) Plan of $9,424 for 1997.
<F9> The obligations of the Bank to certain participants in the Phantom
Stock Plan were settled in December 1995 and paid out in January 1996.
</TABLE>
Option Grants in Last Fiscal Year
The following table provides information regarding stock options
granted to Named Principal Officers in 1997. Each of the individuals who
were granted stock options during 1997 were granted such options pursuant to
the terms of employment agreements between such individuals and the Company
and the Bank. See "Employment Agreements."
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
-----------------------------------------------------------------------------------
% of Total
Number of Options Total
Securities Granted to Exercise
Underlying Employees Or Base
Options In Fiscal Price Expiration
Name Granted Year ($/Share) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Boutin(1) 15,000 21% 20.438 February 20, 2007 $192,800 $488,594
Michael R. Tuttle(2) 5,000 7% 20.438 February 20, 2007 $ 64,267 $162,865
Joseph L. Boutin(3) 15,550 22% 27.750 August 28, 2004 $131,908 $348,778
Michael R. Tuttle(4) 10,100 14% 27.750 August 28, 2004 $ 85,677 $226,538
Thomas R. Havers(5) 7,770 11% 27.750 August 28, 2004 $ 65,912 $174,277
Thomas S. Leavitt(6) 7,770 11% 27.750 August 28, 2004 $ 65,912 $174,277
William R. Heaslip(7) 7,380 10% 27.750 August 28, 2004 $ 62,603 $165,529
- --------------------
<F1> In December 1996, the Company agreed to grant Mr. Boutin stock options
to purchase 15,000 shares of Company Common Stock in exchange for Mr.
Boutin's agreement to forego eligibility to receive certain bonus
payments pursuant to the terms of his employment agreement with the
Company and the Bank. The terms of the option were determined in
February 1997. See "Employment Agreements." Mr. Boutin's option
becomes exercisable after February 20, 1999.
<F2> In February 1997, the Company granted Mr. Tuttle an option to purchase
5,000 shares of Company Common Stock at an exercise price of $20.438
per share. The option becomes exercisable on February 20, 1999 and
will expire if not exercised on or before February 20, 2007.
<F3> Mr. Boutin's option becomes exercisable after August 28, 1999. 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 Company
or Bank as either existed at August 28, 1997.
<F4> Mr. Tuttle's option becomes exercisable after August 28, 1999. The
option is immediately exercisable if Mr. Tuttle 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 Company
or Bank as either existed at August 28, 1997.
<F5> Mr. Havers' option becomes exercisable after August 28, 1999. The
option is immediately exercisable if Mr. Havers 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 Company
or Bank as either existed at August 28, 1997.
<F6> Mr. Leavitt's option becomes exercisable after August 28, 1999. The
option is immediately exercisable if Mr. Leavitt 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 Company
or Bank as either existed at August 28, 1997.
<F7> Mr. Heaslip's option becomes exercisable after August 28, 1999. The
option is immediately exercisable if Mr. Heaslip 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 Company
or Bank as either existed at August 28, 1997.
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table shows stock option exercises by the Named
Principal Officers, including the aggregate value realized upon such
exercise. "Value realized upon exercise" represents the excess of the
closing price of the Common Stock of the Company on the date of exercise
over the exercise price. In addition, this table includes the number of
shares remaining unexercised underlying both "exercisable" (i.e., vested)
and "unexercisable" (i.e., unvested) stock options as of December 31, 1997.
Also, reported are the values of "in-the-money" options, which represent the
positive spread between the exercise price of any such existing stock
options and the year-end price of the Common Stock of the Company of $32.50.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value Of Unexercised
Unexercised Options In-The-Money Options
At Fiscal Year-End At Fiscal Year End
Shares ------------------------------------------------------------
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Boutin 13,000 $171,673 7,000 30,550 $150,500 $254,793
Michael R. Tuttle 5,000 $ 44,375 5,000 15,100 $112,500 $108,285
Thomas R. Havers 0 0 5,000 7,770 $ 88,125 $ 36,908
Thomas S. Leavitt 0 0 0 17,770 $ 0 $208,158
William R. Heaslip 0 0 5,000 7,380 $ 88,125 $ 35,055
</TABLE>
Retirement Benefits
Pension Plan Table
Estimated Annual Retirement Benefit for Specified Years of Credited Service
<TABLE>
<CAPTION>
Annual Compensation 20 30 40
---------------------------------------------------------------
<C> <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 1997; 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. In 1994, the Company froze the plan beginning on January 1,
1995. In 1995, the plan was curtailed. No additional years of service or age
will accrue under the plan. 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.
For purposes of this table, Mr. Havers had 25 years of benefit service
with the Bank as of December 31, 1997.
Executive Officers of the Company and the Bank
The names and ages of the Executive Officers of the Company and the
Bank and each Executive Officer's position with the Company or the Bank are
listed below.
<TABLE>
<CAPTION>
Positions and Officers with the
Name Age Company and its subsidiaries
- ---------------------------------------------------------------------------------------------------
<S> <C> <S>
Joseph L. Boutin 50 President and Chief Executive Officer of the Company and the Bank
Michael R. Tuttle 42 Executive Vice President and Chief Operating Officer of the Bank
Thomas R. Havers 48 Senior Vice President of the Bank
Thomas S. Leavitt 39 Senior Vice President of the Bank
William R. Heaslip 53 President and Chief Executive Officer of Merchants Trust Company
Janet P. Spitler 38 Treasurer of the Company and Bank, Chief Financial Officer of the Bank
</TABLE>
Mr. Boutin became President and Chief Executive Officer of the Company
and the Bank on October 24, 1994. From September 1989 until October 1994,
Mr. Boutin was President of the Howard Bank in Burlington, Vermont. Mr.
Tuttle has been employed by the Bank as Executive Vice President since
February 1995. In August 1997 Mr. Tuttle became Chief Operating Officer of
the Bank. Prior to February 1995, Mr. Tuttle was the Senior Lending Officer
at the Howard Bank in Burlington, Vermont. Mr. Havers has been Senior Vice
President of the Bank since 1990 and has been employed at the Bank since
1971. Mr. Leavitt has been Senior Vice President of the Bank since February
1996. From 1995 until February 1996, Mr. Leavitt was President of
SafetyMaster Corporation, a safety equipment distribution and technical
services company located in Billings, Montana. Mr. Heaslip has been the
President of the Merchants Trust Company since December 1995. Prior to such
time, Mr. Heaslip was Executive Vice President/Trust and Investment of
Chittenden Bank in Burlington, Vermont. Since December 1995, Ms. Spitler has
been the Treasurer of the Bank and the Company. In August 1997 she became
Chief Financial Officer of the Bank, with whom she has been employed since
1990.
Compensation Committee Report
The Compensation Committee represents both the Company and the Bank
and consists of four directors who are not officers or employees of the
Company; Michael G. Furlong, chair, Leo O'Brien, Patrick S. Robins, each a
director of the Company and the Bank, and Carole A. Ziter, a director of the
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.
Decisions on compensation of the Company's and the Bank's Executive
Officers generally are made by the Compensation Committee. All decisions by
the Compensation Committee relating to the compensation of the Company's and
the Bank's Executive Officers are reviewed by each of the full Company and
Bank Boards. Pursuant to rules of the Securities and Exchange Commission,
set forth below is a report prepared by the Company's and the Bank's Board
Compensation Committee addressing the Company's and the Bank's compensation
policies for 1997 as they affected Mr. Boutin, the Company's Chief Executive
Officer, and the other Executive Officers.
Compensation Policies Toward Executive Officers. The Company's and the
Bank's compensation program for Executive Officers consists primarily of two
elements, base salary and specific bonuses based on the achievement of
defined corporate objectives. The Compensation Committee's executive
compensation policies are and will be further designed to provide
competitive levels of compensation that integrate pay with the Company's
annual and long-term performance goals, reward above average corporate
performance, recognize individual initiative and achievements, and assist
the Company in attracting and retaining qualified executives. Levels of
executive compensation are set at levels that the Compensation Committee
believes to be consistent with others in the Bank's industry.
The Compensation Committee also endorses the position that stock
ownership by management and stock-based performance compensation
arrangements are beneficial in aligning management's and shareholders'
interests in the enhancement of shareholder value. Thus, the Committee has
and will further incorporate these elements in designing the compensation
packages of the Company's Executive Officers.
Relationship of Performance Under Compensation Plans. The Company's
compensation policy with respect to Executive Officers is administered by
the Compensation Committee of the Board of Directors of the Company and the
Bank. The two key elements of this policy are base salary and the Company's
Annual Bonus Plan.
Each Executive Officer's annual performance review serves as the basis
for making adjustments to base salary. Individual performance evaluations
are closely tied to achievement of short as well as long term goals and
objectives, individual initiative, team-building skills, level of
responsibility and above-average corporate performance. Base salary is keyed
to the median of a peer group of regional commercial banks as established
from time to time by the Compensation Committee.
In addition to the base compensation, the Company has a bonus plan to
reward executive officers for accomplishing financial objectives set
annually by the Committee. Executive Officers are eligible to receive
bonuses of up to 75% of salary. Bonuses were paid out to executive officers
in 1997.
Long Term Incentive/Stock Option Plan. The Long Term Incentive/Stock
Option Plan (the "Stock Option Plan") permits the Compensation Committee to
grant stock options to key personnel. Under the Stock Option Plan, each year
a participating Executive Officer will receive stock options with a "value"
equal to 50% of his or her base salary. The "value" of the options to be
granted will be determined using a widely accepted financial model which
determines the value of stock options. The exercise price of the options
shall be determined annually, by the Board of Directors, and shall be no
less than fair market value as of the date of the grant.
CEO Compensation:
Mr. Boutin serves the Bank pursuant to an employment agreement dated
January 1, 1997, which provides for his employment as President and CEO of
the Company and Bank through December 31, 1999. 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 1998. See "Employment Agreements."
Employment and Severance Agreements:
Each of the Executive Officers has entered into Employment Agreements
with the Company and the Bank. See "Employment Agreements."
Members of the Compensation Committee
Michael G. Furlong, Chair
Leo O'Brien, Jr.
Patrick S. Robins
Carole A. Ziter
Employment Agreements
These agreements specify the terms of employment. The agreements
provide that employment shall be at will, but if the executive is terminated
without just cause, or the executive resigns for good reason, the Bank has
agreed to pay in one lump sum the executive's salary, plus provide for all
normal benefits and accrued incentive payments, for one year from the date
of such discharge, or the time remaining under the terms of the Agreement,
whichever is greater. Executives are eligible to receive bonuses based upon
the achievement of certain corporate objectives. Additionally executives are
to receive stock options, pursuant to the Long Term Incentive/Stock Option
Plan.
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.
The Bank obtained legal services during 1997, and anticipates
obtaining such services during 1998 from the firm of Sheehey Brue Gray &
Furlong P.C., of which Michael G. Furlong is a principal member. Mr. Furlong
is Chairman of the Compensation Committee. Fees paid to this firm by the
Bank for services and expenses in 1997 aggregated $102,259.
During 1997, the Bank purchased computer equipment and project
management services, on a competitive basis, from SymQuest Group, Inc.
valued at $1,082,624. Patrick S. Robins, who is Treasurer of SymQuest Group,
Inc., is a member of the Compensation Committee.
The Bank used the services of Direct Results, Inc., a marketing firm,
during 1997. The principal shareholder of Direct Results, Inc. is the
husband of Carole Ziter, a director of the Bank. Fees paid to Direct
Results, Inc. for services and expenses during 1997 totaled $54,065.
Compensation Committee Interlocks and Insider Participation
During 1997, the Compensation Committee included Michael G. Furlong,
Chairman, Leo O'Brien, Jr., Patrick S. Robins and Carole A. Ziter, all
independent, non-employee Directors of either the Company or the Bank.
Performance Graph
A comparison of five-year cumulative total return to shareholders of
the Company 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);
Banknorth Group, Inc. (BKNG); Chittenden Corporation (CNDN); Independent
Bank Corp. (INDB); 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.
During 1997, Eastern Bancorp, Inc. (VFBK), previously a member of the
company's peer group, was purchased by Vermont Financial Services
Corporation (VFSC). Eastern Bancorp, Inc. has been replaced by Independent
Bank Corp. in the peer group analysis.
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.
NASDAQ MARKET INDEX AND PEER GROUP INDEX
ASSUMES $100 INVESTED ON JAN. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
<TABLE>
<CAPTION>
Fiscal Year Ending
--------------------------------------------------------------
Company 1992 1993 1994 1995 1996 1997
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MerchantsBancshares, Inc. $100.00 $ 80.39 $ 61.04 $ 89.32 $112.40 $200.22
Peer Group $100.00 $134.00 $159.55 $266.94 $315.75 $529.27
Broad Market $100.00 $119.95 $125.94 $163.35 $202.99 $248.30
</TABLE>
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 March 6, 1998 by each of the Directors and
Executive Officers and the Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name Beneficial Ownership(1) Percent of Class
------------------------------------------------------------------------
<S> <C> <C>
Joseph L. Boutin(a)(d) 636,462(2) 14.3%
Peter A. Bouyea(a) 55,581 1.2%
Charles A. Davis(b) 276,896(3) 6.2%
Jeffrey Davis(a) 21,599 *
Michael G. Furlong(a) 4,530 *
Thomas R. Havers(d) 23,545(4) *
William R. Heaslip(d) 7,012(5) *
Lorilee A. Lawton(b) 1,909 *
Thomas S. Leavitt(d) 2,514 *
Leo O'Brien, Jr.(a) 18,630 *
Raymond C. Pecor, Jr.(a) 126,954 2.8%
Patrick S. Robins(a) 23,110 *
Benjamin F. Schweyer(a) 65,260 1.4%
Robert A. Skiff, Ph.D.(a) 2,118 *
Janet P. Spitler(e) 1,388 *
Michael R. Tuttle(d) 613,649(6) 13.8%
Carole A. Ziter(c) 1,396 *
Directors and Executive
Officers as a Group 1,283,763(7) 29%
- --------------------
<F*> Shareholdings represent less than 1.00% of class.
<Fa> Designates Director of the Company and the Bank
<Fb> Designates Director of the Company only
<Fc> Designates Director of the Bank only
<Fd> Designates Named Principal Officer
<Fe> Designates Executive Officer of the Bank
NOTES:
<F1> 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 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.
<F2> Includes 598,790 shares held by the General Educational Fund, Inc. Mr.
Boutin is a trustee of the General Educational Fund and as such may be
deemed to beneficially own all such shares. Mr. Boutin disclaims
beneficial ownership of all such shares held by the General
Educational Fund. Also includes 7,000 shares which Mr. Boutin may
acquire pursuant to the exercise of certain vested stock options.
<F3> Includes 4,296 shares held in trust for Mr. Davis' two minor sons,
1,094 shares held directly by Mr. Davis' two minor sons, 10,525 shares
held by Mr. Davis as trustee of the Charles and Marna Davis Foundation
and 9,776 shares owned by Mr. Davis' wife, Marna Davis.
<F4> Does not include an aggregate 3,245 shares which Mr. Havers has the
right to receive on a deferred basis in installments over fifteen
years, beginning upon Mr. Havers achieving the age of 65 years old.
These shares will be issued to Mr. Havers pursuant to agreements made
by the Bank in connection with the termination of the Bank's Executive
Salary Continuation Plan in December 1995. Includes 5,000 shares which
Mr. Havers may acquire pursuant to the exercise of certain vested
stock options.
<F5> Includes 5,000 shares which Mr. Heaslip may acquire pursuant to the
exercise of certain vested stock options.
<F6> Includes 598,790 shares held by the General Educational Fund, Inc. Mr.
Tuttle is a trustee of the General Educational Fund and as such may be
deemed to beneficially own all such shares. Mr. Tuttle disclaims
beneficial ownership of all such shares held by the General
Educational Fund. Also includes 5,000 shares which Mr. Tuttle may
acquire pursuant to the exercise of certain vested stock options.
<F7> Includes 598,790 shares held by the General Educational Fund, Inc., of
which Messrs. Boutin and Tuttle are trustees and as such may be deemed
to beneficially own all such shares. Also includes 22,000 shares which
named principal officers may acquire pursuant to the exercise of
certain vested stock options.
</TABLE>
--------------------
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and 10% shareholders to file
reports of ownership (Form 3) and changes of ownership (Form 4) with respect
to the Company's Common Stock with the Securities & Exchange Commission.
Executive officers, directors and principal shareholders are required to
furnish the Company with copies of all Section 16(a) forms they file. Based
upon a review of the filings for 1997 furnished to the Company, the Company
notes that Joseph L. Boutin filed two Form 4 reports one month late with
respect to the acquisition of an aggregate of 11,500 shares; Benjamin F.
Schweyer filed a Form 4 report four months late with respect to the
acquisition of 1,012 shares.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company Board, upon the recommendation of the Audit Committee, has
selected the firm of Arthur Andersen LLP, independent public accountants, as
auditors of the Company for 1998. The Company has been advised by such firm
that neither it nor any member or associate of such firm have any
relationship with the Company or the Bank other than as independent
auditors. Arthur Andersen LLP has served as the Company's independent
auditors since 1974.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting, will have an opportunity to make any statement that they may desire
to make, and will be available to answer appropriate questions from the
shareholders.
OTHER MATTERS
The Company Board knows of no additional matters which are likely to
be presented for action at the Annual Meeting other than the 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 1999 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of
the Company's shareholders at its Annual Meeting of Shareholders in 1999
will be required, pursuant to a rule of the Securities and Exchange
Commission, to deliver the proposal to the Company on or prior to November
13, 1998. 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 on Form 10-K for the year ended
December 31, 1997, which includes financial statements, has been mailed to
all shareholders with this Proxy Statement and has been filed with the
Securities and Exchange Commission. 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 the rules and regulations of the Federal
Deposit Insurance Corporation, a copy of 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 operations for the fiscal years ended 1996 and
1997.
Merchants Bank
Andrew T. Kloeckner, AVP & Compliance Officer
275 Kennedy Drive
South Burlington, VT 05403
Telephone (802) 658-3400
By Order of the Board of Directors
164 College St. Jennifer L. Varin
Burlington, VT 05401 Secretary
March 20, 1998 Merchants Bancshares, Inc.
COMMON STOCK MERCHANTS BANCSHARES, INC. COMMON STOCK
Proxy solicited by the Board of Directors for
1998 Annual Meeting of Shareholders on April 21, 1998
The undersigned hereby appoints Cynthia W. Olson and Andrew T. Kloeckner,
and each of them, proxies, with full power of substitution, to vote at the
1998 Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be
held on April 21, 1998 (including adjournments or postponements thereof),
with all powers the undersigned would possess if personally present, as
specified on the reverse side of this ballot, on the election of directors
and, in accordance with their discretion, on any other business that may
come before the meeting, and revokes all proxies previously given by the
undersigned with respect to shares covered hereby.
This proxy, when properly executed, will be voted in the manner directed
herein by the shareholder. If no contrary specification is made, this
proxy will be voted FOR the election of the nominees of the Board of
Directors and upon such other business as may come before the meeting in
the appointed proxies' discretion.
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Annual Meeting of Shareholders and related Proxy Statement.
-----------------------------------------------------------------
| PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY |
| IN THE ENCLOSED ENVELOPE. |
-----------------------------------------------------------------
----------------------------------------------------------------------------
| Please sign exactly as your name(s) appear(s) hereon and return this proxy |
| in the enclosed envelope, whether or not you expect to attend the meeting. |
| You may, nevertheless, vote in person if you do attend. |
| NOTE: Executors, administrators, trustees, custodians, etc. should |
| indicate the capacity in which they sign. When stock is held in the name |
| of more than one person, each person should sign the proxy. |
----------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
========================================
MERCHANTS BANCSHARES, INC.
========================================
COMMON STOCK
RECORD DATE SHARES:
--------------------
Please be sure to sign and date this Proxy. | Date |
-------------------------------------------------------------------------
| |
| |
---------Shareholder sign here------------------ Co-owner sign here------
The Board of Directors recommends a vote FOR the Proposal listed below.
1. Election of Directors.
Nominees: For All For All
Nominees Withhold Except
Joseph L. Boutin [ ] [ ] [ ]
Jeffrey L. Davis
Michael G. Furlong
Raymond C. Pecor, Jr.
Patrick S. Robins
NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the name(s) of
the nominee(s). Your shares will be voted for the remaining nominee(s).
2. To transact any other business which may properly come before the
meeting or any adjournment thereof.
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
DETACH CARD DETACH CARD
