Merchants Bancshares, Inc.
164 College Street
Burlington, Vermont 05401
(802) 658-3400
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 29, 1997
Notice is hereby given that the regular Annual Meeting of Shareholders
of Merchants Bancshares, Inc., a Delaware corporation (the "Company"), will
be held at the Sheraton Burlington Hotel & Conference Center, 870 Williston
Road, South Burlington, Vermont on Tuesday, April 29, 1997, at 10 a.m. for
the following purposes:
1. To elect two Directors of the Company, each of whom will serve for
a three-year term;
2. To ratify and approve a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized
shares of common stock of the Company;
3. To ratify and approve the Merchants Bancshares 1996 Compensation
Plan for Non-Employee Directors;
4. To ratify and approve the Long-Term Incentive/Stock Option Plan;
5. To ratify and approve the sale of certain shares of Company Common
Stock to Trusts; and
6. To transact any other business which may properly come before the
meeting, or any adjournment thereof.
The close of business on March 21, 1997 has been fixed as the record
date for determination of stockholders entitled to notice of and to vote at
the Annual Meeting. The Bylaws require that the holders of a majority in
interest of all stock issued, outstanding and entitled to vote be present in
person or represented by proxy at the Annual Meeting in order to constitute
a quorum for the transaction of business.
By order of the Board of Directors
Raymond C. Pecor, Jr. Joseph L. Boutin
Chairman of the President and
Board of Directors Chief Executive Officer
Burlington, Vermont
March 25, 1997
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
164 College Street
Burlington, Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
April 29, 1997
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 29, 1997 and at any
adjournments thereof. Shareholders of record at the close of business on
March 21, 1997 will be entitled to vote at the Annual Meeting. This Proxy
Statement and the accompanying form of proxy are first being mailed or given
to holders of common stock, par value $0.01 per share, of the Company (the
"Common Stock") on or about March 25, 1997.
Proxies in the form enclosed are solicited by the Board of Directors
of the Company. Any such proxy, if received in time for voting and not
revoked, will be voted at the Annual Meeting in accordance with the
instructions of the shareholder. If no instructions are given on the proxy,
the proxy will be voted FOR the election, as directors of the Company, of
the nominees named within, and FOR the other proposals described within. At
present, management knows of no additional matters to be presented at the
Annual Meeting, but if other matters are presented, the persons named in the
proxy and acting thereunder will vote or refrain from voting in accordance
with their best judgment pursuant to the discretionary authority conferred
by the proxy.
A proxy may be revoked at any time prior to its exercise (i) by
submitting a written notice, addressed to Jennifer L. Varin, at the
principal office of the Company, revoking such proxy, or (ii) in open
meeting prior to the taking of a vote. Any shareholder of the Company
entitled to vote at the Annual Meeting may attend the Annual Meeting and
vote in person on any matter presented for a vote to the shareholders of the
Company at the Annual Meeting, whether or not such shareholder has
previously given a proxy.
Solicitation of proxies will be made initially by mail. Proxies may
also be solicited personally, by telephone or by facsimile transmission by
the directors, officers and other employees of the Company or of the
Company's subsidiary, the Merchants Bank (the "Bank"). The Company will bear
all costs and expenses incurred in connection with this solicitation,
including the cost of printing and mailing these proxy materials and the
expenses, charges and fees of brokers, custodians, nominees and other
fiduciaries who, at the request of the management of the Company, mail
material to or otherwise communicate with the beneficial owners of the
shares of Common Stock of the Company held of record by such brokers,
custodians, nominees or other fiduciaries.
Written notice of the results of the voting at the Annual Meeting or
adjournments thereof will not be mailed to shareholders, but will be
available upon request, without charge. The Company maintains its principal
executive offices at 164 College Street, Burlington, Vermont 05401, and its
telephone number is (802) 658-3400.
VOTING SECURITIES
As of March 21, 1997, the record date for the Annual Meeting, there
were 4,427,873 shares of Common Stock of the Company outstanding, all of
which are entitled to vote at the Annual Meeting. Fractional shares are not
entitled to be voted, but each full share of Common Stock of the Company
entitles the holder thereof to one vote on all matters properly brought
before the Annual Meeting. At present, the Common Stock is the only class of
capital stock of the Company that is issued and outstanding.
The following table provides information regarding persons or
organizations known by the Company to be the beneficial owners of more than
five percent (5.00%) of the outstanding shares of Common Stock of the
Company as of February 15, 1997.
Amount and
Name of Nature of
Beneficial Beneficial Percent of Notes of
Owner Ownership (1) Class Explanation
- ----------------------------------------------------------------------------
General Educational Fund Inc. 723,790 16.35% (2)
Merchants Bank 401(k) Employee 396,691 8.96% (3)
Stock Ownership Plan
Charles A. Davis 276,753 6.25% (4)
- --------------------
<F1> In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares are shown as beneficially owned if the person named in
the table has or shares the power to vote or to direct the voting of,
or the power to dispose or to direct the disposition of, such shares.
Inclusion of shares in the table does not necessarily mean that the
persons named have any economic 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 Fund consists of the following individuals, who also serve the
Company and/or the Bank in the capacities as indicated: Joseph L.
Boutin, President, Chief Executive Officer and Director of the Company
and the Bank, Michael R. Tuttle, Executive Vice President of the Bank
and Geoffrey R. Hesslink, Vice President of the Bank. The number of
shares indicated above does not include shares of Common Stock of the
Company owned by the Trustees individually. See "Security Ownership of
Certain Beneficial Owners and Management ".
<F3> While participants in the Bank's 401(k) Employee Stock Ownership Plan
(the "401(k) Plan") have the right to designate how shares allocated
to their respective accounts are to be voted, the Plan Administration
Committee of the 401(k) Plan is authorized to vote the shares for
which no such designation is made by participants.
<F4> Includes (i) 4,184 shares held in trust for Mr. Davis' two minor sons;
(ii) 1,066 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 "Election of Directors" for Mr. Davis' biography.
ELECTION OF DIRECTORS
(Proposal Number 1)
The By-laws of the Company stipulate that the business and affairs of
the Company shall be managed by a Board of Directors, which shall consist of
not less than nine nor more than twenty-one individuals divided into three
classes as nearly equal in size as possible.
At a meeting held on January 21, 1997, the Board of Directors of the
Company unanimously voted to fix the number of directors at ten, and to
introduce for adoption at the Annual Meeting the following resolution:
RESOLVED: That Peter A. Bouyea and Charles A. Davis 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 2000, 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 two
nominees for Director of the Company, their principal occupations, ages and
periods of service as directors of the Company. Information regarding their
ownership of shares of Common Stock of the Company as of February 15, 1997
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 in the year 2000.
Principal Director of the
Class Name Age Occupation Company Since
- ---------------------------------------------------------------------------------------------
I Peter A. Bouyea 49 Consultant to the Baking Industry 1994
South Burlington, VT
I Charles A. Davis 48 Senior Director, Goldman Sachs & Co. 1985
New York, NY
The following biographical information is provided for the two
nominees as indicated above:
Peter A. Bouyea
Peter A. Bouyea has served as a Director of the Bank since April 30,
1993 and was elected a Director of the Company in May 1994. He is a graduate
of LeMoyne College, Syracuse, New York in 1970 with a Bachelor of Arts in
Economics. He retired in December 1994 as President of Bouyea-Fassetts,
Inc., a wholly-owned indirect subsidiary of Philip Morris, Inc. Since his
retirement in December 1994, Mr. Bouyea has acted as a consultant to the
general baking industry. Mr. Bouyea is a Director of the Ronald McDonald
House. Mr. Bouyea resides with his wife Linda and family at 111 South Cove
Road, Burlington, Vermont.
Charles A. Davis
Charles A. Davis has served as a Director of the Company since 1985.
He is a Senior Director of Goldman Sachs & Company, a New York based
investment banking firm located at 85 Broad Street, New York, NY 10004.
Prior to his being named a Senior Director, Mr. Davis was a partner at
Goldman Sachs & Company. Mr. Davis is a Director of the following companies
all of which have a class of stock registered with the Securities and
Exchange Commission: Media General, Inc., Lechters, Inc., USLIFE Corp.,
Progressive Corp. and Heilig-Meyers, Inc. Mr. Davis resides with his wife
Marna, and sons Tucker and Tyler, at 17 Field Point Drive, Greenwich,
Connecticut.
If at the time of the Annual Meeting any of the nominees should be
unable to serve or should decline to serve, the discretionary authority
provided in the proxies may be exercised to vote for a substitute or
substitutes, who would be designated by the Board of Directors of the
Company, and would be elected to the same class or classes as the nominees
for whom they are substituted. Neither the Bylaws of the Company nor
applicable law restrict the nomination of other individuals to serve as
directors, and any shareholder present at the Annual Meeting may nominate
another candidate.
An affirmative vote of a majority of the shares of Common Stock of the
Company represented in person or by proxy at the Annual Meeting is necessary
for the election of the individuals named above. There is no cumulative
voting in elections of directors of the Company. Unless otherwise specified,
proxies will be voted in favor of the nominated individuals.
The Board of Directors of the Company recommends that the stockholders
vote "FOR" the election of the nominees listed above.
Continuing Directors
The following table sets forth certain information about those
Directors of the Company whose terms of office do not expire at the Annual
Meeting and who consequently are not nominees for re-election at the Annual
Meeting.
Director of Term of
Principal Company Office will
Class Name Age Occupation Since Expire
- ---------------------------------------------------------------------------------------------------------
II Joseph L. Boutin 49 President & CEO of the Company and 1994 1998
the Bank
II Jeffrey L. Davis 44 President, J.L. Davis, Inc. 1993 1998
Burlington, VT
II Michael G. Furlong 46 Attorney, Sheehey Brue Gray & 1991 1998
Furlong P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 57 Chairman, Lake Champlain 1978 1998
Transportation Co.
Burlington, VT
II Patrick S. Robins 58 Treasurer, SymQuest Group, Inc. 1974 1998
Burlington, VT
III Leo O'Brien, Jr. 66 Partner, Vice President, O'Brien 1969 1999
Brothers Agency, Inc.
South Burlington, VT
III Benjamin F. Schweyer 71 Retired, formerly an Attorney, Latham, 1969 1999
Eastman, Schweyer & Tetzlaff, P.C.
Burlington, VT
III Robert A. Skiff, Ph.D. 55 Headmaster, Vermont Commons School 1984 1999
Burlington, VT
Mr. Boutin became President and Chief Executive Officer of the Company
and the Bank on October 24, 1994. From September 1989 until October 1994,
Mr. Boutin was President of the Howard Bank in Burlington, Vermont. Mr.
Robins has been Treasurer of SymQuest Group, Inc., a company headquartered
in Burlington, Vermont, which specializes in computer education and service
and facsimile and copier machine services, since February 1996. Prior to
such time, Mr. Robins was President of McAuliffe, Inc., a company which
specialized in computer education and services and facsimile and copier
machine services. Dr. Skiff founded the Vermont Commons School in
Burlington, Vermont in July 1996. Prior to such time, Dr. Skiff was
Presidential Fellow for Economic Development at the University of Vermont.
Prior to July 1992, Dr. Skiff was President of Champlain College in
Burlington, Vermont.
Except as indicated above, each Director has been employed during the
past five years in his respective positions.
Bank Directors
All of the above-named Directors of the Company are also Directors of
the Bank. In addition to the above-named Directors, Lorilee A. Lawton and
Carole A. Ziter are also Directors of the Bank. Ms. Lawton, who is 49 years
old, is a majority owner of Red Hed Supply, Inc., a wholesaler of
underground pipeline materials, located in Colchester, Vermont. Ms. Ziter,
who is 54 years old, is President of Sweet Energy, a mail order food
company, located in Colchester, Vermont.
Other Information About the Board and its Committees
Attendance of Directors
During 1996, nine meetings of the Board of Directors of the Company
(the "Company Board") were held. The following Directors of the Company
attended fewer than seventy-five percent of the meetings of the Company
Board: Charles A. Davis, Dudley H. Davis, Thomas F. Murphy, Raymond C.
Pecor, Jr., and Benjamin F. Schweyer. Mr. Dudley H. Davis and Mr. Thomas F.
Murphy have chosen not to stand for re-election as Directors of the Company
at the Annual Meeting.
Compensation of Directors
For attendance during 1996, Directors of the Company were paid a
quarterly retainer of $1,000. In addition, Directors received an attendance
fee for every meeting attended of $500, unless the Company Board meeting was
held simultaneously with a regular meeting of the Board of Directors of the
Bank (the "Bank Board"), in which case the fee was $250.
During 1996, 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.
Until December 1995, the Bank maintained a Deferred Compensation Plan
for Directors (the "Plan"). Under the Plan, Directors of the Bank were
entitled to defer a portion of their compensation (see above) under either
of two possible arrangements. Under the first arrangement, known as the
"Fixed Growth" program, Directors who chose to defer a portion of their
compensation would be entitled to receive, beginning upon attaining the age
of 65-1/2, compensation based on a fixed rate. The Fixed Growth program was
terminated in December 1995 pursuant to agreements between the Bank and the
individuals so affected. In connection with the termination of the Fixed
Growth program, the Bank agreed to establish trusts for the benefit of those
individuals, funded with Company Common Stock to be distributed to the
individuals under the terms of those agreements. See "APPROVAL OF THE SALE
OF SHARES OF MERCHANTS BANCSHARES, INC. STOCK TO TRUSTS (Proposal Number
5)."
In addition, the Bank continues to maintain the second arrangement,
known as the "Floating Growth (savings)" program. The Board of Directors of
the Bank voted at their meeting on February 20, 1997 to amend the Plan to
provide that no additional compensation may be deferred into the Floating
Growth (savings) program after July 1, 1997. Benefits accrue based on the
Directors' fees deferred and a monthly allowance for interest at a rate that
is fixed from time to time in the discretion of the Bank Board. The benefits
under the Floating Growth (savings) program are generally payable starting
on the January 2nd following a participant's 65th birthday or earlier death,
and will be distributed to the participant (or upon the participant's death,
to the participant's designated beneficiary) in accordance with the plan.
It is the intention of the Company that if the shareholders of the
Company approve the 1996 Compensation Plan For Non-Employee Directors (the
"1996 Plan") at the Annual Meeting, the 1996 Plan will replace the Plan
discussed above, except to the extent that individuals have vested rights
under the Plan. See "Approval of the Merchants Bancshares 1996 Compensation
Plan for Non-Employee Directors (Proposal Number 3)."
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 functions of the Audit Committee are (i) to serve as the primary
means of communication between the Board of Directors and both the
independent accountants and the internal auditor, (ii) to assist and make
recommendations to the Board of Directors in fulfilling its responsibilities
relating to the Bank's financial reporting and internal control policies and
practices, (iii) to review with the independent accountants and the internal
auditor the scope of the annual audit plan, the results of the annual audit
and the adequacy of the Bank's internal accounting controls, (iv) to make
recommendations to the Board of Directors with respect to the selections of
independent accountants, (v) to review any non-audit services rendered by
the independent accountants, (vi) to monitor compliance with the Bank's
business ethics policies and (vii) to engage independent accountants and
other professional advisors to conduct such special reviews or studies as
the committee deems appropriate in fulfilling its responsibilities.
Other areas covered by the Audit Committee on a regular basis are: (i)
review matters relative to security and insurance coverages and (ii)
regulatory compliance, including reports issued in accordance with Section
112 of the Federal Deposit Insurance Corporation Improvement Act.
During 1996, seven meetings of the Audit Committee were held. The
Committee consisted of Robert A. Skiff, Peter A. Bouyea, Jeffrey L. Davis,
Lorilee A. Lawton and Benjamin F. Schweyer.
Compensation Committee:
The Compensation Committee is responsible for establishing the
compensation of the Company's and the Bank's directors, officers and
employees, including salaries, bonuses, commissions, benefit plans, the
grant of options and other forms of, or matters relating to compensation.
During 1996, twelve meetings of the Compensation Committee were held.
The Committee consists of the following independent members of the Bank
Board: Michael G. Furlong, Chair, Leo O'Brien, Jr., Patrick S. Robins and
Carole A. Ziter.
Shareholder Value Committee:
The function of the Shareholder Value Committee is to consider and
make recommendations to the Company Board of Directors on proposals which
effect the value of shareholders' investment in Company Common Stock.
During 1996, the Committee held no meetings. The Committee consists of
the following independent members of the Board of Directors: Peter A.
Bouyea, Charles A. Davis, Thomas F. Murphy, and Benjamin F. Schweyer.
Compensation of Principal Officers
Compensation of principal officers is paid by the Bank. The following
table sets forth aggregate cash compensation paid by the Bank over the past
three calendar years to the most highly compensated principal officers of
the Company or the Bank whose salary and bonus for 1996 exceeded $100,000
("Named Principal Officers").
Summary Compensation Table
Long-Term Compensation
------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------
Name and Securities
Principal Underlying LTIP All Other
Position Year Salary Bonus Options Payouts(13) Compensation
- ---------------------------------------------------------------------------------------------------------
Joseph L. Boutin 1996 $199,992 $ 100,000(1) 15,000(2) 0 $14,022(3)
President, and Director of 1995 $203,838 $ 0 0 0 $18,880
the Company and Bank 1994 $ 34,614 $ 0 20,000 0 0
Michael R. Tuttle 1996 $119,991 $ 75,000(4) 5,000(5) 0 $13,192(6)
Executive 1995 $110,765 $ 0 10,000 0 $ 9,972
Vice-President of the Bank
Thomas R. Havers 1996 $102,542 $ 20,000(7) 0 0 $13,671(8)
Senior Vice-President 1995 $101,531 $ 0 5,000 $84,416 $ 9,616
of the Bank 1994 $ 98,070 $ 10,000 0 0 $ 5,215
Thomas S. Leavitt 1996 $ 94,626 $ 13,334(9) 10,000 0 $51,698(10)
Senior Vice-President
of the Bank
William R. Heaslip 1996 $ 91,870 $ 20,000(11) 5,000 0 $ 7,143(12)
President, Merchants
Trust Company
- --------------------
<F1> Of the amount listed as Bonus paid to Mr. Boutin in 1996, $50,000 was
not paid until January 1997.
<F2> In December 1996, Mr. Boutin agreed to forego eligibility to receive
certain bonus payments pursuant to the terms of his employment
agreement with the Company and the Bank. In consideration for such
forebearance, in February 1997, the Company agreed to grant Mr. Boutin
stock options to purchase 15,000 shares of Company Common Stock. See
"Employment Agreements."
<F3> Includes contributions made by the Bank on behalf of Mr. Boutin
pursuant to the 401(k) Plan of $13,500 for 1996.
<F4> Of the amount listed as Bonus paid to Mr. Tuttle in 1996, $50,000 was
not paid until January 1997.
<F5> Represent options granted by the Company to Mr. Tuttle in February
1997.
<F6> Includes contributions made by the Bank on behalf of Mr. Tuttle
pursuant to the 401(k) Plan of $13,053 for 1996.
<F7> Of the amount listed as Bonus paid to Mr. Havers in 1996, $10,000 was
not paid until January 1997.
<F8> Includes contributions made by the Bank on behalf of Mr. Havers
pursuant to the 401(k) Plan of $13,500 for 1996.
<F9> Of the amount listed as Bonus paid to Mr. Leavitt in 1996, $5,000 was
not paid until January 1997.
<F10> Includes contributions made by the Bank on behalf of Mr. Leavitt
pursuant to the 401(k) Plan of $9,208. Additionally, the Company made
payments on his behalf related to his relocation in the amount of
$42,423.
<F11> Of the amount listed as Bonus paid to Mr. Heaslip in 1996, $10,000 was
not paid until January 1997.
<F12> Includes contributions made by the Bank on behalf of Mr. Heaslip
pursuant to the 401(k) Plan of $7,143 for 1996.
<F13> The obligations of the Bank to certain participants in the Phantom
Stock Plan were settled in December 1995 and paid out in January 1996.
--------------------
Option Grants in Last Fiscal Year
The following table provides information regarding stock options
granted to Named Principal Officers in 1996. Each of the individuals who
were granted stock options during 1996 were granted such options pursuant to
the terms of employment agreements between such individuals and the Company
and the Bank. See "Employment Agreements."
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
------------------------------------------------------- ---------------------
Number of % of Total
Securities Granted to Exercise
Underlying Employees Or Base
Options In Fiscal Price Expiration
Name Granted Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------
Joseph L. Boutin(1) 0 -- -- -- -- --
Michael R. Tuttle(2) 0 -- -- -- -- --
Thomas R. Havers 0 -- -- -- -- --
Thomas S. Leavitt (3) 10,000 67% $15.375 February 1, 2003 $72,550 $145,850
William R. Heaslip (4) 5,000 33% $14.875 December 29, 2002 $30,275 $ 75,560
- --------------------
<F1> In December 1996, Mr. Boutin agreed to forego eligibility to receive
certain bonus payments pursuant to the terms of his employment
agreement with the Company and the Bank. In consideration for such
forebearance, in February 1997, the Company agreed to grant Mr. Boutin
stock options to purchase 15,000 shares of Company Common Stock at any
exercise price of $20.438 per share. The options will become
exercisable on February 20, 1999 and will expire if not exercised on
or before February 20, 2007.
<F2> In February 1997, the Company granted Mr. Tuttle options to purchase
5,000 shares of Company Common Stock at an exercise price of $20.438
per share. The options will become exercisable on February 20, 1999
and will expire if not exercised on or before February 20, 2007.
<F3> Mr. Leavitt's option becomes exercisable after February 1, 1998. The
option is immediately exercisable if Mr. Leavitt is terminated without
just cause or due to his disability, or in the event that any
transaction occurs which results in a change of control of the Company
or Bank as each existed at February 1, 1996.
<F4> Mr. Heaslip's option becomes exercisable after December 29, 1997. The
option is immediately exercisable if Mr. Heaslip is terminated without
just cause or due to his disability, or in the event that any
transaction occurs which results in a change of control of the Company
or Bank as either existed at December 29, 1995.
--------------------
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table shows stock option exercises by the Named
Principal Officers, including the aggregate value realized upon such
exercise. "Value realized upon exercise" represents the excess of the
closing price of the Common Stock of the Company on the date of exercise
over the exercise price. In addition, this table includes the number of
shares remaining unexercised underlying both "exercisable" (i.e., vested)
and "unexercisble" (i.e., unvested) stock options as of December 31, 1996.
Also, reported are the values of "in-the-money" options, which represent the
positive spread between the exercise price of any such existing stock
options and the year-end price of the Common Stock of the Company of
$19.1875.
Number of Securities
Underlying Value Of Unexercised
Unexercised Options In-The-Money Options
At Fiscal Year-End At Fiscal Year End
---------------------------------------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------
Joseph L. Boutin(1) 0 0 20,000 0 $163,760 0
Michael R. Tuttle(2) 0 0 0 10,000 0 $91,880
Thomas R. Havers 0 0 0 5,000 0 $21,565
Thomas S. Leavitt 0 0 0 10,000 0 $38,130
William R. Heaslip 0 0 0 5,000 0 $21,565
- --------------------
<F1> Does not include options to purchase 15,000 shares of Company Common
Stock granted to Mr. Boutin by the Company in February 1997.
<F2> In January 1997, Mr. Tuttle's option became exercisable. In February
1997, Mr. Tuttle exercised options to purchase 5,000 shares of Company
Common Stock at an exercise price of $10.00 per share. Information
with respect to Mr. Tuttle's stock options does not include options to
purchase 5,000 shares of Company Common Stock granted by the Company
in February 1997.
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 1996; 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, 1996.
In connection with the termination of the Bank's Executive Salary
Continuation Plan in December 1995, Mr. Havers has the right to receive
3,245 shares of Company Common Stock on a deferred basis in installments
over fifteen years, beginning upon Mr. Havers achieving the age of sixty-
five. See "APPROVAL OF THE SALE OF SHARES OF MERCHANTS BANCSHARES, INC.
STOCK TO TRUSTS (Proposal Number 5)."
Executive Officers of the Company and its Subsidiaries
The names and ages of the Executive Officers of the Company and its
subsidiaries and each Executive Officers' position with the Company and its
subsidiaries is listed below.
Positions and Officers with the
Name Age Company and its subsidiaries
- -------------------------------------------------------------------------------------------------
Joseph L. Boutin 49 President and Chief Executive Officer of the Company and the Bank
Michael R. Tuttle 41 Executive Vice President of the Bank
Thomas R. Havers 47 Senior Vice President of the Bank
Thomas S. Leavitt 38 Senior Vice President of the Bank
William R. Heaslip 52 President and Chief Executive Officer of Merchants Trust Company
Janet P. Spitler 37 Treasurer of the Company and Vice President, Treasurer and Controller
of the Bank
Mr. Boutin became President and Chief Executive Officer of the Company
and the Bank on October 24, 1994. From September 1989 until October 1994,
Mr. Boutin was President of the Howard Bank in Burlington, Vermont. Mr.
Tuttle has been employed by the Bank as Executive Vice President since
February 1995. Prior to such time, Mr. Tuttle was the Senior Lending Officer
at the Howard Bank in Burlington, Vermont. Mr. Havers has been Senior Vice
President of the Bank since 1990 and has been employed at the Bank since
1971. Mr. Leavitt has been Senior Vice President of the Bank since February
1996. From 1995 until February 1996, Mr. Leavitt was President of
SafetyMaster Corporation, a safety equipment distribution and technical
services company located in Billings, Montana. Mr. Heaslip has been the
President of the Merchants Trust Company since December 1995. Prior to such
time, Mr. Heaslip was Executive Vice President/Trust and Investment of
Chittenden Bank in Burlington, Vermont. Since December 1995, Ms. Spitler has
been the Treasurer of the Bank, with whom she has been employed since 1990.
Compensation Committee Report
The Compensation Committee represents both the Company and the Bank
and consists of four directors who are not officers or employees of the
Company; Michael G. Furlong, chair, Leo O'Brien, Patrick S. Robins, each a
director of the Company and the Bank, and Carole A. Ziter, a director of the
Bank.
The Committee's primary responsibilities are to provide independent
review and oversight and promote corporate accountability for executive
compensation, approve performance and base compensation policies for
executive management and employees, approve incentive plans, and to provide
oversight of company benefit programs.
Decisions on compensation of the Company's and the Bank's executives
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
Board. 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 1996 as they affected Mr. Boutin, the Company's chief executive
officer, and the other executive officers.
Compensation Policies Toward Executive Officers. Prior to 1997, the
Company's and the Bank's compensation program for executive officers
consisted primarily of two elements, base salary and specific bonuses based
on the achievement of defined corporate objectives. The Compensation
Committee's focus for 1997 will be expanded. 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. Executive
compensation is set at levels that the Compensation Committee believes to be
consistent with others in the Bank's industry.
The Compensation Committee also endorses the position that stock
ownership by management and stock-based performance compensation
arrangements are beneficial in aligning management's and shareholders'
interests in the enhancement of shareholder value. Thus, the Committee has
and will further incorporate these elements in designing the compensation
packages of the Company's executive officers.
Relationship of Performance Under Compensation Plans. The Company's
compensation policy with respect to executive officers is administered by
the Compensation Committee of the Board of Directors of the Company and the
Bank. The two key elements of this policy are base salary and the Company's
Annual Bonus Plan.
Each executive officer's annual performance review serves as the basis
for making adjustments to base salary. Individual performance evaluations
are closely tied to achievement of short as well as long term goals and
objectives, individual initiative, team-building skills, level of
responsibility and above-average corporate performance. Base salary is keyed
to the median of a peer group of regional commercial banks as established
from time to time by the Compensation Committee.
In addition to the base compensation, the Company has a bonus plan to
reward executive officers for accomplishing financial objectives set
annually by the Committee. Executives are eligible to receive bonuses of up
to 75% of salary. Bonuses were paid out to executive officers in 1996.
Long Term Incentive/Stock Option Plan. If approved at the Annual
Meeting, the Long Term Incentive/Stock Option Plan (the "Stock Option Plan")
will permit the Compensation Committee to grant stock options to key
personnel. Under the Stock Option Plan, each year a participating executive
officer will receive stock options with a "value" equal to 50% of his or her
base salary. The "value" of the options to be granted will be determined
using a widely accepted financial model which determines the value of stock
options. The exercise price of the options shall be determined annually, by
the Board of Directors, and shall be no less than fair market value as of
the date of the grant. For a further discussion of the Stock Option Plan,
see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK OPTION PLAN (Proposal Number
4)."
CEO Compensation:
Mr. Boutin serves the Bank pursuant to an employment agreement dated
January 1, 1997 which provides for his employment as President and CEO of
the Bank and Company through December 31, 1999. The terms of Mr. Boutin's
contract were negotiated at arms-length. Mr. Boutin's base salary is
$200,000 per year through calendar year 1997. See "Employment Agreements."
Employment and Severance Agreements:
Each of the Named Principal Officers have entered into Employment
Agreements with the Company and the Bank. These agreements specify the terms
of employment. The agreements provide that employment shall be at will, but
if the executive is terminated without just cause, or the executive resigns
for good reason, the Bank has agreed to pay in one lump sum the executive's
salary, plus provide for all normal benefits and accrued incentive payments,
for one year from the date of such discharge, or the time remaining under
the terms of the Agreement, whichever is greater. See "Employment
Agreements."
Members of the Compensation Committee
Michael G. Furlong, Chair
Leo O'Brien, Jr.
Patrick S. Robins
Carole A. Ziter
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 1996, and anticipates
obtaining such services during 1997 from the firm of Sheehey Brue Gray &
Furlong PC, of which Michael G. Furlong is a principal member. Mr. Furlong
is Chairman of the Compensation Committee. Fees paid to this firm by the
Bank for services and expenses in 1996 aggregated $74,093.
In 1996, the Bank purchased office supplies and equipment on a
competitive basis from McAuliffe, Inc. valued at $54,678 and from SymQuest
Group, Inc. valued at $108,952. Patrick S. Robins, who was President of
McAuliffe, Inc. until February 1996 and is currently Treasurer of SymQuest
Group, Inc., is a Class II Director of the Company and the Bank.
Compensation Committee Interlocks and Insider Participation
During 1996, the Compensation Committee included Michael G. Furlong,
Chairman, Leo O'Brien, Jr., Patrick S. Robins and Carole A. Ziter, all
independent, non-employee Directors of either the Company or the Bank.
Employment Agreements
Mr. Boutin, President and Chief Executive Officer of the Company and
the Bank entered into a new Employment Agreement ("New Employment
Agreement") with the Company and the Bank dated as of January 1, 1997. Under
the terms of the New Employment Agreement, which superseded the terms of Mr.
Boutin's prior employment agreement (the "Prior Employment Agreement") which
was to expire on October 24, 1997, Mr. Boutin will be employed as President
and Chief Executive Officer of the Company and the Bank. The New Employment
Agreement ends on December 31, 1999, subject to rights of renewal by the
Company and the Bank for additional one-year terms. The terms of the New
Employment Agreement are substantially identical to the terms of the Prior
Employment Agreement. The New Employment Agreement provides that Mr. Boutin
will be paid a base salary of $200,000 per annum. Mr. Boutin is also
eligible to receive bonuses upon the achievement of certain objectives
concerning the Company and the Bank as specified in the New Employment
Agreement and set annually by the Compensation Committee. Mr. Boutin is also
eligible to receive other fringe benefits made available to other employees.
Under the New Employment Agreement, Mr. Boutin is to receive, pursuant to
the Long Term Incentive/Stock Option Plan, stock options with a value equal
to 50% of his salary. For a further discussion of the Long Term
Incentive/Stock Option Plan, see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK
OPTION PLAN (Proposal Number 4)." Under the Prior Employment Agreement, Mr.
Boutin was also granted an option to purchase 20,000 shares of Company
Common Stock at an exercise price of $11.00 per share. The option became
exercisable in October 1996 and expires if not exercised by October 2001.
The New Employment Agreement also continues, until June 1997, Mr.
Boutin's eligibility to receive the bonuses upon the achievement of certain
regulatory objectives of the Company and the Bank specified in the Prior
Employment Agreement. However, pursuant to an agreement with the Company,
Mr. Boutin has agreed to forego his eligibility to receive such bonuses and
the Company has granted to Mr. Boutin an option to purchase 15,000 shares of
Company Common Stock at an exercise price equal to the fair market value of
the Company Common Stock on the date of grant. The option is exercisable
beginning on February 20, 1999 and terminates if not exercised on or before
February 20, 2007.
Mr. Tuttle, Executive Vice President of the Bank entered into a new
Employment Agreement ("New Employment Agreement") with the Bank dated as of
January 1, 1997. Under the terms of the New Employment Agreement, which
superseded the terms of Mr. Tuttle's prior employment agreement (the "Prior
Employment Agreement") which was to expire on October 31, 1997, Mr. Tuttle
will be employed as Executive Vice President of the Bank. The New Employment
Agreement ends on December 31, 1999, subject to rights of renewal by the
Company and the Bank for additional one-year terms. The terms of the New
Employment Agreement are substantially identical to the terms of the Prior
Employment Agreement. The New Employment Agreement provides that Mr. Tuttle
will be paid a base salary of $130,000 per annum. Mr. Tuttle is also
eligible to receive bonuses upon the achievement of certain objectives
concerning the Company and the Bank as specified in the New Employment
Agreement and set annually by the Compensation Committee. Mr. Tuttle is also
eligible to receive other fringe benefits made available to other employees.
Under the New Employment Agreement, Mr. Tuttle is to receive, pursuant to
the Long Term Incentive/Stock Option Plan, stock options with a value equal
to 50% of his salary. For a further discussion of the Long Term
Incentive/Stock Option Plan, see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK
OPTION PLAN (Proposal Number 4)." Under the Prior Employment Agreement, Mr.
Tuttle was also granted an option to purchase 10,000 shares of Company
Common Stock at an exercise price of $10.00 per share. The option became
exercisable January 30, 1997 and expires if not exercised on or before
January 30, 2002.
Mr. Havers, Senior Vice President of the Bank entered into a new
Employment Agreement ("New Employment Agreement") with the Bank dated as of
January 1, 1997. Under the terms of the New Employment Agreement, which
superseded the terms of Mr. Havers' prior employment agreement (the "Prior
Employment Agreement") which was to expire on October 31, 1997, Mr. Havers
will be employed as Senior Vice President of the Bank. The New Employment
Agreement ends on December 31, 1999, subject to rights of renewal by the
Company and the Bank for additional one-year terms. The terms of the New
Employment Agreement are substantially identical to the terms of the Prior
Employment Agreement. The New Employment Agreement provides that Mr. Havers
will be paid a base salary of $100,000 per annum. Mr. Havers is also
eligible to receive bonuses upon the achievement of certain objectives
concerning the Company and the Bank as specified in the New Employment
Agreement and set annually by the Compensation Committee. Mr. Havers is also
eligible to receive other fringe benefits made available to other employees.
Under the New Employment Agreement, Mr. Havers is to receive, pursuant to
the Long Term Incentive/Stock Option Plan, stock options with a value equal
to 50% of his salary. For a further discussion of the Long Term
Incentive/Stock Option Plan, see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK
OPTION PLAN (Proposal Number 4)." Under the Prior Employment Agreement, Mr.
Havers was also granted an option to purchase 5,000 shares of Company Common
Stock at an exercise price of $14.875 per share. The option becomes
exercisable on December 29, 1997 and expires if not exercised on or before
December 29, 2002.
Mr. Leavitt, Senior Vice President of the Bank entered into a new
Employment Agreement ("New Employment Agreement") with the Bank dated as of
January 1, 1997. Under the terms of the New Employment Agreement, which
superseded the terms of Mr. Leavitt's prior employment agreement (the "Prior
Employment Agreement") which was to expire on October 31, 1997, Mr. Leavitt
will be employed as Senior Vice President of the Bank. The New Employment
Agreement ends on December 31, 1999, subject to rights of renewal by the
Company and the Bank for additional one-year terms. The terms of the New
Employment Agreement are substantially identical to the terms of the Prior
Employment Agreement. The New Employment Agreement provides that Mr. Leavitt
will be paid a base salary of $100,000 per annum. Mr. Leavitt is also
eligible to receive bonuses upon the achievement of certain objectives
concerning the Company and the Bank as specified in the New Employment
Agreement and set annually by the Compensation Committee. Mr. Leavitt is
also eligible to receive other fringe benefits made available to other
employees. Under the New Employment Agreement, Mr. Leavitt is to receive,
pursuant to the Long Term Incentive/Stock Option Plan, stock options with a
value equal to 50% of his salary. For a further discussion of the Long Term
Incentive/Stock Option Plan, see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK
OPTION PLAN (Proposal Number 4)." Under the Prior Employment Agreement, Mr.
Leavitt was also granted an option to purchase 10,000 shares of Company
Common Stock at an exercise price of $15.375 per share. The option becomes
exercisable on February 1, 1998 and expires if not exercised by February 1,
2003.
Mr. Heaslip, President and Chief Executive Officer, Merchants Trust
Company entered into a new Employment Agreement ("New Employment Agreement")
with the Bank dated as of January 1, 1997. Under the terms of the New
Employment Agreement, which superseded the terms of Mr. Heaslip's prior
employment agreement (the "Prior Employment Agreement") which was to expire
on October 31, 1997, Mr. Heaslip will be employed as President and Chief
Executive Officer of the Merchants Trust Company. The New Employment
Agreement ends on December 31, 1999, subject to rights of renewal by the
Company and the Bank for additional one-year terms. The terms of the New
Employment Agreement are substantially identical to the terms of the Prior
Employment Agreement. The New Employment Agreement provides that Mr. Heaslip
will be paid a base salary of $95,000 per annum. Mr. Heaslip is also
eligible to receive bonuses upon the achievement of certain objectives
concerning the Company and the Bank as specified in the New Employment
Agreement and set annually by the Compensation Committee. Mr. Heaslip is
also eligible to receive other fringe benefits made available to other
employees. Under the New Employment Agreement, Mr. Heaslip is to receive,
pursuant to the Long Term Incentive/Stock Option Plan, stock options with a
value equal to 50% of his salary. For a further discussion of the Long Term
Incentive/Stock Option Plan, see "APPROVAL OF THE LONG TERM INCENTIVE/STOCK
OPTION PLAN (Proposal Number 4)." Under the Prior Employment Agreement, Mr.
Heaslip was also granted an option to purchase 5,000 shares of Company
Common Stock at an exercise price of $14.875 per share. The option becomes
exercisable on December 29, 1997 and expires if not exercised by December
29, 2002.
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); Eastern
Bancorp, Inc. (VFBK); Evergreen Corporation (EVGN); and Vermont Financial
Services Corporation (VFSC). These are six of the largest financial
institutions with which the Bank believes it competes most directly for
market share.
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.
NASDAQ MARKET INDEX AND PEER GROUP INDEX
ASSUMES $100 INVESTED ON JAN. 1, 1992
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1996
Fiscal Year Ending
Company 1991 1992 1993 1994 1995 1996
Merchants Bancshares, Inc. $100.00 $136.44 $109.68 $ 83.28 $121.87 $153.36
Peer Group 100.00 149.86 203.42 241.57 407.35 472.96
Broad Market 100.00 100.98 121.13 127.17 164.96 204.98
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the ownership of
Common Stock of the Company as of February 15, 1997 by each of the Directors
and Executive Officers and the Directors and Executive Officers as a group.
Amount and Nature of
Name Beneficial Ownership(1) Percent of Class
----------------------------------------------------------------------
Joseph L. Boutin(a) 758,486(2) 17.1%
Peter A. Bouyea(a) 54,543 1.2%
Charles A. Davis(a) 276,753(3) 6.3%
Dudley H. Davis(d) 56,855 1.3%
Jeffrey Davis(a) 24,563 *
Michael G. Furlong(a) 4,523 *
Thomas R. Havers(c) 17,091 *
William R. Heaslip(c) 399 *
Lorilee A. Lawton(b) 1,450 *
Thomas S. Leavitt(c) 937 *
Thomas F. Murphy(d) 22,605 *
Leo O'Brien, Jr.(a) 19,319 *
Raymond C. Pecor, Jr.(a) 124,372 2.8%
Patrick S. Robins(a) 21,997 *
Benjamin F. Schweyer(a) 63,703 1.4%
Robert A. Skiff, Ph.D.(a) 1,606 *
Janet P. Spitler(c) 881 *
Michael R. Tuttle(c) 731,012(4) 16.5%
Carole A. Ziter(b) 910 *
Directors and Executive
Officers as a Group 1,458,215(5) 32.9%
- --------------------
<F*> Shareholdings represent less than 1.00% of class.
<Fa> Designates Director of the Company and the Bank.
<Fb> Designates Director of the Bank only.
<Fc> Designates Named Principal Officer.
<Fd> Designates individual who served as Director of Company and the Bank
during 1996 but chose not to stand for re-election in 1997.
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 interest in shares set opposite their
respective names.
<F2> Includes 723,790 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 Fund. Also, includes 20,000
shares which Mr. Boutin may acquire pursuant to the exercise of
certain vested stock options.
<F3> Incudes 4,184 shares held in trust for Mr. Davis' two minor sons, 1,066
shares held directly by Mr. Davis' two minor sons, 10,525 shares held
by Mr. Davis as trustee of the Charles and Marna Davis Foundation and
9,776 shares owned by Mr. Davis' wife, Marna Davis.
<F4> Includes 723,790 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.
<F5> Includes 723,790 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.
--------------------
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and 10% shareholders to file
reports of ownership (Form 3) and changes of ownership (Form 4) with respect
to the Company's Common Stock with the Securities & Exchange Commission.
Executive officers, directors and principal shareholders are required to
furnish the Company with copies of all Section 16(a) forms they file. Based
upon a review of the filings for 1996 furnished to the Company, the Company
notes that Leo O'Brien, Jr., a director of the Company, filed a Form 4
report one month late with respect to the purchase of 500 shares; that
Lorilee A. Lawton, a director of the Bank, filed a Form 4 report eight
months late with respect to the purchase of 150 shares; that Carole A.
Ziter, a director of the Bank, filed Form 4 reports eight, three, two and
one month late with respect to the purchase of an aggregate of 910 shares.
INCREASE IN AUTHORIZED CAPITAL STOCK
(Proposal Number 2)
The Board of Directors, at its meeting on February 20, 1997, adopted a
resolution proposing an amendment to the Company's Certificate of
Incorporation increasing the authorized common stock of the Company from
4,700,000 shares, par value $.01 per share to 7,500,000 shares, par value
$.01 per share. The Company Board recommends that the shareholders vote in
favor of the proposed amendment.
The Company Board has determined that it would be appropriate for the
Company to increase the number of its authorized shares of Common Stock in
order to have additional shares available for possible future acquisition or
financing transactions and other issuances, the requirements of stock
compensation and dividend reinvestment plans or to satisfy requirements for
additional reservations of shares by reason of future transactions which
might require increased reservations. The Company Board believes that the
complexity of customary financing, employment and acquisition transactions
requires that the Directors be able to respond promptly and effectively to
opportunities that involve the issuance of shares of Common Stock. For
example, if the proposal is approved, the Company will have the flexibility
to authorize stock splits and stock dividends and to enter into joint
ventures and corporate financings involving the issuance of shares of Common
Stock. The Company has no present plans, agreements, understandings or
arrangements regarding transactions expected to require issuance of the
additional shares of Common Stock that would be authorized by the proposed
amendment.
If such additional shares are issued to persons other than existing
stockholders, the percentage interest of existing stockholders in the
Company will be reduced. This would have the effect of reducing the voting
power of the existing stockholders and per share earnings of the Company
which could adversely impact the consideration paid to shareholders of the
Company in the event of a merger or other transaction involving the Company.
While the Company presently has no intention of so using such shares,
the authorized but unissued shares of common stock could be used to impede
or discourage an attempted takeover of the Company, through dilution of
holdings of a person or entity attempting a takeover. The availability of
such additional shares, viewed in the context of the Company's existing
anti-takeover provisions, could have the cumulative effect of discouraging a
takeover attempt. The Company currently has several anti-takeover
provisions, including an eighty percent approval and fair price requirements
for certain business combinations, and two classes of preferred stock. In
addition, the Company has a classified Board of Directors with staggered
terms of office, as described above.
Under Delaware law, the affirmative vote of the holders of two-thirds
of the outstanding shares of the Company is required to approve the proposed
amendment. If it is adopted, the Board of Directors could authorize the
issuance of the additional authorized shares without further shareholder
approval.
The Board of Directors of the Company recommends that the stockholders
vote "FOR" the increase in authorized capital stock.
APPROVAL OF THE MERCHANTS BANCSHARES 1996 COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Proposal Number 3)
Since 1986, the Bank has had a Deferred Compensation Plan for
Directors pursuant to which Directors of the Bank were paid their annual
retainer and meeting fees, if any, in the form of cash, either current or
deferred. See "Compensation of Directors." The Board of Directors voted at
their meeting of February 20, 1997 to amend the current plan such that no
additional compensation may be deferred into the plan after July 1, 1997.
The Board of Directors believes that it is desirable to expand the current
plan to permit non-employee Directors of both the Company and the Bank to
defer receipt of their annual retainer and meeting fees by receiving those
fees in the form of restricted shares of the Common Stock of the Company.
Accordingly, on January 21, 1997 and February 20, 1997, the Board of
Directors of the Company and the Bank, respectively, adopted the Merchants
Bancshares, Inc. 1996 Compensation Plan for Non-Employee Directors.
The 1996 Compensation Plan for Non-Employee Directors (the "1996
Plan") will succeed the current plan if it is adopted by the Company's
stockholders at the Annual Meeting.
The following is a general summary of the 1996 Plan and is qualified
by reference to the terms of the 1996 Plan, a copy of which is available
from Jennifer Varin, Corporate Secretary of Merchants Bancshares, Inc., P.O.
Box 1009, Burlington, VT 05402.
PURPOSE: The purpose of the 1996 Plan is to provide a compensation
program for the non-employee Directors of the Company and the Bank that will
attract and retain highly qualified individuals to serve as members of the
Boards of Directors.
ADMINISTRATION: Subject to terms of the plan, the 1996 Plan will be
administered by a Management Committee, comprised of the Chief Executive
Officer and certain other senior officers of the Company. The Committee will
interpret the 1996 Plan, will prescribe, amend and rescind rules relating to
the 1996 Plan as it deems proper and in the best interests of the Company
and the Bank, and will take any other action necessary for the
administration of the 1996 Plan.
PARTICIPANTS: Each non-employee Director of the Company and the Bank
will be eligible to participate in the 1996 Plan immediately upon his or her
election to the Board of Directors. As of January 23, 1997, the effective
date of the 1996 Plan, there were 9 Directors of the Company and 11
Directors of the Bank eligible to participate.
SHARES AVAILABLE FOR THE PLAN: Subject to adjustment as provided in
the 1996 Plan (e.g., in the event of a recapitalization, stock split, stock
dividend, merger, reorganization or similar event), the maximum number of
shares of Common Stock which may be awarded under the 1996 Plan is one
hundred thousand shares (100,000), which may be shares of original issuance,
treasury shares or a combination thereof.
COMPENSATION: Each Director's compensation shall be determined in
accordance with the By-laws of the Company and the Bank and shall be paid,
unless deferred by the participant, in accordance with the terms of the 1996
Plan according to the ordinary practices of the Company and the Bank, unless
otherwise determined by the Committee.
Upon election to the Board of Directors and prior to January 1 of each
year (or July 1 for 1997 only), a participant will be entitled to elect to
receive all or any portion of his or her compensation in the form of cash or
of shares of restricted common stock (described below). If no election is
received by the Company and the Bank with respect to any 1996 Plan Year (as
defined in the 1996 Plan), the participant will be deemed to have made an
election to receive such compensation in the form of undeferred cash.
If a participating Director elects to have all or a specified
percentage of his or her compensation for a given year deferred in Common
Stock, then the day on which he or she would have received cash in the
absence of such election shall be a "Measurement Date". As of the
Measurement Date, the director shall be credited with a number of shares of
the Company's stock equal in value (determined based on the price per share
on the Measurement Date) to 125% of the amount deferred. The additional 25%
reflects a "risk premium, reflecting the Director's commitment to the value
of the Company's stock over the deferral period, as well as the risk of
forfeiture described below. On the Measurement Date such Common Stock may be
transferred to the participating Director or to a trustee, via ledger
transfer or such other method as is determined by the Committee, or may be
set aside as an unfunded obligation to deliver shares in the future. The
Participating Director may not generally sell, transfer or otherwise dispose
of the Shares, prior to the fifth anniversary of the applicable Measurement
Date.
With respect to shares of Common Stock issued or otherwise transferred
to a participating director, the participating Director will have the right
to vote the shares and receive dividends and other distributions thereon,
provided that any share or other security of the Company which is issued or
otherwise transferred to the Participating Director as a dividend on or
other distribution in regard to a Restricted Share shall be subject to the
same restrictions applicable to such Restricted Share.
If a participating Director resigns his position voluntarily without
the consent of a majority of the remaining members of the Board, or is
forced to resign from the Board for "cause" as provided in the By-laws of
the Company and the Bank, then the Director shall forfeit all of his or her
Restricted Shares which are Risk Premium Shares, as well as any Distributed
Securities which derived from Risk Premium Shares.
The Company shall not be required to issue any certificate for shares
of Common Stock prior to: obtaining any approval or ruling from the
Securities and Exchange Commission, the Internal Revenue Service or any
other governmental agency which the Company, in its sole discretion, deems
necessary or advisable; listing the share on any stock exchange on which the
Common Stock may then be listed; or completing any registration or other
qualification of such shares under any federal or state laws, rulings or
regulations of any governmental body which the Company, in its sole
discretion, determines to be necessary or advisable.
UNFUNDED OBLIGATION: Any amount to be paid to Participating Directors
pursuant to the 1996 Plan is an unfunded obligation of the Company and the
Bank. The Company or the Bank may, but are not required to, segregate any
monies from their general funds, create any trusts, or make any special
deposits with respect to this obligation. Beneficial ownership of any
investments, including trust investments that the Company or the Bank may
make to fulfill this obligation shall at all times remain in the Company or
the Bank. Any investments and the creation or maintenance of any trust or
memorandum accounts shall not create or constitute a trust or fiduciary
relationship between the Committee or the Company or the Bank and a
participating Director, or otherwise create any vested or beneficial
interest in any participating Director of the participating Director's
beneficiary or the participating Director's creditors in any assets of the
Company or the Bank whatsoever. The participating Directors shall have no
claim against the Company or the Bank for any changes in the value of any
assets that may be invested or reinvested by the Company or the Bank with
respect to the 1996 Plan.
TERMINATION: The Board may from time to time amend, suspend or
terminate the 1996 Plan, in whole or in part, and, if the 1996 Plan is
suspended or terminated, the Board may reinstate all or any of its
provisions. No amendment, suspension or termination may impair the right of
a participating Director or the participating Director's designated
Beneficiary to receive benefits accrued prior to the effective date of such
amendment, suspension or termination. The 1996 Plan shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or the
rules thereunder.
BENEFITS UNDER THE 1996 PLAN: Although the current annual retainer for
each participant is $4,000, it is not possible to specify the amount of
benefits that will be paid to each participant under the 1996 Plan since
each participant's ultimate benefit depends upon his or her election to
receive cash, restricted stock, or a combination thereof.
RECOMMENDATION: The Board of Directors believes that approval of the
1996 Compensation Plan for Non-Employee Directors is in the best interests
of the Company, the Bank and stockholders of the Company because the Plan
will enable the Company and the Bank to attract and retain qualified
individuals to serve as Directors of the Company or the Bank.
The Board of Directors recommends that the stockholders vote "FOR" the
approval of the 1996 Compensation Plan for Non-Employee Directors.
APPROVAL OF THE LONG TERM INCENTIVE/STOCK OPTION PLAN
(Proposal Number 4)
On January 21, 1997, the Board of Directors approved the Senior
Executive Compensation Plan, a component of which is the Long Term
Incentive/Stock Option Plan (the "Stock Option Plan"), subject to the
approval of the Company's stockholders at the Annual Meeting. The following
summary of the principal features of the Stock Option Plan is qualified by
reference to the terms of the Stock Option Plan, a copy of which is
available without charge from Jennifer Varin, Corporate Secretary, Merchants
Bancshares, Inc., P.O. Box 1009, Burlington, VT 05402.
PURPOSE: The purpose of the Stock Option Plan is to encourage the
Bank's management to increase their ownership of the Company's Common Stock.
Each year a participating executive will receive stock options with a
"value" equal to 50% of his or her base salary. The "value" of the options
to be granted will be determined by calculating the "Black-Scholes" value.
Black-Scholes is a financial model used by option traders to determine the
value of stock options. The Black-Scholes model is widely used for executive
compensation as well, and is permitted by the SEC for purposes of reporting
the value of stock options.
SHARES AVAILABLE FOR THE STOCK OPTION PLAN: Subject to adjustment as
provided in the Stock Option Plan (e.g., in the event of a recapitalization,
stock split, stock dividend, merger, reorganization or similar event), the
maximum number of shares of Common Stock which may be awarded under the
Stock Option Plan is four hundred thousand (400,000) which may be shares of
original issuance, treasury shares, shares purchased on the open market, or
a combination thereof.
EXERCISE PRICE, TERM OF OPTIONS: The exercise price of the options
shall be determined annually, by the Board of Directors, and shall be no
less than fair market value as of the date of the grant. The Company Board
currently contemplates that options will be granted at an exercise price at
a premium over the fair market value of the Company Common Stock as of the
date of grant. An administrative committee made up of members of the Board
(the "Committee") shall determine the rate at which options shall become
exercisable. Thereafter, the options will generally be exercisable from two
until ten years after they are granted.
ELIGIBILITY: The Committee determines which officers of the Bank are
to receive options under the Stock Option Plan in any given year.
Notwithstanding the foregoing, under the terms of their new employment
agreements with the Company and/or the Bank (See "Employment Agreements"),
the Company and the Bank have agreed that, subject to approval of the Stock
Option Plan by the shareholders of the Company at the Annual Meeting,
Messrs. Boutin, Tuttle, Havers, Leavitt and Heaslip will receive options
under the Stock Option Plan for each year of the term of their employment
agreements. Using the model outlined above under "PURPOSE", and assuming
that (i) the Stock Option Plan was effective at the beginning of the 1996
fiscal year, (ii) the new employment agreements were effective at the
beginning of the 1996 fiscal year, and (iii) options under the Stock Option
Plan were granted on December 31, 1996, at an exercise price of $18.50, the
fair market value of the Common Stock of the Company on December 31, 1996,
Messrs. Boutin, Tuttle, Havers, Leavitt and Heaslip would have been entitled
to receive options to purchase 20,031, 13,020, 10,016, 10,016 and 9,515
shares of Common Stock respectively under the Stock Option Plan. Assuming an
exercise price of $20.50, or $2.00 above the fair market value of the Common
Stock of the Company on December 31, 1996, Messrs. Boutin, Tuttle, Havers,
Leavitt and Heaslip would have been entitled to receive 23,194, 15,076,
11,597, 11,597, and 11,017 shares of Common Stock respectively under the
Stock Option Plan.
If the Stock Option Plan is not adopted by the shareholders of the
Company at the Annual Meeting, each of the executive officers named above
will not be entitled to receive options under their employment agreements
according to the terms set forth above.
TAX: The options may include "Incentive Stock Options". In general, an
Executive's exercise of a stock option produces ordinary income to the
executive for federal income tax purposes, as well as a corresponding
deduction for the Company. An Incentive Stock Option enables the holder, in
certain circumstances, to avoid federal income tax in respect of the
exercise of the option, in which case the Company will not have a deduction.
BENEFITS UNDER THE STOCK OPTION PLAN: To date no option grants have
been made under the Stock Option Plan. It is not possible to specify the
amount of benefits that will be paid to each participant under the Stock
Option Plan.
RECOMMENDATION: The Board of Directors believes that approval of the
Long Term Incentive/Stock Option Plan is in the best interests of the
Company and its stockholders because the Stock Option Plan will enable the
company to attract and retain qualified individuals to serve as the senior
management of the Bank.
The Board of Directors recommends that the stockholders vote "FOR" the
approval of the Long Term Incentive/Stock Option Plan.
APPROVAL OF THE SALE OF SHARES OF MERCHANTS
BANCSHARES, INC. STOCK TO TRUSTS
(Proposal Number 5)
On December 21, 1995, the Company sold to the Merchants Trust Company,
as Trustee, in a private transaction and at the market price of $14.25 per
share (the average of the closing bid ($13.25) and asked ($15.00) prices on
December 20, 1995) an aggregate of 144,278 shares of Company Common Stock
(the "Shares"). The Shares were issued pursuant to agreements that the Bank
had negotiated with certain of its key employees and directors (the
"Amendments"), to reduce the Bank's total liabilities to those employees and
directors under the Bank's Executive Salary Continuation Plan and Directors
Deferred Compensation Plan, which were terminated or amended. Immediately
before the Amendments became effective, the affected employees and directors
were entitled to receive from the Bank payments with an aggregate value of
approximately $3.3 million. The Amendments reduced the Bank's liabilities by
approximately $700,000 and the associated purchase and sale of the Shares
provided capital that the Company was able to use to discharge outstanding
Company debt that matured in June 1996.
Under the terms of the Amendments, the Bank generally is to deliver
shares of Company Common Stock to each of the affected employees and
directors in annual installments, starting following the sixty-fifth
birthday of the participant and continuing for 15 years thereafter. In the
event of a "change of control" of the Company or the Bank, the Bank has a
right to amend the terms of the Amendments to provide that, rather than
thereafter being obligated to distribute a fixed number of shares of Company
Common Stock to each participant, the Bank will be obligated, instead, to
pay each participant amounts that are based on the performance of a fund
created by selling the Company Common Stock and investing and reinvesting
the proceeds.
To cover its obligations to make the distributions of Company Common
Stock required by the Amendments, the Bank established trusts (the "Trusts")
with The Merchants Trust Company, and contributed to the Trusts an amount
sufficient to allow the Trusts to purchase the Shares. The Trusts then
purchased the Shares directly from the Company as described above. As of
February 15, 1997, the market price of the Company Common Stock was $20.438
per share.
The Shares, and all associated earnings, gains and losses, are the
legal property of the Bank and would be available to the Bank's creditors
upon its insolvency and in certain other events as set forth in the
Amendments. However, if the Bank does not deliver to the directors and
employees the shares of Company Common Stock required by the terms of the
Amendments, the trustee generally is to deliver the required shares from the
Trusts.
The Company has determined that it is appropriate to obtain
shareholder ratification and approval of the Company's sale of the Shares to
the Trusts as described above.
The Board of Directors of the Company recommends that the stockholders
vote "FOR" the approval of the sale of shares of Merchants Bancshares, Inc.
stock to the Trusts.
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 1997. The Company has been advised by such firm
that neither it nor any member or associate of such firm has any
relationship with the Company or the Bank other than as independent
auditors. Arthur Andersen LLP have 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 five proposals
specifically set forth in the Notice and referred to herein. If any other
matter properly comes before the Annual Meeting for action, it is intended
that the persons named in the accompanying proxy and acting thereunder will
vote or refrain from voting in accordance with their best judgment pursuant
to the discretionary authority conferred by the proxy.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of
the Company's shareholders at its Annual Meeting of Shareholders in 1998,
scheduled to be held on Tuesday, April 21, 1998, 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 3, 1997. 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, 1996, 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 1995 and
1996.
Merchants Bank
Andrew T. Kloeckner, AVP & Compliance Officer
275 Kennedy Drive
So. Burlington, Vermont 05403
Tel. (802) 658-3400
By Order of the Board of Directors
164 College Street Jennifer L. Varin
Burlington, Vermont 05401 Secretary
March 25, 1997 Merchants Bancshares, Inc.
ANNEX
FORM OF PROXY CARD
[SIDE ONE]
COMMON STOCK MERCHANTS BANCSHARES, INC. COMMON STOCK
Proxy Solicited by the Board of Directors for
1997 Annual Meeting of Shareholders on April 29, 1997
The undersigned hereby appoints Cynthia W. Olson and Andrew T. Kloeckner,
and each of them proxies, each with power of substitution, to vote at the 1997
Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be held on
April 29, 1997 (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 the other
matters set forth herein 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 the 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,
FOR the proposal to amend the Certificate of incorporation to increase the
number of authorized shares of common stock, FOR the proposal to adopt the
Merchants Bancshares 1996 Compensation Plan for Non-Employee Directors, FOR
the proposal to adopt the Long-Term Incentive/Stock Option Plan and FOR the
proposal to ratify and approve the sale of certain shares of common stock to
Trusts, and upon such other business as may come before the meeting
in the appointed proxies' discretion.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of 1997 Annual Meeting of Shareholders and related Proxy Statement.
________________________________________________________________________________
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
________________________________________________________________________________
Please date, sign as name appears 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?
___________________________________ ____________________________________
___________________________________ ____________________________________
___________________________________ ____________________________________
[SIDE TWO]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
The Board of Directors
recommends a vote FOR all Proposals listed below.
With- For All
__________________________ 1. ELECTION OF DIRECTORS For hold Except
MERCHANTS BANCSHARES, INC. Nominees: [ ] [ ] [ ]
__________________________ Peter A. Bouyea
COMMON STOCK 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 nominee's name. Your shares will be voted for the remaining
nominee.
RECORD DATE SHARES: 2. AMENDMENT OF CERTIFICATE FOR AGAINST ABSTAIN
OF INCORPORATION
[ ] [ ] [ ]
3. APPROVAL OF MERCHANTS FOR AGAINST ABSTAIN
BANCSHARES 1996 COMPENSATION
PLAN FOR NON-EMPLOYEE DIRECTORS
[ ] [ ] [ ]
4. APPROVAL OF LONG-TERM FOR AGAINST ABSTAIN
INCENTIVE/STOCK OPTION PLAN
[ ] [ ] [ ]
5. APPROVAL OF SALE OF CERTAIN FOR AGAINST ABSTAIN
SHARES OF COMMON STOCK TO TRUSTS
[ ] [ ] [ ]
_________________
Please be sure to sign and Date
date this Proxy.
______________________________________________
Mark box on the right if an address change or comment
has been made on the reverse side of this card. [ ]
- --Shareholder sign here--Co-owner sign here---
DETACH CARD DETACH CARD
FORM OF PROXY CARD
[SIDE ONE]
401(k) MERCHANTS BANCSHARES, INC. 401(k)
Proxy Solicited by the Board of Directors for
1997 Annual Meeting of Shareholders on April 29, 1997
The undersigned hereby appoints Cynthia W. Olson and Andrew T. Kloeckner,
and each of them proxies, each with power of substitution, to vote at the 1997
Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be held on
April 29, 1997 (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 the other
matters set forth herein 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 the 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,
FOR the proposal to amend the Certificate of incorporation to increase the
number of authorized shares of common stock, FOR the proposal to adopt the
Merchants Bancshares 1996 Compensation Plan for Non-Employee Directors, FOR
the proposal to adopt the Long-Term Incentive/Stock Option Plan and FOR the
proposal to ratify and approve the sale of certain shares of common stock to
Trusts, and upon such other business as may come before the meeting
in the appointed proxies' discretion.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of 1997 Annual Meeting of Shareholders and related Proxy Statement.
_______________________________________________________________________________
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
_______________________________________________________________________________
Please date, sign as name appears 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?
___________________________________ ____________________________________
___________________________________ ____________________________________
___________________________________ ____________________________________
[SIDE TWO]
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
The Board of Directors
recommends a vote FOR all Proposals listed below.
With- For All
__________________________ 1. ELECTION OF DIRECTORS For hold Except
MERCHANTS BANCSHARES, INC. Nominees: [ ] [ ] [ ]
__________________________ Peter A. Bouyea
401(K) 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 nominee's name. Your shares will be voted for the remaining
nominee.
RECORD DATE SHARES: 2. AMENDMENT OF CERTIFICATE FOR AGAINST ABSTAIN
OF INCORPORATION
[ ] [ ] [ ]
3. APPROVAL OF MERCHANTS FOR AGAINST ABSTAIN
BANCSHARES 1996 COMPENSATION
PLAN FOR NON-EMPLOYEE DIRECTORS
[ ] [ ] [ ]
4. APPROVAL OF LONG-TERM FOR AGAINST ABSTAIN
INCENTIVE/STOCK OPTION PLAN
[ ] [ ] [ ]
5. APPROVAL OF SALE OF CERTAIN FOR AGAINST ABSTAIN
SHARES OF COMMON STOCK TO TRUSTS
[ ] [ ] [ ]
_________________
Please be sure to sign and Date
date this Proxy.
______________________________________________
Mark box on the right if an address change or comment
has been made on the reverse side of this card. [ ]
- --Shareholder sign here--Co-owner sign here---
DETACH CARD DETACH CARD