SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [ ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MERCHANTS BANCSHARES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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MERCHANTS BANCSHARES, INC.
164 College Street
Burlington, Vermont 05401
(802) 658-3400
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 25, 2000
Notice is hereby given that the Annual Meeting of Shareholders of
Merchants Bancshares, Inc., a Delaware corporation (the "Company"), will be
held at the Clarion Hotel & Conference Center, 1117 Williston Road, South
Burlington, Vermont, on Tuesday, April 25, 2000, at 10 a.m. for the
following purposes:
1. To elect three Directors of the Company, each of whom will
serve for a three-year term.
2. To transact any other business which may properly come before
the meeting or any adjournment of the meeting.
The close of business on February 29, 2000 was fixed as the record
date for determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting. Our By-laws 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 24, 2000
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
164 College Street
Burlington, Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
April 25, 2000
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 25, 2000, and at any
adjournments of that meeting. Shareholders of record at the close of
business on February 29, 2000 are 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 ("Common Stock"), on or about March 24, 2000.
Proxies in the form enclosed are solicited by the Board of Directors
of the Company. Any 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 a proxy, that proxy will
be voted FOR the election, as directors of the Company, of the nominees
named in this Proxy Statement. 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 under that
proxy 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 of
the Company, at the principal office of the Company, revoking that 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 that
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 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 shares of Common Stock
held of record by those brokers, custodians, nominees or other fiduciaries.
Written notice of the results of the voting at the Annual Meeting or
adjournments of the meeting will not be mailed to shareholders, but will be
available upon request, without charge. The Company maintains its principal
administrative offices at 275 Kennedy Drive, South Burlington, Vermont
05403, and its telephone number is (802) 658-3400.
VOTING SECURITIES
As of February 29, 2000, the record date for the Annual Meeting,
there were 4,278,217 shares of Common Stock outstanding. All of those
shares are entitled to vote at the Annual Meeting. Fractional shares are
not entitled to be voted, but each full share of Common Stock entitles its
holder to one vote on all matters properly brought before the Annual
Meeting. At present, 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 the Common Stock as of
February 29, 2000.
Amount and Nature
Name of Beneficial of Beneficial Percent of Notes of
Owner Ownership (1) Class Explanation
- ---------------------------------------------------------------------------------
General Educational Fund Inc. 518,790 12.13% (2)
Merchants Bank 401(k) Employee 341,300 7.98% (3)
Stock Ownership Plan
Charles A. Davis 277,236 6.48% (4)
- -------------------
<FN>
<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, those
shares. Inclusion of shares in the table does not necessarily mean
that the persons named have any economic beneficial interest in the
shares set forth opposite their names.
<F2> The General Educational Fund, Inc., (the "Fund"), located at 164
College Street, Burlington, Vermont, was established in perpetuity in
1918 by the Bank for the purpose of providing financial assistance to
full-time students attending institutions of higher education. The
Board of Trustees of the General Education 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 a Director of the Company and the Bank, Michael
R. Tuttle, Executive Vice President of the Bank and Geoffrey R.
Hesslink, a Vice President of the Bank. The number of shares
indicated above does not include shares of Common Stock 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 of Common
Stock 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 designation is made by participants.
<F4> Includes (i) 4,568 shares held in trust for Mr. Davis' two minor
sons; (ii) 1,164 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 "Nominees for Directors of the Company" for
Mr. Davis' biography.
</FN>
ELECTION OF DIRECTORS
(Proposal Number 1)
Our By-laws stipulate that our business and affairs is to be managed
by a Board of Directors, which is to 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 20, 2000, the Board of Directors of the
Company (the "Company Board") unanimously voted to fix the number of
directors at nine, and to introduce for adoption at the Annual Meeting the
following resolution:
RESOLVED: That Joseph L. Boutin, Charles A. Davis and Peter A. Bouyea be
elected to serve as Class I directors of Merchants Bancshares,
Inc., each for a three year term expiring on the date of the
Annual Meeting of Shareholders in 2003, 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 election to the Company Board, their principal occupations,
ages and periods of service as directors of the Company. Information
regarding their ownership of shares of Common Stock as of February 29,
2000, may be found at "Security Ownership of Certain Beneficial Owners and
Management". The Class I Nominees have each been nominated for a three-year
term expiring on the date of the Company's annual meeting of shareholders
in 2003.
Principal Director of
Class Name Age Occupation Company Since
- -----------------------------------------------------------------------------------------
I Joseph L. Boutin 52 President & CEO 1994
of the Company and the Bank
Burlington, VT (1)
I Charles A. Davis 51 President and COO 1985
Marsh & McLennan Risk Capital Corp.
Greenwich, CT (2)
I Peter A. Bouyea 52 Consultant to Baking Industry 1994
South Burlington, VT (3)
The following biographical information is provided for the three
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 to the Board of Directors of
the Company and the Bank on October 24, 1994. Prior to joining the Company
and the Bank, Mr. Boutin was formerly associated with the Howard Bank, a
subsidiary of Banknorth Group, Inc., for 25 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, a trustee of Saint Michael's
College, a trustee of Vermont Public Radio and a member and former Chairman
of the Communications Council of the American Bankers Association.
Charles A. Davis
Charles A. Davis has served as a Director of the Company since 1985.
He is President and Chief Executive Officer of Marsh & McLennan Capital,
Inc. Prior to joining Marsh & McLennan Capital, he was a Senior Director
and former partner of Goldman Sachs & Company.
Peter A. Bouyea
Peter A. Bouyea has served as a Director of the Company since 1994
and the Bank since 1993. 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 Phillip
Morris, Inc.
If, at the time of the Annual Meeting, any of these 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 Company Board, and would be
elected to the same class or classes as the nominees for whom they are
substituted. Neither our By-laws 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
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 Company Board recommends that the shareholders 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.
Term of
Principal Director of Office Will
Class Name Age Occupation Company Since Expire
- -----------------------------------------------------------------------------------------------------------
II Jeffrey L. Davis 47 President-J.L. Davis, Inc. 1993 2001
Burlington, VT
II Michael G. Furlong 49 Attorney, Sheehey Furlong 1991 2001
Rendall & Behm P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 60 Chairman, Lake Champlain 1984 2001
Transportation Company
Burlington, VT
II Patrick S. Robins 61 Treasurer, Symquest Group, Inc. 1984 2001
South Burlington, VT (1)
III Leo O'Brien, Jr. 69 Partner-Vice President, 1984 2002
O'Brien Brothers Agency, Inc.
South Burlington, VT
III Robert A. Skiff, Ph.D. 58 Headmaster, 1984 2002
Vermont Commons School
Burlington, VT (2)
- -------------------
<FN>
<F1> Mr. Robins became Treasurer of SymQuest Group, Inc. in February 1996.
Prior to that time, Mr. Robins was President of McAuliffe, Inc., a
distributor of office and paper products headquartered in Burlington,
VT.
<F2> Dr. Skiff became Headmaster of the Vermont Commons School in
Burlington, Vermont in July 1997. Prior to becoming Headmaster, Dr.
Skiff served as President of Champlain College for 15 years.
</FN>
Except as indicated above, each Director has been employed during the
past five years in his current position.
Bank Directors
All of the Directors of the Company except Charles A. Davis are also
Directors of the Bank. In addition to the members of the Company Board,
Lorilee A. Lawton and Carole A. Ziter are also Directors of the Bank. Ms.
Lawton, who is 52 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 57 years old, is President of Sweet Energy, a
mail order food company, located in Burlington, Vermont. Please note that
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 1999, six meetings of the Company Board were held. The
following Directors of the Company attended fewer than seventy-five percent
of the meetings of the Company Board: Charles A. Davis, Michael G. Furlong
and Patrick S. Robins.
Compensation of Directors
During 1999, members of the Company Board who were not also officers
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 applicable to Company Board meeting attendance was $250.
During 1999, 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
Bank Board, in which case the fee applicable to committee meeting
attendance was $125.
In 1997, the Company Board and the shareholders of the Company voted
to adopt the Merchants Bancshares, Inc. 1996 Compensation Plan for Non-
Employee Directors. This 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 Common
Stock. If a participating Director elects to have all or a specified
percentage of his or her compensation for a given year deferred in shares
of Common Stock, that Director is credited with a number of shares of
Common Stock equal in value up to 125% of the amount deferred. The Company
Board regards the additional 25% as a "risk premium", taking into account
that Director's commitment to the value of Common Stock over the deferral
period, as well as the risk of forfeiture under certain circumstances.
Committees of The Boards of Directors
The Bank Board has designated the following committees, all of which
also serve as the committees of the Company Board: an Audit Committee, a
Compensation Committee, and a Shareholder Value Committee. The composition
and objectives of these committees are 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, including the Bank. The Audit
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 Company.
During 1999, four meetings of the Audit Committee were held. The
Audit Committee consisted of Peter A. Bouyea, Chair, Jeffrey L. Davis,
Lorilee A. Lawton and Leo O'Brien, Jr.
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 1999, three meetings of the Compensation Committee were held.
The Compensation Committee consists of the following non-employee members
of the Bank Board: Michael G. Furlong, Chair, Leo O'Brien, Jr., Robert A.
Skiff and Carole A. Ziter.
Shareholder Value Committee:
The function of the Shareholder Value Committee is to consider and
make recommendations to the Company Board on proposals which effect the
value of shareholders' investment in Common Stock.
One meeting of the Shareholder Value Committee was held during 1999.
The Shareholder Value Committee consists of the following non-employee
members of the Company Board: Raymond C. Pecor, Jr., Chair, Peter A.
Bouyea, Charles A. Davis and one employee member - Joseph L. Boutin.
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 1999 exceeded $100,000
("Named Principal Officers").
Summary Compensation Table
Long-Term Compensation
----------------------
Awards Payouts
----------------------
Securities All
Name and Principal Annual Compensation Underlying LTIP Other
----------------------------
Position Year Salary Bonus Options Payouts Compensation
- --------------------------------------------------------------------------------------------------------------
Joseph L. Boutin 1999 $199,992 $ 0 (1)(2) 39,309 0 $15,002(5)
President, and Chief Executive 1998 $199,992 $150,000 13,618 0 $14,974
Officer of the Company and Bank 1997 $199,992 $ 0 15,000 0 $12,842
Michael R. Tuttle 1999 $140,000 $ 0 (1)(2) 26,566 0 $12,715(6)
Executive Vice-President of 1998 $130,000 $ 97,500 8,852 0 $14,564
the Bank 1997 $132,625 $ 0 10,100 0 $12,708
Thomas R. Havers 1999 $110,011 $ 75,000 (1)(3) 7,247 0 $14,621(7)
Senior Vice-President of the Bank 1998 $100,872 $ 75,000 6,809 0 $14,571
1997 $101,449 $ 0 7,770 0 $ 9,390
Thomas S. Leavitt 1999 $107,745 $ 72,239 (4) 7,247 0 $14,306(8)
Senior Vice-President of the Bank 1998 $100,006 $ 44,971 6,809 0 $12,261
1997 $102,603 $ 11,855 7,770 0 $15,169
Janet P. Spitler 1999 $ 92,598 $ 63,757 (1)(3) 6,212 0 $14,126(9)
Treasurer of the Company and 1998 $ 85,010 $ 5,000 5,788 0 $ 8,717
Bank 1997 $ 72,055 $ 3,159 2,500 0 $ 6,153
- -------------------
<FN>
<F1> Bonuses for 1999 performance have not yet been determined or paid to
Messrs. Boutin, Tuttle, Havers or Ms. Spitler. These bonuses will be
determined and paid during 2000.
<F2> In December 1998, Messrs. Boutin and Tuttle agreed to forego receipt
of the cash bonus to which each was entitled under his respective
Employment Agreement with the Company and the Bank. In substitution
of these bonuses, the Company granted Messrs. Boutin and Tuttle an
option to purchase shares of Common Stock with a value equivalent to
the bonus to which they were entitled.
<F3> Bonuses paid to Mr. Havers and Ms. Spitler in 1999 were awarded for
performance in 1998.
<F4> Of the amount listed as Bonus paid to Mr. Leavitt in 1999, $53,564
was not paid until the first quarter of 2000.
<F5> Includes contributions made by the Bank on behalf of Mr. Boutin
pursuant to the 401(k) Plan of $14,400 for 1999.
<F6> Includes contributions made by the Bank on behalf of Mr. Tuttle
pursuant to the 401(k) Plan of $12,583 for 1999.
<F7> Includes contributions made by the Bank on behalf of Mr. Havers
pursuant to the 401(k) Plan of $14,400 for 1999.
<F8> Includes contributions made by the Bank on behalf of Mr. Leavitt
pursuant to the 401(k) Plan of $14,222 for 1999.
<F9> Includes contributions made by the Bank on behalf of Ms. Spitler
pursuant to the 401(k) Plan of $14,067 for 1999.
</FN>
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Option Grants in Last Fiscal Year tc "Option Grants in Last Fiscal Year"
The following table provides information regarding stock options
granted to Named Principal Officers in 1999. Each of the individuals who
were granted stock options during 1999 were granted those options pursuant
to the terms of employment agreements with the Company and the Bank and the
Company's Long Term Incentive/Stock Option Plan. See "Employment
Agreements."
Individual Grants (1)
-----------------------------------------------------
% of
Total Potential Realizable
Number of Options Total Value at Assumed
Securities Granted to Exercise Annual Rates of Stock"
Underlying Employees Or Base Price Appreciation
Options In Fiscal Price Expiration For Option Term"
----------------------
Name Granted Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------
Joseph L. Boutin 25,505 26% 22.50 March 18, 2006 $233,620 $544,433
Michael R. Tuttle 16,903 17% 22.50 March 18, 2006 $154,827 $360,814
Joseph L. Boutin 13,804 14% 26.25 August 19, 2009 $227,883 $577,501
Michael R. Tuttle 9,663 10% 26.25 August 19, 2009 $159,521 $404,259
Thomas R. Havers 7,247 7% 26.25 August 19, 2009 $119,637 $303,184
Thomas S. Leavitt 7,247 7% 26.25 August 19, 2009 $119,637 $303,184
Janet P. Spitler 6,212 6% 26.25 August 19, 2009 $102,551 $259,884
- -------------------
<FN>
<F1> The options become exercisable after August 19, 2001. All options are
immediately exercisable if the Named Principal Officer is terminated
without "just cause" or due to his or her disability, or in the event
that any transaction occurs with respect to the Company or the Bank
which results in a "change of control" of the Company or the Bank, as
either existed at August 19, 1999.
</FN>
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 Common Stock 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, 1999.
Also, reported are the values of "in-the-money" options, which represent
the positive spread between the exercise price of any existing stock
options and the year-end price of Common Stock of $21.375.
Number of Securities
Shares Underlying Value of Unexercised
Acquired Unexercised Options In-The-Money Options
On Value At Fiscal Year-End At Fiscal Year-End
----------------------------------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
Joseph L. Boutin - - 30,550 52,927 $14,055 -
Michael R. Tuttle 1,000 $11,500 18,100 35,418 $38,810 -
Thomas R. Havers - - 12,770 14,056 $32,500 -
Thomas S. Leavitt - - 12,770 14,056 $30,000 -
Janet P. Spitler - - 2,500 12,000 - -
Retirement Benefits
Pension Plan Table
Estimated Annual Retirement Benefit for Specified Years of Credited Service
---------------------------------------------------------------------------
Annual Compensation 20 30 40
---------------------------------------------------
$ 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
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 1999 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, 1999.
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.
Positions of Officers with the
Name Age Company or the Bank
- ---------------------------------------------------------------------------
Joseph L. Boutin 52 President and Chief Executive Officer of the
Company and the Bank
Michael R. Tuttle 44 Executive Vice President and Chief Operating
Officer of the Bank
Thomas R. Havers 50 Senior Vice President of the Bank, Operating
and Administrative Division Manager
Thomas S. Leavitt 41 Senior Vice President of the Bank, Sales
Division Manager
William R. Heaslip 55 President and Chief Executive Officer of
Merchants Trust Company
Janet P. Spitler 40 Treasurer of the Company and Bank, Chief
Financial Officer of the Bank
Zoe P. Erdman 43 Senior Vice President of the Bank, Credit
Division Manager
Mr. Boutin became President and Chief Executive Officer of the
Company and the Bank on October 24, 1994. 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 by 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 that 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.
In November 1998, Ms. Erdman became a Senior Vice President of the Bank,
with whom she has been employed since October 1997.
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 or the Bank; Michael G. Furlong, chair, Leo O'Brien, Robert A.
Skiff, each a director of the Company and the Bank, and Carole A. Ziter, a
director of the Bank.
The Compensation 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
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 1999 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 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. Bonuses were paid to executive officers in 1999.
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, subject to an overall cap.
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 is determined annually, by the Board of
Directors, and are to 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, 1999, which provides for his employment as President and Chief
Executive Officer of the Company and Bank through December 31, 2001. 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 2001. See
"Employment Agreements."
Employment Agreements:
Certain of the Executive Officers have entered into Employment
Agreements with the Company and the Bank. These agreements specify the
terms of employment and are discussed below, under the section entitled,
"Employment Agreements".
Members of the Compensation Committee
Michael G. Furlong, Chair
Leo O'Brien, Jr.
Patrick S. Robins
Carole A. Ziter
Employment Agreements
Messrs. Boutin, Tuttle, Havers, Heaslip, Leavitt, and Ms. Spitler and
Erdman have entered into Employment Agreements with the Company and the
Bank, each dated January 1, 1999, and each containing substantially
identical terms. These Employment Agreements contain standard terms and
conditions typically found in employment agreements for comparable
executives, including those terms discussed in this paragraph. Under their
Employment Agreements, each Executive Officer is employed for a three-year
term ending on December 31, 2001, renewable thereafter for successive one-
year terms unless the Company notifies these individuals that their
employment will terminate on December 31, 2001. Notwithstanding the
foregoing, however, under these agreements, if the Executive Officer is
terminated without "just cause" (as defined in their agreements) or the
Executive Officer resigns for "good reason" (as defined in these
agreements), in each case prior to the completion of the term of their
employment, the Bank has agreed to pay in one lump sum that Executive
Officer's salary for one year from the date of termination. Executive
Officers are also eligible under the terms of their Employment Agreements
to receive bonuses based upon the achievement of certain corporate
objectives. Additionally the Employment Agreements provide for specific
grants of stock options under the Company's 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 1999, and anticipates
obtaining those services during 2000, from the firm of Sheehey Furlong
Rendall & Behm P.C., of which Michael G. Furlong is a principal member. Mr.
Furlong is a Director of the Company and the Bank and Chairman of the
Compensation Committee. Fees paid to Mr. Furlong's firm by the Bank for
services and expenses in 1999 aggregated $128,740.
During 1999, the Bank purchased computer equipment and project
management services, on a competitive basis, from SymQuest Group, Inc.
valued at $158,388. Patrick S. Robins, who is Treasurer of SymQuest Group,
Inc., is a Director of the Company and the Bank and a member of the
Compensation Committee.
The Bank used the services of Direct Results, Inc., a marketing firm,
during 1999. 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 1999 totaled $48,671.
Compensation Committee Interlocks and Insider Participation
During 1999, the Compensation Committee included Michael G. Furlong,
Chairman, Leo O'Brien, Jr., Robert A. Skiff 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); Vermont Financial Services Corporation (VFSC), Granite
State Bancshares, Inc. (GSBI) and CNB Financial Corporation (CNBF).
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.
NASDAQ MARKET INDEX AND PEER GROUP INDEX
[INSERT CHART]
ASSUMES $100 INVESTED ON JAN. 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
Fiscal Year Ending
--------------------------------------------------------------
Company 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------
Merchants Bancshares, Inc. $100.00 $146.34 $184.15 $328.04 $261.07 $228.56
Peer Group $100.00 $166.25 $191.94 $327.41 $340.14 $282.14
Broad Market $100.00 $129.71 $161.18 $197.16 $278.08 $490.46
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the ownership of
Common Stock as of February 29, 2000 by each of the Directors and Executive
Officers of the Company and the Bank and the Directors and Executive
Officers of the Company and the Bank as a group.
Amount and Nature of
Name Beneficial Ownership(1) Percent of Class
- --------------------------------------------------------------------------------
Joseph L. Boutin (a)(d) 587,773(2) 13.2%
Peter A. Bouyea (a) 60,029(3) 1.2%
Charles A. Davis (b) 277,236(4)(5) 6.6%
Jeffrey L. Davis (a) 19,465(3)(5) *
Zoe P. Erdman (e) 536 *
Michael G. Furlong (a) 4,548(5) *
Thomas R. Havers (d) 33,463(6) *
William R. Heaslip (f) 14,418(7) *
Lorilee A. Lawton (c) 3,383(3) *
Thomas S. Leavitt (d) 17,087(8) *
Leo O'Brien, Jr. (a) 19,114(5) *
Raymond C. Pecor, Jr. (a) 135,729(3)(5) 2.9%
Patrick S. Robins (a) 26,420(3)(5) *
Robert A. Skiff, Ph.D. (a) 2,171(5) *
Janet P. Spitler (d) 148,481(9) 3.5%
Michael R. Tuttle (d) 550,125(10) 12.4%
Carole A. Ziter (c) 2,659(3) *
Directors and Executive
Officers as a Group 1,383,847(11) 32.3%
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<FN>
<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
<Ff> Designates Executive Officer of the Trust Company
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 518,790 shares held by the General Educational Fund, Inc.
(the "Fund"). Mr. Boutin is a trustee of the 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 Education
Fund. Also, includes 30,550 shares which Mr. Boutin may acquire
pursuant to the exercise of certain vested stock options.
<F3> Does not include shares which Messrs. Bouyea, J. Davis, Pecor, Robins
and Ms. Ziter and Lawton have the right to receive on a deferred
basis five years from the date of the deferment. The shares will be
issued to participants pursuant to agreements made by the Bank in
connection with the establishment of the 1996 Compensation Plan for
Non-Employee Directors. See "Compensation of Directors." See also
Note 9 with respect to the voting of these shares.
<F4> Includes 4,568 shares held in trust for Mr. Davis' two minor sons,
1,164 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.
<F5> Does not include shares which Messrs. J. Davis, Bouyea, Furlong,
O'Brien, Pecor, Robins and Skiff have the right to receive on a
deferred basis. The shares will be issued to participants pursuant to
agreements made by the Bank in connection with the termination of the
Bank's former deferred compensation plan for Directors in December
1995. See Note 9 with respect to the voting of these shares.
<F6> Does not include shares which Mr. Havers has the right to receive on
a deferred basis. 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 12,770 shares, which Mr. Havers may acquire pursuant to the
exercise of certain vested stock options.
<F7> Includes 12,380 shares, which Mr. Heaslip may acquire pursuant to the
exercise of certain vested stock options.
<F8> Includes 12,770 shares, which Mr. Leavitt may acquire pursuant to the
exercise of certain vested stock options.
<F9> Includes 143,645 shares held in various trusts related to the 1996
Compensation Plan for Non-Employee Directors, which is active, and
the Bank's former Deferred Compensation Plan for Directors and
Executive Salary Continuation Plan, both of which were terminated in
December 1995. Ms. Spitler has the power to vote these shares on
behalf of the Company and Bank. Ms. Spitler disclaims beneficial
ownership of all such shares. Also includes 2,500 shares, which Ms.
Spitler may acquire pursuant to the exercise of certain vested stock
options.
<F10> Includes 518,790 shares held by the General Educational Fund, Inc.
(the "Fund"). Mr. Tuttle is a trustee of the 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 Education
Fund. Also includes 18,100 shares, which Mr. Tuttle may acquire
pursuant to the exercise of certain vested stock options.
<F11> Includes 518,790 shares held by the General Educational Fund, Inc.
(the "Fund"), of which Messrs. Boutin and Tuttle are trustees and as
such may be deemed to beneficially own all such shares. Includes
143,645 shares held in various trusts related to the 1996
Compensation Plan for Non-Employee Directors, which is active, and
the Bank's former Deferred Compensation Plan for Directors and
Executive Salary Continuation Plan, both of which were terminated in
December 1995; and 89,070 shares which named principal officers may
acquire pursuant to the exercise of certain vested stock options.
</FN>
-------------------
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 Common Stock with the Securities and 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 1999 furnished to the Company, the Company
believes all Section 16(a) filing requirements applicable to its executive
officers and directors were complied with on a timely basis.
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 2000. The Company has been
advised by that 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 proposals
specifically set forth in the Notice and referred to in this Proxy
Statement. 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 under that proxy 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 2000 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of
the Company's shareholders at its Annual Meeting of Shareholders in 2001,
scheduled to be held on Tuesday, April 24, 2001, 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 24, 2000. 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, 1999, 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 1998 and
1999.
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
Merchants Bancshares, Inc.
COMMON STOCK MERCHANTS BANCHARES, INC. COMMON STOCK
Proxy Solicited by the Board of Directors for
1999 Annual Meeting of Shareholders on April 25, 2000
The undersigned hereby appoints Tracy K. Chandler and Ardyce J. Cochran,
and each of them, proxies, with full power of substitution, to vote at the
1999 Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be
held on April 25, 2000 (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?
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DO YOU HAVE ANY COMMENTS?
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[x] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ----------------------------------------
MERCHANTS BANCSHARES, INC.
- ----------------------------------------
COMMON STOCK
The Board of Directore recomments a vote FOR the Proposal listed below.
1. Election of Directors.
Nominees:
(01) Joseph L. Boutin FOR ALL WITH- FOR ALL
(02) Peter A Bouyea NOMINEES HOLD EXCEPT
(03) Charles A. Davis [ ] [ ] [ ]
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 of the nominee.
Your shares will be voted for the remaining nominee.
CONTROL NUMBER:
RECORD DATE SHARES:
2. To transact any other business which may properly come before the
meeting or any adjournment thereof.
Please be sure to sign and date this Proxy.
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Date
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Shareholder sign here Co-owner sign here
Mark box at right if an address change or comment has been
noted on the reverse side of the card. [ ]
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