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)
- ---------------------------------------------------------------------------
(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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(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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(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 May 1, 2001
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, May 1, 2001, at 10 a.m. for the following
purposes:
1. To elect four Directors of the Company, three of whom will
serve for a three-year term, and one of whom will serve for a
one-year term; and
2. To transact any other business which may properly come before
the meeting or any adjournment thereof.
The close of business on March 9, 2001, has been fixed as the record
date for determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting. The By-laws of the Company 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. Joseph L. Boutin
--------------------- -------------------
Raymond C. Pecor, Jr. Joseph L. Boutin
Chairman of the President and
Board of Directors Chief Executive Officer
Burlington, Vermont
March 27, 2001
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
164 College Street
Burlington Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
May 1, 2001
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 May 1, 2001, and at any
adjournments thereof. The Board of Directors of the Company has fixed March
9, 2001, as the record date for determining those shareholders of the
Company entitled to receive notice of, and to vote at, the Annual Meeting.
Only shareholders of record at the close of business on March 9, 2001, will
be entitled to vote at the Annual Meeting. This Proxy Statement and the
accompanying proxy card 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 27, 2001.
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 on the proxy card. If no instructions are
given on the proxy card, 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
card 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 Patti J. White, Secretary of the
Company, 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, 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 the Common Stock 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
administrative offices at 275 Kennedy Drive, South Burlington, Vermont
05403, and its telephone number is (802) 658-3400.
As of March 9, 2001, the record date for the Annual Meeting, there
were 4,095,679 shares of the Common Stock 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 the Common Stock 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 the Common Stock as of
March 9, 2001.
Amount and Nature
Name of Beneficial of Beneficial Percent of Notes of
Owner Ownership (1) Class Explanation
- -----------------------------------------------------------------------------------
General Educational Fund, Inc. 503,790 12.30% (2)
Merchants Bank 401(k) Employee 364,064 8.89% (3)
Stock Ownership Plan
Charles A. Davis 277,508 6.78% (4)
Wellington Management 216,300 5.28%
Company, LLP
- --------------------
<FN>
<F1> In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares of Common Stock 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 or
voting interest in shares set opposite their respective names.
<F2> The General Educational Fund, Inc., (the "Fund") 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 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 " for this information.
<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) 4,785 shares held in trust for Mr. Davis' two minor
sons; (ii) 1,219 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.
</FN>
ELECTION OF DIRECTORS
(Proposal Number 1)
The By-laws of the Company stipulate that the business and affairs of
the Company are to 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 18, 2001, 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 Jeffrey L. Davis, 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 2004, and until
their successors are duly elected and qualified in accordance
with the By-laws of the Company. Further resolved that Michael
G. Furlong be elected to serve as a Class III director of
Merchants Bancshares, Inc. for a one-year term expiring on the
date of the Annual Meeting of Shareholders in 2002, and 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 four
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 the Common Stock as of March 9,
2001, 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 on the date of the Company's annual meeting of
shareholders in 2004. The Class III nominee has been nominated for a one-
year term expiring on the date of the Annual Meeting of Shareholders in the
year 2002. The Board has proposed that Michael G. Furlong be moved to Class
III to more evenly divide membership in the classes, in accordance with the
By-laws of the Company.
Principal Director of
Class Name Age Occupation Company Since
- ---------------------------------------------------------------------------------------------------
II Jeffrey L. Davis 48 President 1993
J.L. Davis, Inc.
Burlington, VT
III Michael G. Furlong 50 Attorney, 1991
Sheehey Furlong Rendall & Behm P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 61 Chairman, 1984
Lake Champlain Transportation Company
Burlington, VT
II Patrick S. Robins 62 Treasurer, 1984
Symquest Group, Inc.
South Burlington, VT (1)
Jeffrey L. Davis
Jeffrey L. Davis has served as a director of the Company and the Bank
since 1993. He is President of J.L. Davis, Inc., a Burlington, Vermont
based construction and development firm, and President of Taft Corners
Associates, a Williston based development firm. He is a trustee of
Merchants Trust Company and a past 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 President of the Burlington, Vermont, law firm of Sheehey
Furlong Rendall & Behm P.C., and he is a former president of the Chittenden
County Bar Association. He is a trustee of Merchants Trust Company, a
director of Wake Robin Corporation and has served on the Boards of several
Vermont nonprofit organizations. Mr. Furlong is a graduate of Middlebury
College and Cornell Law School.
Raymond C. Pecor, Jr.
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 the
President of the Lake Champlain Transportation Company, and has
entrepreneurial interests in other companies and developments, including
the Vermont Expos and Ottawa Lynx Professional Baseball teams. 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 and a director of Lake Champlain Transportation Company.
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 Company Board, and would be
elected to the same class or classes as the nominees for whom they are
substituted. Neither the By-laws 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.
Unless authority to do so has been withheld or limited in the proxy, it is
the intention of the persons named in the proxy to vote the shares
represented by the proxy against any other candidates.
An affirmative vote of a majority of the shares of the 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 four nominees described above.
The Company Board recommends that the shareholders vote "FOR" the
election of each of Jeffrey L. Davis, Michael G. Furlong, Raymond C. Pecor,
Jr., and Patrick S. Robins.
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 the Office Will
Class Name Age Occupation Company Since Expire
- --------------------------------------------------------------------------------------------------------------
I Joseph L. Boutin 53 President & CEO 1994 2003
of the Company and the Bank
Burlington, VT
I Charles A. Davis 51 President and COO 1985 2003
Marsh & McLennan Capital Inc.
Greenwich, CT (1)
I Peter A. Bouyea 53 Consultant to Baking Industry 1994 2003
South Burlington, VT
III Leo O'Brien, Jr. 70 Partner - Vice President, 1984 2002
O'Brien Brothers Agency, Inc.
South Burlington, VT
III Robert A. Skiff, Ph.D. 59 Headmaster, 1984 2002
Vermont Commons School
Burlington, VT (2)
- --------------------
<FN>
<F1> Mr. Davis became President and Chief Executive Officer of Marsh &
McLennan Capital, Inc. in 1999. Prior to that time, he was a Senior
Director and former partner of Goldman Sachs & Company.
<F2> Dr. Skiff became Headmaster of the Vermont Commons School in
Burlington, Vermont, in July 1997. Prior to that time, 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 respective position.
Bank Directors
All of the above-named Directors of the Company except Charles A.
Davis 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 53 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 58 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 at
the Annual Meeting.
Other Information About the Board and its Committees
Attendance of Directors
During 2000 five meetings of the Company Board were held. The
following Director of the Company attended fewer than seventy-five percent
of the meetings of the Company Board: Charles A. Davis.
Compensation of Directors
During 2000 Directors of the Company, 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 2000 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. 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
Company's 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 such 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 the Shareholder Value Committee, each of whose
composition and objectives 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, 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 organization.
The Audit Committee revised their charter in June 2000 to reflect new
regulatory guidance, which charter was reviewed and approved by the Audit
Committee on December 15, 2000. The Audit Committee Charter is attached
hereto as Exhibit I to this proxy statement. The Audit Committee consists
of four members: Peter A. Bouyea, Chair, Jeffrey L. Davis, Lorilee A.
Lawton and Patrick S. Robins. Each member of the Audit Committee is an
"independent" director as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards. The Audit Committee
meets with the Company's auditors and principal financial personnel to
review quarterly financial results and the results of the annual audit. The
Audit Committee also reviews the scope of, and establishes fees for, audit
and nonpublic-audit services performed by the independent accountants,
reviews the independence of the independent accountants and the adequacy
and effectiveness of the Company's internal accounting controls. The Audit
Committee held five meetings in fiscal year 2000.
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 2000, two 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.
During 2000, three meetings of the Shareholder Value Committee were
held. 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, Leo O'Brien, Jr. 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 2000 exceeded $100,000
("Named Principal Officers").
Summary Compensation Table
Long-Term Compensation
----------------------
Awards Payouts
---------- -------
Annual Compensation Securities All
Name and Principal --------------------------------- Underlying LTIP Other
Position Year Salary Bonus Options Payouts Compensation
------------------ ---- ------ ----- ---------- ------- -----------
Joseph L. Boutin
President, and Director 2000 $199,992 $ -(1) 0 0 $14,814(3)
of the Company and Bank 1999 $199,992 $113,740 39,309 0 $15,002
1998 $199,992 $ 0 13,618 0 $14,974
Michael R. Tuttle
Executive Vice-President of 2000 $140,005 $ 46,202(2) 0 0 $14,564(3)
the Bank 1999 $140,005 $ 79,618 26,566 0 $12,715
1998 $130,000 $ 0 8,852 0 $14,564
Thomas R. Havers
Senior Vice-President of the Bank 2000 $110,011 $ 36,304(2) 4,544 0 $14,568(3)
1999 $110,011 $ 62,557 7,247 0 $14,621
1998 $100,872 $ 75,000 6,809 0 $14,571
Thomas S. Leavitt
Senior Vice-President of the Bank 2000 $105,019 $ 56,747(2) 0 0 $14,340(3)
1999 $107,745 $ 53,564 7,247 0 $14,306
1998 $100,006 $ 50,375 6,809 0 $12,261
Janet P. Spitler
Treasurer of the Company 2000 $ 90,002 $ 33,002(2) 139 0 $12,756(3)
and Bank 1999 $ 92,598 $ 51,183 6,212 0 $14,126
1998 $ 85,010 $ 63,757 5,788 0 $ 8,717
- --------------------
<FN>
<F1> Mr. Boutin's bonus for 2000 will be determined and paid in April
2001.
<F2> Bonuses for 2000 performance were determined and paid to Messrs.
Tuttle, Havers, Leavitt and Ms. Spitler in March 2001.
<F3> Contributions made by the Bank on behalf of Messrs. Boutin, Tuttle,
Havers, Leavitt and Ms. Spitler pursuant to the 401(k) Plan were
$14,400, $14,400, $14,400, $14,273 and $12,707 respectively, for
2000.
</FN>
Option Grants in Last Fiscal Year
The following table provides information regarding stock options
granted to the Named Principal Officers in 2000. Each of the individuals
who were granted stock options during 2000 were granted those options
pursuant to the terms of employment agreements between those individuals
and the Company and the Bank. See "Employment Agreements."
Individual Grants (1)
--------------------------------------------------------
% of Potential Realizable
Total Value at Assumed
Number of Options Total Annual Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees Or Base For Option Term
Options In Fiscal Price Expiration ---------------------
Name Granted Year ($/Share) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------
Thomas R. Havers 4,544 38% $23.25 August 17, 2010 $51,638 $144,804
Janet P. Spitler 139 1% $23.25 August 17, 2010 $ 1,580 $ 4,430
- --------------------
<FN>
<F1> The options become exercisable after August 17, 2002. 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 17, 2000.
</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, 2000.
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 Common Stock of $24.25.
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired At Fiscal Year-End At Fiscal Year-End
On Value ----------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Joseph L. Boutin - - 44,168 39,309 $57,180 $44,634
Michael R. Tuttle - - 26,952 26,566 $61,810 $29,580
Thomas R. Havers - - 19,579 11,791 $46,875 -
Thomas S. Leavitt - - 19,579 7,247 $44,375 -
Janet P. Spitler - - 8,288 6,351 - -
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 2000, that each member's final average compensation is equal
to his or her annual compensation, 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.
Mr. Havers is the only Named Principal Officer entitled to a benefit
under the plan. For purposes of this table, Mr. Havers had 26 years of
benefit service with the Bank as of December 31, 2000.
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 and/or the Bank
- -------------------------------------------------------------------------------------------------------
Joseph L. Boutin 53 President and Chief Executive Officer of the Company and the Bank
Michael R. Tuttle 45 Executive Vice President and Chief Operating Officer of the Bank
Thomas R. Havers 51 Senior Vice President of the Bank, Operating and Administrative Division
Manager
Thomas S. Leavitt 42 Senior Vice President of the Bank, Sales Division Manager
William R. Heaslip 56 President and Chief Executive Officer of Merchants Trust Company
Janet P. Spitler 41 Treasurer of the Company and Bank, Chief Financial Officer of the Bank
Zoe P. Erdman 44 Senior Vice President of the Bank, Credit Division Manager
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. 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. Mr. Heaslip has
been the President of the Merchants Trust Company since December 1995.
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. Except as indicated above, each Executive Officer has
been employed during the past five years in his or her respective position.
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, adopt performance and base compensation policies
for executive management and employees, adopt 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 2000 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 Named 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 Named Executive Officers.
Relationship of Performance Under Compensation Plans. The Company's
compensation policy with respect to Named 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 Named 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 out to executive officers for
2000 performance. See "Summary Compensation Table".
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, subject to certain limits, a participating Executive Officer receives
stock options, subject to specified limits, 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 will be
determined annually, by the Company Board, and will be no less than fair
market value as of the date of the grant.
CEO Compensation:
Mr. Boutin serves the Company and the Bank pursuant to an employment
agreement, dated January 1, 2001, which provides for his employment as
President and Chief Executive Officer of the Company and Bank through
December 31, 2003. The terms of Mr. Boutin's contract were negotiated at
arms-length. Mr. Boutin's base salary is $210,000 per year through calendar
year 2003. See "Employment Agreements."
Employment Agreements:
Certain of the Named 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.
Robert A. Skiff
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, 2001, and each containing substantially
identical terms, other than positions, duties and salaries. 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 of
these executive officers is employed for a three-year term ending on
December 31, 2003, renewable thereafter for successive one-year terms,
unless the Company notifies these individuals that their employment will
terminate on December 31, 2003. Notwithstanding the foregoing, however, 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 the Employment Agreement, the Bank has agreed to pay in one lump
sum such executive officer's salary for one year from the date of
termination. Executive officers are also eligible under the terms of the
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 2000, and anticipates
obtaining such services during 2001, 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 2000 aggregated $59,255.
During 2000, the Bank purchased computer equipment and project
management services, on a competitive basis, from SymQuest Group, Inc.
valued at $103,925. Patrick S. Robins, who is Treasurer of SymQuest Group,
Inc., is a Director of the Company and the Bank and a member of the Audit
Committee.
The Bank employed the services of Direct Results, Inc., a marketing
firm, during 2000. The principal shareholder of Direct Results, Inc. is the
husband of Carole Ziter, a Director of the Bank and a member of the
Compensation Committee. Fees paid to Direct Results, Inc. for services and
expenses rendered during 2000 totaled $8,351.
Compensation Committee Interlocks and Insider Participation
During 2000, 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 and/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); 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, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2000
Fiscal Year Ending
-------------------------------------------------------------------
Company 1995 1996 1997 1998 1999 2000
- --------------------------------------------------------------------------------------------------
Merchants Bancshares, Inc. $100.00 $125.83 $224.16 $178.35 $156.19 $184.75
Peer Group $100.00 $120.67 $208.73 $196.14 $164.76 $185.20
Broad Market $100.00 $124.27 $152.00 $214.39 $378.12 $237.66
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the ownership of
Common Stock as of March 9, 2001, by each of the Directors and executive
officers, including the Named 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) 590,908(2) 14.4%
Peter A. Bouyea (a) 62,826(3) 1.5%
Charles A. Davis (b) 277,509(4) (5) 6.8%
Jeffrey Davis (a) 20,838(3) (5) *
Zoe P. Erdman (e) 1,048 *
Michael G. Furlong (a) 4,562(5) *
Thomas R. Havers (d) 41,666(6) 1.0%
William R. Heaslip (f) 21,412(7) *
Lorilee A. Lawton (c) 4,270(3) *
Thomas S. Leavitt (d) 25,352(8) *
Leo O'Brien, Jr. (a) 23,716(5) *
Raymond C. Pecor, Jr. (a) 141,926(3) (5) 3.5%
Patrick S. Robins (a) 28,678(3) (5) *
Robert A. Skiff, Ph.D. (a) 2,275(5) *
Janet P. Spitler (d) 165,387(9) 4.0%
Michael R. Tuttle (d) 546,034(10) 13.3%
Carole A. Ziter (c) 3,532(3) *
Directors and Executive
Officers as a Group 1,458,149(11) 35.6%
- --------------------
<FN>
* Shareholdings represent less than 1.00% of class
(a) Designates Director of the Company and the Bank
(b) Designates Director of the Company only
(c) Designates Director of the Bank only
(d) Designates Named Executive Officer
(e) Designates Executive Officer of the Bank
(f) Designates Executive Officer of the Trust Company
NOTES:
<F1> In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares of Common Stock 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 or voting
interest in shares set opposite their respective names.
<F2> Includes 503,790 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 shares held by the Fund. Mr. Boutin
disclaims beneficial ownership of all such shares held by the Fund.
Also includes 44,168 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
Nonpublic-Employee Directors. See "Compensation of Directors". See
also Note 9 with respect to the voting of these shares.
<F4> Includes 4,785 shares held in trust for Mr. Davis' two minor sons,
1,219 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 19,579 shares, which Mr. Havers may acquire pursuant to the
exercise of certain vested stock options.
<F7> Includes 18,849 shares, which Mr. Heaslip may acquire pursuant to the
exercise of certain vested stock options.
<F8> Includes 19,579 shares, which Mr. Leavitt may acquire pursuant to the
exercise of certain vested stock options.
<F9> Includes 154,077 shares held in various trusts related to the 1996
Compensation Plan for Nonpublic-Employee Directors, which is active,
and the Bank's former Deferred Compensation Plan for Directors and
the 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 8,288 shares, which Ms.
Spitler may acquire pursuant to the exercise of certain vested stock
options.
<F10> Includes 503,790 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 Fund. Also
includes 26,952 shares, which Mr. Tuttle may acquire pursuant to the
exercise of certain vested stock options.
<F11> Includes 503,790 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
154,077 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 the
Executive Salary Continuation Plan, both of which were terminated in
December 1995; and 137,415 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 2000 furnished to the Company, the Company
believes all Section 16(a) filing requirements applicable to its executive
officers and directors were complied with.
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 2001. The Company has been
advised by Arthur Andersen LLP that neither it nor any of its members or
associates has 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.
AUDIT FEES
The aggregate fees billed for professional services rendered for the
audit of the Company's annual financial statements for the year ended
December 31, 2000, and the reviews of the financial statements included in
the Company's Forms 10-Q for that year, were $132,750.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLMENTATION FEES
Arthur Andersen LLP did not render any professional services to the
Company in connection with the design or implementation of financial
information systems during the year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed for all other services rendered by Arthur
Andersen LLP for the year ended December 31, 2000, were $72,645. These fees
include tax compliance and planning services, and electronic data
processing audit services.
AUDITOR INDEPENDENCE
The Audit Committee has considered whether the provision of the
services described under "All Other Fees" is compatible with maintaining
Arthur Andersen LLP's independence.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2000, with
the Company's management.
The Audit Committee has discussed with Arthur Andersen LLP the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 380).
The Audit Committee has received the written disclosures and the
letter from Arthur Andersen LLP required by Independence Standards Board
Standard No. 1 ("Independent Discussions with Audit Committees") and has
discussed with Arthur Andersen LLP their independence.
Based on the review and discussions with management and the Company's
independent accountants referred to above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 and for filing with the Securities and Exchange
Commission.
Respectfully submitted,
Peter A. Bouyea, Chairman
Jeffrey L. Davis
Lorilee A. Lawton
Patrick S. Robins
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 2002 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of
the Company's shareholders at its Annual Meeting of Shareholders in 2002,
scheduled to be held on Tuesday, April 24, 2002, will be required, pursuant
to a rule of the Securities and Exchange Commission, to deliver the
proposal to the Company on or prior to December 2, 2001. 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, 2000, which includes audited 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 1999 and
2000.
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,
Patti J. White
Secretary
Merchants Bancshares, Inc.
164 College St.
Burlington, VT 05401
APPENDIX A
Merchants Bancshares, Inc.
and Subsidiaries
AUDIT COMMITTEE CHARTER
PURPOSE
* The primary function of the Audit Committee as delegated by the Board
of Directors is to promote quality and reliable financial reporting
and adequate and effective internal controls for Merchants
Bancshares, Inc., and its subsidiaries. It promotes the adequacy,
independence and objectivity of the internal and external audit and
loan review functions and the effective identification and management
of risks throughout the organization.
AUTHORITY
* The Audit Committee has full authority to engage the resources
necessary to fulfill its oversight responsibilities, including but
not limited to:
- Requests of regular and special audit/loan review work from
internal and external auditors or other external resources.
- Requests of all necessary resources and information from
management in the performance of its responsibilities.
- Employment of independent accounting, legal and consulting
services at its discretion without prior consultation with the
Board of Directors or management.
RESPONSIBILITIES AND ACTIVITIES
General:
* Discuss any significant disagreements between management and either
the internal or external auditors and any scope limitations and/or
lack of cooperation by management.
* Provide open avenues of communication between the internal and
external auditors and the Audit Committee.
* Report Audit Committee activities, observations and recommendations
periodically to the Board of Directors via meeting minutes or other
means as appropriate.
Financial Reporting/Internal Controls:
* Review and discuss with management and the external auditors the
content of the audited and unaudited financial statements, including:
- the effect and quality of significant accounting principles
applied and related changes including any disagreements with
management over the application of accounting principles;
- selection of and changes in significant accounting policies;
- the methods used to account for significant unusual
transactions;
- the process used by management in formulating particularly
sensitive accounting estimates and the bases for the auditor's
conclusions regarding the reasonableness of those estimates;
- significant financial variations from the prior year and from
the budget;
- significant accounting and reporting issues and underlying
judgment calls;
- the nature and bases of significant accruals, reserves and other
estimates disclosed in the financial statements;
- public disclosures;
- unrecorded audit adjustments;
- the appropriateness of management's discussion and analysis of
operations in SEC filings and consistency with the financial
statements.
* Review with the external auditors, and management as necessary,
interim financial statements, including the quality of the Company's
accounting principles and unrecorded adjustments, before Form 10-Q
filings.
* Review with the external auditors and management the business and
financial reporting risks and/or control process deficiencies giving
risk to any recorded or unrecorded adjustments.
* Review with management and the external auditors, as necessary,
policies, procedures and practices affecting financial reporting and
internal controls. Include consideration of SEC Staff Accounting
Bulletin No. 99, Materiality, which reiterates that exclusive
reliance on quantitative benchmarks to assess materiality in
preparing financial statements and performing audits of those
financial statements is inappropriate. Materiality cannot be reduced
to numerical formula. Qualitative factors may cause misstatements of
quantitatively small amounts to be material. Considerations include
changes in trends, compliance with regulatory and contractual
requirements, concealment of unlawful activity, etc.
* Review with management and the external auditors the implications of
SEC Staff Accounting Bulletins, the control processes in place to
comply with their requirements, and the audit approach used by the
external auditors to test these control processes.
* Review with management and the external auditors the basis for the
reports issued in accordance with Section 112 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) and the
resulting assessments of the adequacy of internal controls and
compliance with laws and regulations.
* Review with management and the internal and external auditors the
effectiveness of the company's internal control structure, including
any significant control deficiencies identified from audit/loan
review/risk management assessments.
* Recommend to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K or 10-KSB.
* Include a report in the annual proxy statement stating certain
matters required by SEC rules (ADDENDUM 1).
Risk Management/Other:
* Review with internal auditors quarterly activities related to
audit/loan review/risk management, including work performed and
findings and recommendations.
* As part of risk management oversight responsibilities, review
annually, or as necessary, with the Company's Compliance, Security
and Insurance Officers:
- The adequacy of the Company's processes for compliance with
laws, rules and regulations; compliance with the Company's Code
of Conduct; the Bank's Community Reinvestment Act program; and
significant regulatory compliance matters.
- Significant security matters, including those concerning
employee dishonesty and external fraud.
- The adequacy of the Company's bonding and casualty insurance
coverage.
Internal and External Auditor Oversight:
* Review and approve annual internal audit/loan review/risk management
plans, including contracts with external firms.
* Review and approve annual external auditor engagement plans, scopes
and fees. The ultimate accountability of the outside auditor is to
the Board of Directors and Audit Committee.
* Recommend the retention of the external auditors to the Board of
Directors.
* Receive written disclosures at least annually from the external
auditors regarding all relationships between the auditor and its
related entities that in the auditor's professional judgement may
reasonably be thought to bear on independence and confirm in its
professional judgement that it is independent of the Company within
the meaning of the Securities Acts. *
* Discuss the external auditor's independence with the external auditor
at least annually. *
* Review and approve the appointment and remuneration of the Audit/Risk
Management Director and department staffing levels.
(* = Required of independent auditors under Independence Standards
Board (ISB) No. 1.)
MEETINGS
* Meetings will be held quarterly or as necessary. Executive sessions
will be held as needed.
MEMBERSHIP
* The Audit Committee is comprised of a minimum of three and a maximum
of five independent Directors who are not members of management and
who are "independent" of the Company and are otherwise qualified to
serve as members of the Audit Committee in accordance with the rules
and regulations of the SEC and NASD. Audit Committee members will
have no relationship to the company that may interfere with the
exercise of their independence from management and the Company, as
described in the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA).
* The Chairman and other members of the Audit Committee are appointed
by the Chairman of the Board and ratified by the Board of Directors.
Changes in membership may be made at any time at the discretion of
the Chairman of the Board in consultation with the Chairman of the
Audit Committee.
* The Board of Directors will review Audit Committee membership at
least annually to determine if members continue to be independent and
otherwise qualified to serve as members of the Audit Committee in
accordance with the rules and regulations of the SEC and the Nasdaq
and the FDIC Improvement Act. Disclosure is to be made in the proxy
statement if a director is determined not to be independent under
Nasdaq rules (ADDENDUM 2).
* All members of the Audit Committee shall have a working familiarity
with basic finance and accounting practice, and at least one member
of the Audit Committee shall have accounting or related financial
management experience.
CHARTER
* The adequacy of this charter will be reviewed and reassessed by the
Audit Committee annually and approved by the Board of Directors.
* The SEC requires that the Audit Committee Charter be published every
three years in the annual meeting proxy statement.
* BOD approval date: December 21, 2000
Merchants Bancshares, Inc.
and Subsidiaries
Audit Committee Charter
- ADDENDUM 1 -
The SEC requires proxy statements to include a report from the Audit
Committee stating:
(1) whether the audit committee has
(a) reviewed and discussed the audited financial statements with
management
(b) discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61(1)
(c) received disclosure from the auditors regarding the auditors'
independence required by Independence Standards Board Standard
No. 1,(2) and discussed with the auditors the auditors'
independence
(2) whether, based upon such review and discussion, the audit committee
recommended to the Board of Directors that the audited financial statements
be included in the Company's Form 10-K.
The SEC rules also:
* require a company to disclose in its proxy statement whether the
Board of Directors has adopted a written charter for the audit
committee, and if so, to include a copy of the charter as an appendix
to the Company's proxy statement at least once every three years
* require a company to disclose in its proxy statement whether audit
committee members are "independent" as defined by the relevant
securities exchange or Nasdaq, and disclose certain information
regarding any director on the audit committee who is not
"independent"
* provide a "safe harbor" for the new proxy statement disclosures to
protect companies and their directors from certain liabilities under
the federal securities laws
- --------------------
[FN]
<F1> SAS No. 61 requires an independent auditor to communicate to the
audit committee matters related to the conduct of the audit such as
the selection of and changes in significant accounting policies, the
methods used to account for significant unusual transactions, the
effect of significant accounting policies in controversial or
emerging areas, the process used by management in formulating
particularly sensitive accounting estimates and the basis for the
auditor's conclusions regarding the reasonableness of those
estimates, significant adjustments arising from the audit, and
disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
<F2> Under ISB Standard No. 1, at least annually, an auditor must (1)
disclose to the audit committee, in writing, all relationships
between the auditor and its related entities and the company and its
related entities that in the auditor's professional judgment may
reasonably be thought to bear on independence; (2) confirm in the
letter that, in its professional judgment, it is independent of the
company within the meaning of the Securities Acts; and (3) discuss
the auditor's independence with the audit committee.
</FN>
Merchants Bancshares, Inc.
and Subsidiaries
Audit Committee Charter
- ADDENDUM 2 -
On December 14, 1999, the SEC approved amendments to Nasdaq's independent
director and audit committee listing standards, which Nasdaq proposed in
September following the recommendations of The Blue Ribbon Committee on
Improving the Effectiveness of Corporate Audit Committees.
Independent Directors
The new rules specify the relationships that disqualify a director from
being considered "independent" for purposes of serving as a member of an
audit committee. A director will not be considered "independent" if he or
she has:
* been employed by the corporation or its affiliates in the current or
ast three years;
* accepted any compensation from the corporation or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary
compensation);
* an immediate family member who is, or has been in the past three
years, employed by the corporation or its affiliates as an executive
officer;
* been a partner, controlling shareholder or an executive officer of
any for-profit business to which the corporation made, or from which
is received , payments (other than those which arise solely from
investments in the corporation's securities) that exceed five percent
of the organization's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years; or
* been employed as an executive of another entity where any of the
company's executives serve on that entity's compensation committee.
Audit Committee-Structure and Membership Requirements
The new rules require that audit committees have a minimum of three members
and be comprised of independent directors only. All directors must be able
to read and understand fundamental financial statements, including a
company's balance sheet, income statement, and cash flow statement. At
least one director must have past employment experience in finance or
accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past position
as a chief executive or financial officer or other senior officer with
financial oversight responsibilities.
Under exceptional and limited circumstances, however, the new rules allow
one non-independent director to serve on the audit committee, provided that
the board determines it to be in the best interests of the corporation and
its shareholders, and the board discloses the reasons for the determination
in the company's next annual proxy statement. Current employees or
officers, or their immediate family members, however, are not able to serve
on the audit committee under this exception.
COMMON STOCK MERCHANTS BANCSHARES, INC. COMMON STOCK
Proxy Solicited by the Board of Directors for
2000 Annual Meeting of Shareholders on May 1, 2001
The undersigned hereby appoints Andrew T. Kloeckner and Ardyce J. Cochran,
and each of them, proxies, with full power of substitution, to vote at the
2000 Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be
held on May 1, 2001 (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?
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[x] PLEASE MARK AS IN THIS EXAMPLE
MERCHANTS BANCSHARES, INC.
COMMON STOCK
CONTROL NUMBER:
RECORD DATE SHARES:
The Board of Directors recommends a vote FOR the Proposal listed below.
1. Election of Directors.
[ ] For All Nominees [ ] Withhold [ ] For All Except
(01) Jeffrey L. Davis
(02) Michael G. Furlong
(03) Raymond C. Pecor, Jr.
(04) 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 of the
nominee. Your shares will be voted for the remaining nominee.
2. To transact any other business which may properly come before the
meeting or any adjournment thereof.
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Please be sure to sign and date this Proxy. |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 this card. [ ]
Detach Card Detach Card