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 [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Merchants Bancshares, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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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
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MERCHANTS BANCSHARES, INC.
164 College Street
Burlington, Vermont 05401
(802) 658-3400
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 20, 1999
Notice is hereby given that the Annual Meeting of Shareholders of
Merchants Bancshares, Inc., a Delaware corporation (the "Company"), will be
held at the Ramada Inn & Conference Center, 1117 Williston Road, South
Burlington, Vermont, on Tuesday, April 20, 1999, 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 transact any other business which may properly come before
the meeting or any adjournment thereof.
The close of business on February 23, 1999 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 require that the holders of a
majority in interest of all stock issued, outstanding and entitled to vote
be present in person or represented by proxy at the Annual Meeting in order
to constitute a quorum for the transaction of business.
By order of the Board of Directors,
/s/ Raymond C. Pecor, Jr. /s/ Joseph L. Boutin
Raymond C. Pecor, Jr. Joseph L. Boutin
Chairman of the President and
Board of Directors Chief Executive
Officer
Burlington, Vermont
March 18, 1999
PROXY STATEMENT
MERCHANTS BANCSHARES, INC.
164 College Street
Burlington Vermont 05401
ANNUAL MEETING OF SHAREHOLDERS
April 20, 1999
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 20, 1999, and at any
adjournments thereof. Shareholders of record at the close of business on
February 23, 1999 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 18, 1999.
Proxies in the form enclosed are solicited by the Board of Directors
of the Company. Any such proxy, if received in time for voting and not
revoked, will be voted at the Annual Meeting in accordance with the
instructions of the shareholder. If no instructions are given on the proxy,
the proxy will be voted FOR the election, as directors of the Company, of
the nominees named within. At present, management knows of no additional
matters to be presented at the Annual Meeting, but if other matters are
presented, the persons named in the proxy and acting thereunder will vote
or refrain from voting in accordance with their best judgment pursuant to
the discretionary authority conferred by the proxy.
A proxy may be revoked at any time prior to its exercise (i) by
submitting a written notice, addressed to Jennifer L. Varin, 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, 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 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.
VOTING SECURITIES
As of February 23, 1999, the record date for the Annual Meeting,
there were 4,375,997 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
February 23, 1999.
Amount and Nature
Name of Beneficial of Beneficial Percent of Notes of
Owner Ownership (1) Class Explanation
- ------------------ ----------------- ---------- -----------
General Educational Fund Inc. 523,790 11.97% (2)
Merchants Bank 401(k) Employee
Stock Ownership Plan 321,991 7.35% (3)
Charles A. Davis 288,966 6.60% (4)
<FN>
<F1> In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares are shown as beneficially owned if the person named in
the table has or shares the power to vote or to direct the voting of,
or the power to dispose or to direct the disposition of, such shares.
Inclusion of shares in the table does not necessarily mean that the
persons named have any economic beneficial interest in shares set
opposite their respective names.
<F2> The General Educational Fund, Inc., (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 the Common Stock owned by
the Trustees individually. See "Security Ownership of Certain
Beneficial Owners and Management".
<F3> While participants in the Bank's 401(k) Employee Stock Ownership Plan
(the "401(k) Plan") have the right to designate how shares 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) 4,412 shares held in trust for Mr. Davis' two minor
sons; (ii) 1,124 shares held directly by Mr. Davis' two minor sons;
(iii) 10,525 shares held by Mr. Davis as trustee of the Charles and
Marna Davis Foundation and (iv) 9,776 shares owned by Mr. Davis'
wife, Marna Davis. See "Continuing Directors" for Mr. Davis'
biography.
</FN>
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, 1999, 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 Leo O'Brien, Jr. and Robert A. Skiff, Ph.D. be elected to
serve as Class III directors of Merchants Bancshares, Inc.,
each for a three year term expiring on the date of the Annual
Meeting of Shareholders in 2002, 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 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 February 23,
1999 may be found at "Security Ownership of Certain Beneficial Owners and
Management". The Class III Nominees have each been nominated for a three-
year term expiring in the year 2002.
Director of
Company
Class Name Age Principal Occupation Since
- ----- ---- --- -------------------- -----
III Leo O'Brien, Jr. 68 Partner-Vice President 1984
O'Brien Brothers Agency,
Inc. South Burlington, VT
III Robert A. Skiff, Ph.D. 57 Headmaster-Vermont Commons 1984
School
Burlington, VT
The following biographical information is provided for the two
nominees as indicated above:
Leo O'Brien, Jr.
Leo O'Brien, Jr. has served as a Director of the Company since 1984
and as a Director of the Bank since 1969. Mr. O'Brien has served as
chairman of the Bank's Board of Directors since 1995. He is currently a
partner of O'Brien Brothers and Vice President of O'Brien Brothers Agency,
Inc. with offices in South Burlington, VT. Both organizations are primarily
engaged in agriculture and real estate development. The Company Board has
nominated Mr. O'Brien to serve as a Class III Director for a three-year
term expiring on the date of the Annual Meeting in 2002.
Robert A. Skiff, Ph.D.
Robert A. Skiff has served as a Director of the Company and the Bank
since 1984. He is Headmaster of the Vermont Commons School in Burlington,
VT. Prior to becoming Headmaster in July 1997, Dr. Skiff served as
President of Champlain College for 15 years. The Company Board has
nominated Dr. Skiff to serve as a Class III Director for a three-year term
expiring on the date of the Annual Meeting in 2002.
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.
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 nominated individuals.
The Company Board recommends that the shareholders vote "FOR" the
election of the nominees listed above.
Continuing Directors
The following table sets forth certain information about those
Directors of the Company whose terms of office do not expire at the Annual
Meeting and who consequently are not nominees for re-election at the Annual
Meeting.
Director of Term of
Company Office Will
Class Name Age Principal Occupation Since Expire
- ----- ---- --- -------------------- ----- -----------
I Joseph L. Boutin 51 President & CEO of the Company 1994 2000
and the Bank
Burlington, VT (1)
I Charles A. Davis 50 President and COO Marsh & 1985 2000
McLennan Risk Capital Corp.
Greenwich, CT (2)
I Peter A. Bouyea 51 Consultant to Baking Industry 1994 2000
South Burlington, VT (3)
II Jeffrey L. Davis 46 President-J.L. Davis, Inc. 1993 2001
Burlington, VT
II Michael G. Furlong 48 Attorney-Sheehey Furlong Rendall 1991 2001
& Behm P.C.
Burlington, VT
II Raymond C. Pecor, Jr. 59 Chairman-Lake Champlain 1984 2001
Transportation Company
Burlington, VT
II Patrick S. Robins 60 Treasurer-Symquest Group, Inc. 1984 2001
South Burlington, VT (4)
<FN>
<F1> Mr. Boutin has been President and Chief Executive Officer of the
Company and the Bank since October 1994. Prior to that time, he was
employed by The Howard Bank, a subsidiary of Banknorth Group, Inc.,
for 25 years, serving as its president from 1989 until 1994.
<F2> Prior to being named President and Chief Operating Officer of Marsh &
McLennan Risk Capital Corporation, Mr. Davis was a Senior Director
and former partner of Goldman Sachs & Co.
<F3> Mr. Bouyea has been a consultant to the baking industry since
December 1994. Prior to that time, he was President of Bouyea-
Fassetts, Inc., a wholly owned indirect subsidiary of Philip Morris,
Inc.
<F4> Mr. Robins became Treasurer of SymQuest Group, Inc. in February 1996.
Prior to that time, Mr. Robins was President of McAuliffe, Inc., a
distributor of office and paper products headquartered in Burlington,
VT.
</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 Peter A.
Bouyea and 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 51 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 56 years old, is
President of Sweet Energy, a mail order food company, located in
Burlington, Vermont. Shareholders of the Company will not be voting on
directors of the Bank.
Other Information About the Board and its Committees
Attendance of Directors
During 1998, six meetings of the Company Board were held. The
following Directors of the Company attended fewer than seventy-five percent
of the meetings of the Company Board: Benjamin F. Schweyer and Charles A.
Davis.
Compensation of Directors
During 1998, 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 1998, all Bank directors, who were not also officers of the
Bank, were paid a $4,000 annual retainer, payable in quarterly
installments, plus $500 for each Bank Board meeting attended. Committee
members were paid $250 for each committee meeting attended, unless the
Committee meeting was held simultaneously with a regular meeting of the
Board of Directors of the Bank (the "Bank Board"), in which case the fee
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 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 the Common Stock, such Director is credited with a number of shares of
the 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 the Common Stock over
the deferral period, as well as the risk of forfeiture under certain
circumstances.
Until July 1, 1997, Directors of the Bank were entitled to defer a
portion of their compensation into a Deferred Compensation Plan for
Directors known as the "Floating Growth (savings)" program. In early 1997,
the Plan was amended to provide that no additional compensation may be
deferred into the Floating Growth (savings) program after July 1, 1997.
Benefits accrue based on a monthly allowance for interest at a rate that is
fixed from time to time in the discretion of the Bank Board. There are
currently three participants in the savings program, one of whom is a
current Director. The benefits under the Floating Growth (savings) program
are generally payable starting on the January 2 following a participant's
65th birthday or earlier death, and will be distributed to the participant
(or upon the participant's death, to the participant's designated
beneficiary) in accordance with the plan.
Committees of The Boards of Directors
The Bank Board has designated the following committees, 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.
During 1998, five meetings of the Audit Committee were held. The
Audit Committee consisted of Peter A. Bouyea, Jeffrey L. Davis, Lorilee A.
Lawton and Leo O'Brien, Jr.
Compensation Committee:
The Compensation Committee is responsible for establishing the
compensation of the Company's and the Bank's directors, officers and
employees, including salaries, bonuses, commissions, benefit plans, the
grant of options and other forms of, or matters relating to, compensation.
During 1998, five 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 the Common Stock.
During 1998 the Shareholder Value Committee held one meeting. The
Shareholder Value Committee consists of the following non-employee members
of the Company Board: Peter A. Bouyea, Charles A. Davis, Raymond C. Pecor,
Jr. and Benjamin F. Schweyer.
Compensation of Principal Officers
Compensation of principal officers is paid by the Bank. The following
table sets forth aggregate compensation paid by the Bank over the past
three calendar years to the most highly compensated principal officers of
the Company or the Bank whose salary and bonus for 1998 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 1998 $199,992 $150,000(1)(2) 13,618 0 $14,974(5)
President, and Director of the 1997 $199,992 $ 0 15,000 0 $12,842
Company and Bank 1996 $199,992 $100,000 15,000 0 $14,022
Michael R. Tuttle 1998 $130,000 $ 97,500(1)(2) 8,852 0 $14,564(6)
Executive Vice-President of 1997 $132,625 $ 0 10,100 0 $12,708
the Bank 1996 $119,991 $ 75,000 5,000 0 $13,972
Thomas R. Havers 1998 $100,872 $ 75,000(1) 6,809 0 $14,571(7)
Senior Vice-President of 1997 $101,449 $ 0 7,770 0 $ 9,390
the Bank 1996 $102,542 $ 20,000 0 0 $13,671
Thomas S. Leavitt 1998 $100,006 $ 44,971(3) 6,809 0 $12,261(8)
Senior Vice-President of 1997 $102,603 $ 11,855 7,770 0 $15,169
the Bank 1996 $ 94,626 $ 13,334 10,000 0 $51,698
William R. Heaslip 1998 $ 98,852 $ 21,146(4) 6,469 0 $11,649(9)
President 1997 $ 97,481 $ 25,044 7,380 0 $ 9,671(9)
Merchants Trust Company 1996 $ 91,870 $ 20,000 5,000 0 $ 7,143
<FN>
<F1> Bonuses paid to Messrs. Boutin, Tuttle and Havers in 1998 were
awarded for performance in 1997. Bonuses for 1998 performance will be
determined and paid in 1999.
<F2> In December 1998, Messrs. Boutin and Tuttle agreed to forego
eligibility to receive certain bonus payments pursuant to the terms
of their respective Employment Agreements with the Company and the
Bank. In consideration for such forbearance, the Company has agreed
to grant Messrs. Boutin and Tuttle an option to purchase shares of
the Common Stock with a value equivalent to the bonus.
<F3> Of the amount listed as Bonus paid to Mr. Leavitt in 1998, $31,700
was not paid until the first quarter of 1999.
<F4> Of the amount listed as Bonus paid to Mr. Heaslip in 1998, $21,146
was not paid until February 1999.
<F5> Includes contributions made by the Bank on behalf of Mr. Boutin
pursuant to the 401(k) Plan of $14,400 for 1998.
<F6> Includes contributions made by the Bank on behalf of Mr. Tuttle
pursuant to the 401(k) Plan of $14,400 for 1998.
<F7> Includes contributions made by the Bank on behalf of Mr. Havers
pursuant to the 401(k) Plan of $14,400 for 1998.
<F8> Includes contributions made by the Bank on behalf of Mr. Leavitt
pursuant to the 401(k) Plan of $12,188 for 1998.
<F9> Includes contributions made by the Bank on behalf of Mr. Heaslip
pursuant to the 401(k) Plan of $11,401 for 1998.
</FN>
Option Grants in Last Fiscal Year
The following table provides information regarding stock options
granted to Named Principal Officers in 1998. Each of the individuals who
were granted stock options during 1998 were granted such options pursuant
to the terms of employment agreements between such individuals and the
Company and the Bank. See "Employment Agreements."
Individual Grants (1) Potential Realizable
-------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees Or Base For Option Term
Options In Fiscal Price Expiration ---------------------
Name Granted Year ($/Share) Date 5% 10%
---- ---------- ---------- --------- ---------- -- ---
Joseph L. Boutin 13,618 28% 30.50 August 20, 2008 $261,211 $664,785
Michael R. Tuttle 8,852 18% 30.50 August 20, 2008 $169,793 $432,125
Thomas R. Havers 6,809 14% 30.50 August 20, 2008 $130,605 $332,393
Thomas S. Leavitt 6,809 14% 30.50 August 20, 2008 $130,605 $332,393
William R. Heaslip 6,469 13% 30.50 August 20, 2008 $124,084 $315,795
<FN>
<F1> The options become exercisable after August 20, 2000. The option is
immediately exercisable if the Named Principal Officer is terminated
without just cause or due to his 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 20, 1998.
</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 the 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, 1998.
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 $25.50.
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 7,000 $118,340 0 44,168 0 $75,930
Michael R. Tuttle 1,000 $ 10,130 4,000 23,952 $62,000 $25,310
Thomas R. Havers 0 0 5,000 14,579 $53,125 0
Thomas S. Leavitt 5,000 $ 88,125 5,000 14,579 $50,625 0
William R. Heaslip 0 0 5,000 13,849 $53,125 0
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 1998 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, 1998.
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 and Officers with the
Name Age Company or the Bank
---- --- -------------------------------
Joseph L. Boutin 51 President and Chief Executive Officer of the
Company and the Bank
Michael R. Tuttle 43 Executive Vice President and Chief Operating
Officer of the Bank
Thomas R. Havers 49 Senior Vice President of the Bank, Operating
and Administrative Division Manager
Thomas S. Leavitt 40 Senior Vice President of the Bank, Sales
Division Manager
William R. Heaslip 54 President and Chief Executive Officer of
Merchants Trust Company
Janet P. Spitler 39 Treasurer of the Company and Bank, Chief
Financial Officer of the Bank
Zoe P. Erdman 42 Senior Vice President of the Bank, Credit
Division Manager
Mr. Boutin became President and Chief Executive Officer of the
Company and the Bank on October 24, 1994. From September 1989 until October
1994, Mr. Boutin was President of the Howard Bank in Burlington, Vermont.
Mr. Tuttle has been employed by the Bank as Executive Vice President since
February 1995. In August 1997, Mr. Tuttle became Chief Operating Officer of
the Bank. Prior to February 1995, Mr. Tuttle was the Senior Lending Officer
at the Howard Bank in Burlington, Vermont. Mr. Havers has been Senior Vice
President of the Bank since 1990 and has been employed by the Bank since
1971. Mr. Leavitt has been Senior Vice President of the Bank since February
1996. From 1995 until February 1996, Mr. Leavitt was President of
SafetyMaster Corporation, a safety equipment distribution and technical
services company located in Billings, Montana. Mr. Heaslip has been the
President of the Merchants Trust Company since December 1995. Prior to such
time, Mr. Heaslip was Executive Vice President/Trust and Investment of
Chittenden Bank in Burlington, Vermont. Since December 1995, Ms. Spitler
has been the Treasurer of the Bank and the Company. In August 1997, she
became Chief Financial Officer of the Bank, with whom she has been employed
since 1990. In November 1998, Ms. Erdman became a Senior Vice President of
the Bank, with whom she has been employed since October 1997.
Compensation Committee Report
The Compensation Committee represents both the Company and the Bank
and consists of four directors who are not officers or employees of the
Company or the Bank; Michael G. Furlong, chair, Leo O'Brien, Robert A.
Skiff, each a director of the Company and the Bank, and Carole A. Ziter, a
director of the Bank.
The Compensation Committee's primary responsibilities are to provide
independent review and oversight and promote corporate accountability for
executive compensation, approve performance and base compensation policies
for executive management and employees, approve incentive plans, and 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 1998 as they affected Mr. Boutin, the Company's
Chief Executive Officer, and the other Executive Officers.
Compensation Policies Toward Executive Officers. The Company's and
the Bank's compensation program for Executive Officers consists primarily
of two elements, base salary and specific bonuses based on the achievement
of defined corporate objectives. The Compensation Committee's executive
compensation policies are and will be further designed to provide
competitive levels of compensation that integrate pay with the Company's
annual and long-term performance goals, reward above average corporate
performance, recognize individual initiative and achievements, and assist
the Company in attracting and retaining qualified executives. Levels of
executive compensation are set at levels that the Compensation Committee
believes to be consistent with others in the Bank's industry.
The Compensation Committee also endorses the position that stock
ownership by management and stock-based performance compensation
arrangements are beneficial in aligning management and shareholders'
interests in the enhancement of shareholder value. Thus, the Committee has
and will further incorporate these elements in designing the compensation
packages of the Company's executive Officers.
Relationship of Performance Under Compensation Plans. The Company's
compensation policy with respect to Executive Officers is administered by
the Compensation Committee of the Board of Directors of the Company and the
Bank. The two key elements of this policy are base salary and the Company's
Annual Bonus Plan.
Each Executive Officer's annual performance review serves as the
basis for making adjustments to base salary. Individual performance
evaluations are closely tied to achievement of short as well as long term
goals and objectives, individual initiative, team-building skills, level of
responsibility and above-average corporate performance. Base salary is
keyed to the median of a peer group of regional commercial banks as
established from time to time by the Compensation Committee.
In addition to the base compensation, the Company has a bonus plan to
reward executive officers for accomplishing financial objectives set
annually by the Committee. Executive Officers are eligible to receive
bonuses of up to 75% of salary. Bonuses were paid out to executive officers
in 1998.
Long Term Incentive/Stock Option Plan. The Long Term Incentive/Stock
Option Plan (the "Stock Option Plan") permits the Compensation Committee to
grant stock options to key personnel. Under the Stock Option Plan, each
year a participating Executive Officer will receive stock options with a
"value" equal to 50% of his or her base salary. The "value" of the options
to be granted will be determined using a widely accepted financial model
which determines the value of stock options. The exercise price of the
options shall be determined annually, by the Board of Directors, and shall
be no less than fair market value as of the date of the grant.
CEO Compensation:
Mr. Boutin serves the Bank pursuant to an employment agreement dated
January 1, 1997, which provides for his employment as President and CEO of
the Company and Bank through December 31, 1999. The terms of Mr. Boutin's
contract were negotiated at arms-length. Mr. Boutin's base salary is
$200,000 per year through calendar year 1999. See "Employment Agreements."
Employment Agreements:
Certain of the Executive Officers have entered into Employment
Agreements with the Company and the Bank. These agreements specify the
terms of employment and are discussed below, under the section entitled,
"Employment Agreements".
Members of the Compensation Committee
Michael G. Furlong, Chair
Leo O'Brien, Jr.
Patrick S. Robins
Carole A. Ziter
Employment Agreements
Certain of the Executive Officers, including the Named Principal
Officers, have entered into Employment Agreements with the Company and the
Bank. These Employment Agreements contain standard terms and conditions
typically found in employment agreements for comparable executives,
including those terms discussed in this paragraph. Under the terms of the
Employment Agreements, each such Executive Officer is employed at will.
Notwithstanding the foregoing, however, if the Executive Officer is
terminated without just cause (as defined therein) or the Executive Officer
resigns for good reason (as defined therein), 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 1998, and anticipates
obtaining such services during 1999, 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 1998 aggregated $147,986.
During 1998, the Bank purchased computer equipment and project
management services, on a competitive basis, from SymQuest Group, Inc.
valued at $254,860. Patrick S. Robins, who is Treasurer of SymQuest Group,
Inc., is a Director of the Company and the Bank and a member of the
Compensation Committee.
The Bank used the services of Direct Results, Inc., a marketing firm,
during 1998. The principal shareholder of Direct Results, Inc. is the
husband of Carole Ziter, a Director of the Bank. Fees paid to Direct
Results, Inc. for services and expenses during 1998 totaled $50,000.
Compensation Committee Interlocks and Insider Participation
During 1998, the Compensation Committee included Michael G. Furlong,
Chairman, Leo O'Brien, Jr., Patrick S. Robins and Carole A. Ziter, all
independent, non-employee Directors of either the Company or the Bank.
Performance Graph
A comparison of five-year cumulative total return to shareholders of
the Company to a group of bank holding companies selected by the Company,
and to the NASDAQ market index is indicated below. Data is shown both in
tabular format and in the following graph. The peer group of bank holding
companies consists of the following: Arrow Financial Corporation (AROW);
Banknorth Group, Inc. (BKNG); Chittenden Corporation (CNDN); Independent
Bank Corp. (INDB); Vermont Financial Services Corporation (VFSC), and CNB
Financial Corporation (CNBF).
During 1998, Evergreen Corporation (EVGN), previously a member of the
Company's peer group, was purchased by Banknorth Group, Inc. (BKNG).
Evergreen Corporation has been replaced by CNB Financial Corporation in the
peer group analysis.
COMPARE FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MERCHANTS BANCSHARES, INC.
NASDAQ MARKET INDEX AND PEER GROUP INDEX
ASSUMES $100 INVESTED ON JAN. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1998
Fiscal Year Ending
--------------------------------------------------------------
Company 1993 1994 1995 1996 1997 1998
- ------- ---- ---- ---- ---- ---- ----
Merchants Bancshares, Inc. $100.00 $ 75.93 $111.11 $139.81 $249.07 $198.17
Peer Group $100.00 $118.25 $199.21 $225.47 $381.07 $405.64
Broad Market $100.00 $104.99 $136.18 $169.23 $207.00 $291.96
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the ownership of
the Common Stock as of February 23, 1999 by each of the Directors and
Executive Officers of the Company and the Bank and the Directors and
Executive Officers of the Company and the Bank as a group.
Amount and Nature of
Name Beneficial Ownership(1) Percent of Class
---- ----------------------- ----------------
Joseph L. Boutin (a) 576,633(2) 13.2%
Peter A. Bouyea (a) 54,149 1.2%
Charles A. Davis (b) 288,966(3) 6.6%
Jeffrey Davis (a) 22,569 *
Zoe P. Erdman (e) 18 *
Michael G. Furlong (a) 4,538 *
Thomas R. Havers (d) 24,393(4) *
William R. Heaslip (d) 6,485(5) *
Lorilee A. Lawton (c) 2,606 *
Thomas S. Leavitt (d) 8,196(6) *
Leo O'Brien, Jr. (a) 19,458 *
Raymond C. Pecor, Jr. (a) 131,128 2.9%
Patrick S. Robins (a) 24,614 *
Benjamin F. Schweyer (b) 65,435 1.4%
Robert A. Skiff, Ph.D. (a) 2,175 *
Janet P. Spitler (e) 1,647 *
Michael R. Tuttle (d) 544,548(7) 12.4%
Carole A. Ziter (c) 2,136 *
Directors and Executive
Officers as a Group 1,780,694(8) 41%
<FN>
<F*> Shareholdings represent less than 1.00% of class
<Fa> Designates Director of the Company and the Bank
<Fb> Designates Director of the Company only
<Fc> Designates Director of the Bank only
<Fd> Designates Named Principal Officer
<Fe> Designates Executive Officer of the Bank
NOTES:
<F1> In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, shares are shown as beneficially owned if the person named in
the table has or shares the power to vote or direct the voting of, or
the power to dispose or to direct the disposition of, such shares.
Inclusion of shares in the table does not necessarily mean that the
persons named have any economic beneficial interest in shares set
opposite their respective names.
<F2> Includes 523,790 shares held by the General Educational Fund, Inc.
(the "Fund"). Mr. Boutin is a trustee of the General Education Fund
and as such may be deemed to beneficially own all such shares. Mr.
Boutin disclaims beneficial ownership of all such shares held by the
General Education Fund. Also, includes 15,000 shares which Mr. Boutin
may acquire pursuant to the exercise of certain vested stock options.
<F3> Includes 4,412 shares held in trust for Mr. Davis' two minor sons,
1,124 shares held directly by Mr. Davis' two minor sons, 10,525
shares held by Mr. Davis as trustee of the Charles and Marna Davis
Foundation and 9,776 shares owned by Mr. Davis' wife, Marna Davis.
<F4> Does not include an aggregate 3,245 shares which Mr. Havers has the
right to receive on a deferred basis in installments over fifteen
years, beginning upon Mr. Havers achieving the age of 65 years old.
These shares will be issued to Mr. Havers pursuant to agreements made
by the Bank in connection with the termination of the Bank's
Executive Salary Continuation Plan in December 1995. Includes 5,000
shares, which Mr. Havers may acquire pursuant to the exercise of
certain vested stock options.
<F5> Includes 5,000 shares, which Mr. Heaslip may acquire pursuant to the
exercise of certain vested stock options.
<F6> Includes 5,000 shares, which Mr. Leavitt may acquire pursuant to the
exercise of certain vested stock options.
<F7> Includes 523,790 shares held by the General Educational Fund, Inc.
(the "Fund"). Mr. Tuttle is a trustee of the General Education Fund
and as such may be deemed to beneficially own all such shares. Mr.
Tuttle disclaims beneficial ownership of all such shares held by the
General Education Fund. Also includes 9,000 shares, which Mr. Tuttle
may acquire pursuant to the exercise of certain vested stock options.
<F8> Includes 523,790 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. Also includes
39,000 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 1998 furnished to the Company, the Company
notes that Benjamin F. Schweyer filed a Form 4 report nine months late with
respect to the sale of 1,024 shares.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company Board, upon the recommendation of the Audit Committee,
has selected the firm of Arthur Andersen LLP, independent public
accountants, as auditors of the Company for 1998. The Company has been
advised by such firm that neither it nor any member or associate of such
firm have any relationship with the Company or the Bank other than as
independent auditors. Arthur Andersen LLP has served as the Company's
independent auditors since 1974.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting, will have an opportunity to make any statement that they may
desire to make, and will be available to answer appropriate questions from
the shareholders.
OTHER MATTERS
The Company Board knows of no additional matters which are likely to
be presented for action at the Annual Meeting other than the proposal
specifically set forth in the Notice and referred to herein. If named in
the accompanying proxy and acting thereunder will vote or refrain from
voting in accordance with their best judgment pursuant to the discretionary
authority conferred by the proxy.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholders who desire to submit proposals for the consideration of
the Company's shareholders at its Annual Meeting of Shareholders in 2000,
scheduled to be held on Tuesday, April 18, 2000, 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, 1999. 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, 1998, 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 1997 and
1998.
Merchants Bank
Andrew T. Kloeckner, AVP & Compliance Officer
275 Kennedy Drive
South Burlington, VT 05403
Telephone (802) 658-3400
By Order of the Board of Directors,
164 College St. Jennifer L. Varin
Burlington, VT 05401 Secretary
Merchants Bancshares, Inc.
COMMON STOCK MERCHANTS BANCSHARES, INC. COMMON STOCK
Proxy Solicited by the Board of Directors for
1999 Annual Meeting of Shareholders on April 20, 1999
The undersigned hereby appoints Tracy K. Chandler and Ardyee J. Cochran and
each of them, proxies, with full power of substitution, to vote at the 1999
Annual Meeting of Shareholders of MERCHANTS BANCSHARES, INC. to be held on
April 20, 1999 (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.
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PLEASE VOTE, DATE AND SIGN ON THE REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
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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.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
[x] PLEASE MARK VOTES
AS IN THIS EXAMPLE
MERCHANTS BANCSHARES, INC.
COMMON STOCK
RECORD DATE SHARES:
The Board of Directors recommends a vote FOR the Proposal listed below.
1. Election of Directors For All With- For All
Nominees: Nominees held Except
Leo O'Brien, Jr. [ ] [ ] [ ]
Robert A. Sidff, Ph.D
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.
Mark box at right if an address change or comment has be noted on [ ]
the reverse side of this card.
Please be sure to sign and date this Proxy. Date:--------------------
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Shareholder sign here Co-owner sign here
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