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. )
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14a-6(e)(2))
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
UNION BANKSHARES, 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)
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Union Bankshares, Inc.
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20 Lower Main Street
PO Box 667
Morrisville, VT 05661
802-888-6600
April 18, 2005
Dear Shareholder,
The 114th Annual Meeting of the Shareholders of Union Bankshares, Inc. will
be held May 18th at 3:00 p.m. at the offices of Union Bank, located at 20
Lower Main Street, Morrisville, Vermont. You are cordially invited to
attend.
Enclosed with this mailing is a Notice of Annual Meeting, a Proxy Statement
and a Proxy Card for voting your shares.
Also enclosed is a copy of the Annual Report of Union Bankshares, Inc. and
its wholly-owned subsidiary, Union Bank, for the year ended December 31,
2004. The report includes a letter to shareholders, audited consolidated
financial statements, summary of financial highlights, management's
discussion and analysis of financial results, and other information about
the Company.
Your attendance and vote at the annual meeting are important. We hope you
will join us immediately following the meeting for light refreshments and
an informal gathering of shareholders, directors and bank officers.
Sincerely,
/s/ Kenneth D. Gibbons
Kenneth D. Gibbons
President and CEO
Union Bankshares, Inc.
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NOTICE OF
2005 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 18, 2005
To the Shareholders of
Union Bankshares, Inc.:
The Annual Meeting of Shareholders of Union Bankshares, Inc. will be held
at 3:00 p.m., local time, on Wednesday, May 18, 2005, at the banking
offices of Union Bank, 20 Lower Main Street, Morrisville, Vermont, for the
following purposes:
1. To fix the number of directors at eight for the ensuing year and
to elect eight directors (or such lesser number as circumstances
may warrant), all of whom will serve for one-year terms and until
their successors are elected and qualified; and
2. To consider and act upon any other business which may properly
come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 1, 2005 as
the record date for the determination of shareholders entitled to notice
of, and to vote at, the meeting or any adjournment of the meeting.
By Order of the Board of Directors,
/s/ Robert P. Rollins
Robert P. Rollins
Secretary
Morrisville, Vermont
April 18, 2005
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON. SHOULD
YOU ATTEND THE MEETING YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON IF
YOU SO DESIRE.
TABLE OF CONTENTS
PROXY STATEMENT 1
INFORMATION ABOUT THE MEETING 1
Why have I received these materials? 1
Who is entitled to vote at the annual meeting? 1
How do I vote my shares at the annual meeting? 1
Can I change my vote after I return my proxy card? 2
Can I vote at the meeting instead of voting by proxy? 2
What is a broker non-vote? 2
What constitutes a quorum for purposes of the annual meeting? 2
What vote is required to approve matters at the annual meeting? 2
Do broker non-votes affect the outcome of shareholder votes? 3
How does the Board recommend that I vote my shares? 3
How are proxies solicited? 3
Who pays the expenses for soliciting proxies? 3
SHARE OWNERSHIP INFORMATION 3
Share Ownership of Management and Principal Holders 3
Section 16(a) Beneficial Ownership Reporting Compliance 5
PROPOSAL 1: TO ELECT DIRECTORS 5
Directors' Compensation 6
Attendance at Directors Meetings 7
Director Independence 7
Board Committees and Corporate Governance 7
Audit Committee 7
Compensation Committee 8
Nominating Functions 8
Shareholder Recommendations for Board Nominations 9
Codes of Ethics 9
Attendance at Annual Meeting of Shareholders 9
Communicating with the Board 10
Transactions with Management and Directors 10
Compensation Committee Interlocks and Insider Participation 10
Vote Required 10
AUDIT COMMITTEE REPORT 11
COMPENSATION COMMITTEE REPORT 12
STOCK PERFORMANCE GRAPH 14
EXECUTIVE OFFICERS 15
EXECUTIVE COMPENSATION 16
Summary Compensation Table 16
Benefit Plans 17
Union Bankshares, Inc. Incentive Stock Option Plan 17
Union Bankshares, Inc. Deferred Compensation Plan 18
Union Bank Defined Benefit Pension Plan 19
Union Bank 401(k) and Profit Sharing Plan 20
Union Bank Discretionary Bonus Payments 20
Other Employee Benefit Plans 20
INDEPENDENT AUDITORS 20
Change in Independent Auditors 20
Audit Fees 21
Audit Committee Pre-Approval Guidelines 22
SHAREHOLDER PROPOSALS 22
OTHER MATTERS 23
UNION BANKSHARES, INC.
20 Lower Main Street
Morrisville, VT 05661
PROXY STATEMENT
Annual Meeting of Shareholders
May 18, 2005
INFORMATION ABOUT THE MEETING
Why have I received these materials?
We are sending you this proxy statement and the accompanying proxy card to
solicit your vote, on behalf of the Board of Directors, for action at the
annual meeting of the shareholders of Union Bankshares, Inc. (the
"Company," "we" or "our") to be held at 3:00 p.m. local time on Wednesday,
May 18, 2005, at the offices of our subsidiary, Union Bank, at 20 Lower
Main Street, Morrisville, Vermont. This proxy statement and proxy card are
accompanied by the Company's Annual Report to Shareholders for the year
ended December 31, 2004, which contains the Company's audited consolidated
financial statements. These materials were first sent to shareholders on or
about April 18, 2005. You are cordially invited to attend the annual
meeting and are requested to vote on the proposal to elect directors, as
described in this proxy statement.
Who is entitled to vote at the annual meeting?
Holders of the Company's common stock, $2.00 par value per share, as of the
close of business on April 1, 2005 (the record date for the meeting), will
be entitled to vote at the annual meeting. On April 1, 2005, there were
outstanding and entitled to vote 4,554,663 shares of the Company's common
stock, each of which is entitled to one vote on each matter presented for
vote at the annual meeting. At this time, the only matter we are aware of
that will be presented for vote at the meeting is the election of
directors.
How do I vote my shares at the annual meeting?
If you are a shareholder of record of the Company's common stock, you may
complete and sign the accompanying proxy card and return it in the enclosed
postage-paid envelope, or you may deliver it in person to the Corporate
Secretary or the Assistant Corporate Secretary at the offices of Union
Bank. You are a shareholder of record if you hold your stock in your own
name on the Company's shareholder records maintained by our transfer agent
and wholly-owned subsidiary, Union Bank.
"Street name" shareholders of common stock, who wish to vote at the annual
meeting will need to obtain a proxy form from the institution that holds
their shares and follow the instructions on that form. Street name
shareholders are shareholders who hold their common stock indirectly,
through a bank, broker or other nominee.
Can I change my vote after I return my proxy card?
Yes, after you have submitted a proxy, you may change your vote at any time
before the proxy is exercised at the annual meeting.
Shareholders of record may change their vote by submitting a written notice
of revocation or a proxy bearing a later date. You may file a notice of
revocation or request a new proxy by contacting the Assistant Corporate
Secretary, JoAnn Tallman at Union Bank, 20 Lower Main Street, Morrisville,
VT 05661 or by calling 802-888-6600.
"Street name" shareholders who wish to change their vote should contact the
institution that holds their shares and follow the applicable procedures
prescribed by the institution.
Can I vote at the meeting instead of voting by proxy?
Yes, a ballot will be available at the annual meeting for shareholders of
record who wish to vote in person. However, we encourage you to complete
and return the enclosed proxy card to be certain that your shares are
represented and voted, even if you should be unable to attend the meeting
in person. If you wish, you may revoke your previously given proxy at the
annual meeting and vote by ballot instead.
What is a broker non-vote?
Under brokerage industry practices, a broker may generally vote the shares
it holds for customers on routine matters, but requires voting instructions
from the customer on other, nondiscretionary matters. A broker non-vote
occurs when a broker votes less than all of the shares it holds of record
for any reason, including with respect to nondiscretionary matters where
customer instructions have not been received. The "missing" votes in such a
case are broker non-votes.
What constitutes a quorum for purposes of the annual meeting?
The presence at the annual meeting in person or by proxy of the holders of
a majority of the outstanding shares of common stock entitled to vote will
constitute a quorum for the transaction of business. Proxies marked as
"WITHHOLD AUTHORITY" on the election of directors, or marked as abstaining
(including proxies containing broker non-votes) on any matter to be acted
on by the shareholders will be treated as present at the meeting for
purposes of determining a quorum but will not be counted as votes cast on
such matters.
What vote is required to approve matters at the annual meeting?
The election of directors at the annual meeting requires the affirmative
vote of a plurality of the votes cast. That means that the nominees who
receive the highest number of vote totals for the number of vacancies to be
filled will be elected as directors. Therefore, a vote to withhold
authority for any nominee or the entire slate will not affect the outcome
of the election unless there are more nominees than there are vacancies to
be filled.
In order to be approved, any other matter that may be voted on at the
meeting would require that more votes be cast in favor of the proposal than
against it. As noted above, management of the Company is
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not aware at this time of any matter that may be submitted to vote of the
shareholders at the annual meeting other than the election of directors.
Do broker non-votes affect the outcome of shareholder votes?
Broker non-votes, while considered present and entitled to vote for
purposes of determining a quorum, are not considered to be "votes cast."
Because election of directors is by plurality vote, and, if presented, any
other matters would be approved if more votes are cast for than against,
broker non-votes would not affect the outcome of any such shareholder vote.
How does the Board recommend that I vote my shares?
The Board of Directors recommends that you vote FOR the proposal to set the
number of directors for the ensuing year at eight and to elect the eight
nominees listed in this proxy statement.
The proxy card gives you the ability to vote for, or withhold authority
from voting, as to the entire slate of directors, or as to individual
nominee(s). If you vote by proxy, your shares will be voted in the manner
you indicate on the proxy card. If you sign and return your proxy card but
do not specify how you want your shares to be voted, the persons named as
proxy holders on the proxy card will vote your shares in accordance with
the recommendations of the Board of Directors.
How are proxies solicited?
Proxies are being solicited by mail. Proxies may also be solicited by
directors, officers or employees of the Company or Union Bank, in person or
by telephone, facsimile, or electronic transmission. Those individuals will
not receive any additional compensation for such solicitation.
Who pays the expenses for soliciting proxies?
The Company pays the expenses for soliciting proxies for the annual
meeting. These expenses include costs relating to preparation, mailing and
returning of proxies. In addition, we may reimburse banks, brokers or other
nominee holders for their expenses in sending proxy materials to the
beneficial owners of our common stock.
SHARE OWNERSHIP INFORMATION
Share Ownership of Management and Principal Holders
The following table shows the number and percentage of outstanding shares
of the Company's common stock owned beneficially as of March 15, 2005 by:
* each incumbent director and nominee for director of the Company;
* each executive officer of the Company named in the summary
compensation table included elsewhere in this proxy statement;
* all of the Company's directors and executive officers as a group;
and
* each person (including any "group," as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934), known to
the management of the Company to own beneficially more than 5% of
the Company's outstanding common stock.
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Except as otherwise indicated in the footnotes to the table, the named
individuals possess sole voting and investment power over the shares
listed.
Shares
Beneficially Percent
Shareholder or Group Owned of Class
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Directors, Nominees and/or Executive Officers:
Cynthia D. Borck 6,529 (1) .14
Steven J. Bourgeois 1,388 (2) .03
William T. Costa, Jr. 25,942 (3) .57
Kenneth D. Gibbons 60,944 (4) 1.33
Franklin G. Hovey, II 603,928 (5)(10) 13.22
Richard C. Marron 3,065 (6) .07
Marsha A. Mongeon 1,298 (7) .03
Robert P. Rollins 5,133 .11
Richard C. Sargent 594,943 (8) 13.03
John H. Steel 5,500 (9) .12
All Directors, Nominees and Executive Officers as a Group (10): 1,308,670 28.65
Other 5% or more Shareholders:
Genevieve L. Hovey Trust 422,908 (10) 9.26
Susan Hovey Mercia 603,713 (10)(11) 13.22
Walter M. Sargent Revocable Trust 379,836 (12) 8.32
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Ms. Borck has shared voting and investment power over 5,279 of the
shares listed. Includes 1,250 shares Ms. Borck has the right to
acquire under presently exercisable incentive stock options.
Mr. Bourgeois has shared voting and investment power over all shares
listed.
Mr. Costa has shared voting and investment power over all shares
listed.
Mr. Gibbons has shared voting and investment power over 25,174 of the
shares listed. Includes 10,000 shares Mr. Gibbons has the right to
acquire under presently exercisable incentive stock options.
Mr. Hovey, II has shared voting and investment power over 596,534 of
the shares listed, including the 422,908 shares held in the Genevieve
L. Hovey Trust.
Mr. Marron has shared voting and investment power over all but 265 of
the shares listed.
Includes 500 shares Ms. Mongeon has the right to acquire under
presently exercisable incentive stock options.
Mr. Richard Sargent has shared voting power over 594,928 of the
shares listed. The total includes 162,000 shares held by the Copley
Fund, a charitable trust of which Mr. Sargent serves as co-trustee.
Mr. Sargent does not have any beneficial interest in the fund and
disclaims beneficial ownership of all 162,000 shares held by the
fund. The total also includes 379,836 shares held by the Walter M.
Sargent Revocable Trust, of which Mr. Sargent and members of his
family are beneficiaries and of which he is a co-trustee.
Mr. Steel's total includes 1,500 shares held as custodian for his
minor children under the Uniform Transfers to Minors Act.
Mr. Hovey, II and his sister, Susan Hovey Mercia, are co-trustees and
beneficiaries of the Genevieve L. Hovey Trust. All of the shares held
by the trust are included in the share totals in this table for both
Mr. Hovey, II and Ms. Mercia. Each of them disclaims beneficial
interest in one-half of such shares, in which the other has a
pecuniary interest.
(footnotes continued on following page)
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Mrs. Mercia has shared voting and investment power over 596,533 of
the shares listed, including the 422,908 shares held in the Genevieve
L. Hovey Trust.
All 379,836 shares are included in the share total disclosed
elsewhere in this table as beneficially owned by Richard C. Sargent,
who is a co-trustee of the Trust and of which he and members of his
family are beneficiaries.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and ten percent or more shareholders to file
with the Securities and Exchange Commission ("SEC") reports of their
ownership and changes in ownership of the Company's equity securities and
to furnish the Company with copies of all such reports. Based solely on its
review of copies of Section 16 reports received by it, or on written
representations from certain reporting persons that no filings were
required for them, the Company believes that during 2004 all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
or more shareholders were complied with.
PROPOSAL 1: TO ELECT DIRECTORS
The Company's Amended and Restated Articles of Incorporation and By-laws
provide for a Board of at least three directors, with the exact number to
be fixed by the shareholders at each annual meeting. The Board of Directors
currently consists of eight individuals. Director William T. Costa, Jr. has
reached the mandatory retirement age (72) under the Company's By-laws and
therefore will retire from the Boards of the Company and Union Bank as of
the 2005 annual meeting. The Board of Directors has nominated businessman
and former bank executive Steven J. Bourgeois to fill the vacancy created
by Mr. Costa's retirement. This year the Board has recommended that the
shareholders again fix the number of directors for the ensuing year at
eight, or such lesser number as circumstances require should any of the
nominees be unable to serve. Mr. Bourgeois and each of the incumbent
directors, other than Mr. Costa, will stand for election to a one-year
term.
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The table below contains certain biographical information about each of the
nominees standing for election to the Board.
Served as
Director
Name and Age Since (1) Principal Occupation for Past Five Years
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Cynthia D. Borck, 54 1995 Vice President - Union Bankshares, Inc. and
Executive Vice President-Union Bank
Morrisville, VT
Steven J. Bourgeois, 56 - Chief Executive Officer and Principal Owner,
Strategic Initiatives for Business LLC
St. Albans, VT (business consulting), 2002-present.
Previously, Regional President, Banknorth-Vermont,
Burlington, VT and President and Chief Executive
Officer, Franklin-Lamoille Bank, St. Albans, VT
Kenneth D. Gibbons, 58 1989 President and Chief Executive Officer-Union
Bankshares, Inc. and Union Bank
Morrisville, VT
Franklin G. Hovey, II, 55 1999 President, Hovey Enterprises, Inc.
St. Johnsbury, VT (real estate)
Richard C. Marron, 67 1998 Owner, Town and Country Motor Lodge
Stowe, VT
Robert P. Rollins, 66 1983 Insurance Agent
Morrisville, VT
Richard C. Sargent, 66 1982 Attorney at Law
Richard Sargent Law Office
Morrisville, VT
John H. Steel, 55 2002 Owner, President and Treasurer,
Steel Construction, Inc.
Stowe, VT
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Does not include prior service with Union Bank and/or Citizens
Savings Bank and Trust Company ("Citizens") (merged into Union Bank
in May, 2003). Each director and nominee is also a director of Union
Bank.
Directors' Compensation
All directors of the Company, including Mr. Gibbons and Ms. Borck (who are
employees of Union Bank), receive an annual retainer of $6,690 for service
on the Company's Board of Directors, but do not receive any per meeting
fees. Each non-employee director of the Company also receives fees for his
service as a director of Union Bank, as described below.
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Non-employee directors of Union Bank receive an annual retainer of $5,160
and a per meeting fee of $511, but do not receive any additional fees for
attendance at committee meetings. During 2004, Mr.Gibbons and Ms. Borck
were not separately compensated for their service as directors of Union
Bank. All Company director fees paid to Mr. Gibbons and Ms. Borck are
disclosed in the summary compensation table and footnotes set forth
elsewhere in this proxy statement under the caption "EXECUTIVE
COMPENSATION-Summary Compensation Table."
Non-employee directors who serve on the Compensation and Audit Committees
of the Company are paid annual retainers for their service on the
respective committees. Committee members are paid $1,000 annually while the
Chairs are paid $1,500 annually.
Certain Directors of the Company participate in the Union Bankshares, Inc.
Deferred Compensation Plan, described below under the caption "EXECUTIVE
COMPENSATION-Union Bankshares, Inc. Deferred Compensation Plan."
Attendance at Directors Meetings
During 2004, the Company's Board of Directors held 11 regular meetings and
no special meetings. All incumbent directors attended at least 82% of the
aggregate of all such meetings and meetings of Board committees of which
they were members. In addition to serving on the Company's Board, all of
the Company's incumbent directors also serve on the Board of Directors of
Union Bank and its committees, as does nominee Steven J. Bourgeois, who was
appointed to the Bank's board of directors in February, 2005. The Board of
Union Bank meets at least twice monthly.
Director Independence
The Board of Directors has determined that each of the directors, except
Mr. Gibbons and Ms. Borck, who are executive officers of the Company and
Union Bank, are independent within the meaning of American Stock Exchange
(AMEX) rules for listed companies. Under these rules, a director is
generally not considered to be independent if he or she has a material
relationship with the listed company (including an employment relationship)
that would interfere with the exercise of independent judgment.
Board Committees and Corporate Governance
As further described below, the Company's Board of Directors maintains two
standing committees, the Audit Committee and the Compensation Committee,
and all independent directors on the Board serve the function of a
nominating committee.
Audit Committee. The Audit Committee comprises directors Robert Rollins
(Chair), Franklin Hovey, II and Richard Marron. AMEX rules for listed
companies and applicable securities laws require that the Company have an
Audit Committee consisting of at least three directors, each of whom is
independent. AMEX rules also require that all members of a listed company's
audit committee be able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash
flow statement, and require that at least one member of the committee qualify
as "financially sophisticated," based on past employment experience in finance
or accounting, professional accounting certification or other comparable
experience or background. Similarly, SEC rules require that at least one
member of the Audit Committee qualify as a "financial expert." The Board of
Directors, in its discretion, and based on all of the information available
to it, has determined that each of the members of the Audit Committee is
independent under applicable legal
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standards and that Mr. Marron is "financially sophisticated" within the
meaning of the AMEX rules and is a "financial expert" within the meaning of
applicable SEC rules.
The Audit Committee is responsible for selecting the independent auditors
and determining the terms of their engagement, for reviewing the reports of
the Company's internal and external auditors, for monitoring the Company's
adherence to accounting principles generally accepted in the United States
of America and for overseeing the quality and integrity of the accounting,
auditing and financial reporting practices of the Company and its system of
internal controls. In addition, the Audit Committee has established
procedures for the confidential reporting of complaints (including
procedures for anonymous complaints by employees) on matters of accounting,
auditing or internal controls.
During 2004, the Company's Audit Committee met 14 times. A report of the
Audit Committee on its 2004 activities is included elsewhere in this proxy
statement under the caption "AUDIT COMMITTEE REPORT."
Compensation Committee. The Compensation Committee comprises directors
Richard Sargent (Chair), William Costa and Robert Rollins. The Board has
determined that each of such directors is independent under applicable AMEX
rules for listed companies. The Compensation Committee evaluates, reviews
and makes decisions or recommendations on executive salary levels, bonuses,
stock option awards and benefit plans.
During 2004, the Compensation Committee met four times. A report of the
Compensation Committee is set forth elsewhere in this proxy statement under
the caption "COMPENSATION COMMITTEE REPORT."
Nominating Functions. In lieu of a separate committee, the functions of a
nominating committee are performed by all of the Company's independent
directors (all directors other than Mr. Gibbons and Ms. Borck, who are
executive officers of the Company and Union Bank). The Board has elected
not to establish a separate nominating committee at this time in order to
obtain the widest possible input on the nominations process from all of the
independent, non-management directors.
The independent directors have adopted a resolution addressing the process
for director nominations, including recommendations by shareholders and
minimum qualifications for director nominees. In accordance with these
criteria, directors and director candidates should possess the following
attributes:
* Strong personal integrity;
* Previous leadership experience in business or administrative
activities;
* Ability and willingness to contribute to board activities,
committees, and meetings;
* Willingness to apply sound and independent business judgment;
* Loyalty to the Company and concern for its success;
* Awareness of a director's role in the Company's corporate
citizenship and image;
* Willingness to assume broad, fiduciary responsibility;
* Familiarity with the Company's service area; and
* Qualification as an independent director under applicable AMEX
rules for listed companies.
All nominees for election at the annual meeting, except Steven J.
Bourgeois, are incumbent directors. Mr. Bourgeois has been personally known
by several members of the Board and management since his tenure at
Banknorth N.A. and the Franklin-Lamoille Bank. Since the opening of Union
Bank's
8
Fairfax, Vermont branch office in April, 2002, the directors and management
became more aware of Mr. Bourgeois and his knowledge of the Franklin County
market. This was timely as the Company was searching for suitable director
candidates in connection with Union Bank's expansion into the St. Albans
market with the opening of a loan production office in January, 2005. After
consideration of Mr. Bourgeois' qualifications, the independent directors
concluded that he met the criteria outlined above, and recommended that he
be nominated for election to the Company's Board of Directors at the annual
meeting. Mr. Bourgeois was appointed to the Board of Directors of Union
Bank in February, 2005.
Shareholder Recommendations for Board Nominations. Shareholders of record
wishing to offer recommendations to the independent directors of
individuals for consideration as possible director nominees should submit
the following information, in writing, at least ninety days before the
annual meeting of shareholders: the name, address and share ownership of
the shareholder making the recommendation; the proposed nominee's name,
address, biographical information and number of shares beneficially owned
(if available); and any other information that the recommending shareholder
believes may be pertinent to assist in evaluating the nominee. The
information should be delivered in person to the Assistant Corporate
Secretary, JoAnn Tallman, at the main office of Union Bank, 20 Lower Main
Street, Morrisville, Vermont, or mailed to: Chairman, Union Bankshares,
Inc., P.O. Box 1346, Morrisville, VT 05661. The independent directors will
use the same criteria to evaluate an individual recommended by a
shareholder as they do other potential nominees. The recommending
shareholder will be notified of the action taken on his or her
recommendation.
Any beneficial owner of shares who is not a shareholder of record who
wishes to recommend a person for consideration as a board nominee must make
appropriate arrangements with such owner's (record) nominee holder to
submit the recommendation through such nominee.
During the course of evaluating a potential nominee, the independent
directors may contact him or her for additional background and other
information as they deem advisable, and may choose to interview the
potential nominee in an effort to determine his or her qualifications under
the specified criteria, as well as their understanding of director
responsibilities. The independent directors will then determine if they
will recommend the nominee to the shareholders. No person will be nominated
unless he or she consents in writing to the nomination and to being named
in the Company's proxy statement and agrees to serve, if elected.
Codes of Ethics
The Board expects all directors, as well as all officers and employees, to
maintain the highest standards of professionalism and business ethics. All
directors, officers and employees are required to adhere to the Company's
Code of Ethics, which is contained in the Union Bank Employee Handbook.
That Code of Ethics is filed with the SEC as exhibit 14(ii) to the
Company's 2003 Annual Report on Form 10-K. In addition, President and CEO
Kenneth Gibbons and Vice President, Treasurer and CFO Marsha Mongeon are
subject to a separate Code of Ethics for Senior Financial Officers and the
Chief Executive Officer. That Code of Ethics is filed with the SEC as
exhibit 14(i) to the Company's 2004 Annual Report on Form 10-K. The
Company's Annual Reports on Form 10-K are available on the SEC's website at
www.sec.gov.
Attendance at Annual Meeting of Shareholders
The Board of Directors has adopted a policy stating that incumbent
directors and nominees are expected to attend the Annual Meeting of
Shareholders, absent exigent circumstances, such as illness, family
9
emergencies and unavoidable business travel. Last year, all eight incumbent
directors attended the annual meeting.
Communicating with the Board
Shareholders who wish to do so may communicate in writing with the Board of
Directors, its committees, or individual directors regarding matters
relating to the Company's business operations, financial condition or
corporate governance. Any such communication should be addressed to the
Board of Directors, or Board committee or individual director, as
applicable, c/o Union Bankshares, Inc., P.O. Box 1346, Morrisville, VT
05661. The correspondence will be forwarded to the addressee for review and
response, as appropriate in the circumstances.
Transactions with Management and Directors
Some of the incumbent directors and executive officers of the Company, and
some of the corporations and firms with which these individuals are
associated, are customers of Union Bank in the ordinary course of business,
or have loans outstanding from such bank, and it is anticipated that they
will continue to do business with Union Bank in the future. All loans to
such persons or entities were made in the ordinary course of business, do
not involve more than normal risk of collectibility or present other
unfavorable features, and were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same
time for comparable transactions by Union Bank with unaffiliated persons,
although directors were generally allowed the lowest interest rate given to
others on comparable loans.
Union Bank leases its Green Mountain Mall branch facility from a real
estate corporation of which director William T. Costa, Jr. is a principal.
The lease provides for minimum annual rentals of $28,000 and expires on
June 30, 2005. Subsequent to year end, the lease was renewed until June 30,
2010, at the same minimum annual rental. Under certain conditions, the
Company may terminate the lease prior to expiration of the renewal term.
Compensation Committee Interlocks and Insider Participation
The Company is not aware of the existence of any interlocking relationships
between the senior management of the Company and that of any other company.
Vote Required
Unless authority is withheld, proxies solicited hereby will be voted to fix
the number of directors at eight and in favor of each of the eight nominees
listed above to serve a one-year term expiring at the 2006 annual meeting
of shareholders, or until their successors are elected and qualify. If for
any reason not now known by the Company any of such nominees should not be
able to serve, proxies will be voted for a substitute nominee or nominees
designated by the Board of Directors, or will be voted to fix the number of
directors at fewer than eight and for fewer than eight nominees, as the
Board may deem advisable in its discretion.
Election of directors is by a plurality of the votes cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
10
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of Union Bankshares, Inc.
(the "Company") operates under a written charter adopted by the Board. In
accordance with its charter, the Audit Committee assists the Board of
Directors in fulfilling its responsibilities for overseeing the quality and
integrity of the accounting, auditing and financial reporting practices of
the Company and its systems of internal controls.
The Audit Committee consists of Mr. Rollins (Chair), Mr. Marron and Mr.
Hovey, II. The Board of Directors has determined that Mr. Marron is an
audit committee financial expert as defined by the SEC and that all members
of the Audit Committee are independent within the meaning of AMEX listing
standards and SEC regulations.
Management is responsible for the Company's internal controls and the
financial reporting process, including preparing the Company's financial
statements. The independent auditors are responsible for auditing those
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and to issue an opinion thereon.
The Committee's responsibility is to monitor and oversee these processes.
In that regard, the Audit Committee has discussed with the Company's
internal and independent auditors the overall scope and plans for their
respective audits and has met with the internal and independent auditors,
with and without management present, to discuss the results of their
examinations and evaluations of the Company's internal controls and the
overall quality of the Company's financial reporting. In 2004, the Audit
Committee met fourteen times.
The Audit Committee has reviewed and discussed the Company's December 31,
2004 audited consolidated financial statements with management and with the
Company's independent auditors. Specifically, the Committee has discussed
with the independent auditors the matters required to be discussed by
Statement on Auditing Standards ("SAS") No. 61 "Communications with Audit
Committees", as amended. The Audit Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and has discussed with the independent auditors their
independence. The Committee has considered and determined that the
performance of non-audit services for the Company by the Company's external
auditors, UHY, LLP, is compatible with maintaining that firm's independence
in connection with serving as the Company's independent public accountants.
A description of the fees billed to the Company for the services of the
independent auditors relating to 2004 is included in the proxy statement
under the caption "INDEPENDENT AUDITORS."
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has
approved, that the audited consolidated financial statements be included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2004 for filing with the SEC.
Submitted by the Union Bankshares Audit Committee
Robert P. Rollins (Chair)
Franklin G. Hovey, II
Richard C. Marron
11
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors of
Union Bankshares, Inc. (the "Company") is made up of three non-employee
directors, William Costa, Robert Rollins, and Richard Sargent (Chair). Each
of the members of the Committee was determined by the Board to be
independent within the meaning of applicable listing standards of the
American Stock Exchange ("AMEX").
During 2004, the Company did not have any salaried employees at the holding
company level, but the Company's executive officers received compensation
in their capacity as employees of the Company's subsidiary, Union Bank. The
Committee's recommendations on compensation of the executive officers were,
therefore, implemented by the Board of Directors of Union Bank, rather than
the Company. However, during 2004, the same individuals served as directors
of the Company and Union Bank.
Mr. Gibbons served as President and CEO and a director of the Company and
Union Bank throughout 2004.
Salary and performance reviews for executive officers are normally done on
an annual basis in January of each year. The Committee and subsidiary bank
Board attempt to structure compensation packages for the executive officers
that will assist in attracting and retaining competent senior management
and will provide appropriate rewards for both personal and bank
performance. Short-term incentive programs and, at certain levels, stock-
based, long-term compensation, are also utilized as a means to increase
senior management's focus on future growth in corporate earnings and
shareholder value.
In determining appropriate executive salary and benefit compensation
levels, the Committee and Union Bank Board reviewed and compared the
performance level of Union Bank within its peer group utilizing data
available from the FDIC, Alex Sheshunoff and Company, Bank Analysis Center,
the accounting firm of Berry, Dunn, McNeil & Parker and other vendors. The
Committee and Board also considered salary surveys prepared by other
companies which specialize in compiling compensation and benefits packages
for banks. In 2002, the committee hired Gallagher, Flynn & Company, PLC to
examine the Company's overall compensation structure and to make
recommendations to the Committee. In accordance with the recommendations of
Gallagher, Flynn & Company, beginning in 2002 and continuing in 2004, the
Committee has chosen to broaden somewhat the group of executive officers of
the Company and/or Union Bank to whom incentive stock options are awarded.
In 2004 the Committee granted incentive stock options to four executive
officers of the Company and/or Union Bank (including the Company's three
executive officers, Mr. Gibbons, Ms. Borck and Ms. Mongeon).
In January, 2004, President and CEO Gibbons met with the Board of Directors
of Union Bank for his annual review and the Compensation Committee
presented its recommendations to the full Board. At that time Mr. Gibbons'
salary was increased from an annual rate of $186,103 to $193,547,
representing an increase of approximately 4.0%. In July, Mr. Gibbons was
awarded a discretionary cash bonus of .8% of the net income earned by Union
Bank in the first six months of 2004 ($20,600). Payment of a mid-year
discretionary bonus to the CEO based on subsidiary-level net income for the
first six months of the fiscal year is consistent with the Bank's practice
in prior years. Mr. Gibbons' 2004 mid-year bonus represents the same
percentage of Union Bank's net income for the first six months of 2004 as
his 2003 mid-year bonus represented of the combined net income of Union
Bank and Citizens (merged into Union in May, 2003) for the first six months
of 2003. This bonus has been paid only to Mr. Gibbons in light of his
unique role as President and CEO of the Company and Union Bank. Mr. Gibbons
also participates in the Union Bank-wide discretionary cash bonus program
in which all
12
employees receive a percentage of their salary as determined by Union
Bank's Board of Directors. For 2004 this amounted to 3.5% of base salary
paid in November to employees of Union Bank, including Mr. Gibbons and
other senior executives. The Committee also awarded Mr. Gibbons an option
under the Company's Incentive Stock Option Plan to purchase 2,000 shares of
Company common stock at $26.60 a share, which was the per share market
price of the Company's common stock on the date of the award (January 2,
2004). The award represented approximately 61.5% of the total 3,250 shares
optioned under the Plan in 2004 to four executive officers of the Company
and/or Union Bank.
In determining Mr. Gibbons' 2004 salary level, the Board of Directors of
Union Bank and the Committee considered the Bank's financial performance
for 2003. Return on average equity of 16.08%, return on average assets of
1.76% (85th percentile in national peer group), and an efficiency ratio of
58.18% were attained. The ratios were considered favorable levels
considering the state of the economy and consistent with prior years. In
evaluating Mr. Gibbons' overall compensation, the Committee and Union Bank
Board also considered the fees he received for serving as director of the
Company ($6,432) as well as the use of a bank-owned automobile.
Consistent with the approach taken in compensating Mr. Gibbons, it has been
the policy of the Compensation Committee to establish salary and benefit
levels for other executive officers, including Vice President Cynthia Borck
and Treasurer and Chief Financial Officer Marsha Mongeon, in a manner
designed to reflect the executive's individual performance and
contributions to the overall profitability of the Company. It was the
Committee's belief that the bonus awards to Ms. Borck and Ms. Mongeon were
justified because they met and in many cases exceeded previously
established performance goals. The Committee intends to continue that
general approach. The Committee also intends to provide appropriate
incentives for executives to contribute to achieving both the Company's
short-term and long-term objectives, by structuring executive compensation
to include an appropriate combination of short-term cash incentives and
long-term stock-based (incentive stock option) compensation.
Submitted by Union Bankshares, Inc. Compensation Committee
Richard C. Sargent (Chair)
William T. Costa, Jr.
Robert P. Rollins
Pursuant to the rules and regulations of the SEC, neither the foregoing
Audit Committee Report, the Compensation Committee Report nor the Stock
Performance Graph below shall be deemed to be filed with the Commission for
purposes of the Securities Exchange Act of 1934, nor shall any such
material be deemed to be incorporated by reference in any past or future
filing by the Company under the Securities Exchange Act of 1934 or the
Securities Act of 1933, as amended.
13
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return (stock price
appreciation plus reinvested dividends) on Union Bankshares, Inc.'s common
stock since July 13, 2000 (the date upon which the Company's common stock
became listed on AMEX) with (i) the cumulative total return on the stocks
included in the NASDAQ Composite Index and (ii) the cumulative return on
the stocks included in the SNL Financial (SNL) $250M-$500M Bank Asset-Size
Index for the same time period. Earlier information is not presented, as
there was not an organized trading market for the Company's common stock
prior to July 13, 2000. All of these cumulative returns are computed
assuming the investment of $100 on July 13, 2000 and the reinvestment of
dividends at the frequency with which dividends were paid (quarterly)
during the applicable years.
Union Bankshares, Inc.
[GRAPH]
Period Ending
-------------------------------------------------------------------
Index 7/13/00 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
-------------------------------------------------------------------------------------------------
Union Bankshares, Inc. 100.00 112.98 161.39 180.52 300.89 282.83
NASDAQ Composite 100.00 59.23 46.90 32.25 48.62 53.07
NASDAQ-Total US* 100.00 58.67 46.54 32.17 48.10 52.35
SNL $250M-$500M Bank Index 100.00 104.43 148.37 191.32 276.43 313.74
--------------------
* Source: CRSP, Center for Research in Security Prices, Graduate School
of Business, The University of Chicago 2005. Used with permission.
All rights reserved. crsp.com
This year the stock performance graph reflects a change made by the Company
in the NASDAQ comparison index from the NASDAQ-Total US Index to the
NASDAQ-Composite Index. This change was made as the NASDAQ-Composite Index
reflects a broader base of companies and is believed by management to be a
more widely followed stock performance benchmark. For comparison purposes,
the table immediately above shows in dollar terms the performance of both
such NASDAQ indices over the specified performance period.
Source: SNL Financial LC, Charlottesville, VA
14
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company.
Position(s) with the Company and Subsidiary
Name and Age and Occupation for the Past Five Years (1)
---------------------------------------------------------------------
Kenneth D. Gibbons, 58 President, Chief Executive Officer and Director,
Union Bankshares, Inc. and Union Bank
Morrisville, VT
Cynthia D. Borck, 54 Vice President and Director, Union Bankshares, Inc. and
Executive Vice President and Director, Union Bank
Morrisville, VT
Marsha A. Mongeon, 49 Vice President, Treasurer and Chief Financial Officer,
Union Bankshares, Inc. and Senior Vice President and
Treasurer, Union Bank
Morrisville, VT
--------------------
The named officers also held the following positions with Citizens,
prior to its merger with Union Bank in May, 2003: Mr. Gibbons,
Director (1999-2003) and Interim President (February-May, 2003); Ms.
Borck, Director (1999-2003); and Ms. Mongeon, Assistant Treasurer
(2002-2003).
15
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows annual compensation for services rendered in all
capacities to the Company and its subsidiaries during each of the preceding
three years, paid to each executive officer of the Company whose total
salary and bonus in 2004 exceeded $100,000:
Summary Compensation Table
Long Term
Compensation
Annual Compensation ---------------------
Name and --------------------------- Securities Underlying All Other
Principal Position Year Salary Bonus Options/SARs (1) Compensation (2)(3)(4)
--------------------------------------------------------------------------------------------------------------
Kenneth D. Gibbons 2004 $193,547 $27,334 2,000 shs. $12,499
President, Chief Executive 2003 184,633 25,550 2,000 shs. 14,072
Officer and Director of the 2002 167,004 22,923 3,000 shs. 22,949
Company and Union Bank
Cynthia D. Borck 2004 $108,325 $ 6,771 750 shs. $11,009
Vice President and Director 2003 99,268 6,392 500 shs. 14,470
of the Company and 2002 88,579 2,678 750 shs. 20,681
Executive Vice President and
Director of Union Bank
Marsha A. Mongeon 2004 $102,905 $ 6,580 250 shs. $ 3,527
Vice President, Treasurer 2003 98,904 6,399 250 shs. 3,453
and Chief Financial Officer 2002 94,837 2,777 375 shs. 3,201
of the Company and Senior
Vice President and Treasurer
of Union Bank
--------------------
All options shown in the table were granted under the Company's 1998
Incentive Stock Option Plan and (i) are subject to a one-year holding
period from the date of grant before they become exercisable; (ii)
expire five years from the date of grant; and (iii) were issued at an
exercise price equal to the fair market value of the Company's stock
on the date of grant. Grant date fair market value for options shown
in the table represents the closing price for the Company's common
stock as reported on AMEX on the date of the option grant (or, if
there were no trades on such date, on the next preceding date on
which a trade occurred). The information on stock option grants shown
in the table for 2002 has been retroactively adjusted to reflect the
3-for-2 stock split effective in August, 2003.
Includes matching employer contributions under Union Bank's 401(k)
plan, as follows: Mr. Gibbons, 2004-$5,447; 2003-$6,170; and 2002-
$5,010; Ms. Borck, 2004-$3,571; 2003-$3,140; and 2002-$2,742; and Ms.
Mongeon, 2004-$3,159; 2003-$3,123; and 2002-$2,893.
Includes annual accruals under the Company's Deferred Compensation
Plan of an actuarially determined amount intended to replace the
reduction in benefits under the Union Bank Defined Benefit Pension
Plan resulting from salary deferrals, as follows: Mr. Gibbons, 2004-
$362; Ms. Borck, 2004-$748; and Ms. Mongeon, 2004-$368; 2003-$330;
and 2002-$308.
Mr. Gibbons' and Ms. Borck's totals include directors fees, as
follows: Union Bankshares - for each of Mr. Gibbons and Ms. Borck,
2004-$6,690; 2003-$6,432; and 2002-$6,184. Citizens - Mr. Gibbons,
2003-$1,470; and 2002-$11,755; Ms. Borck, 2003-$4,898; and 2002-
$11,755. Mr. Gibbons also has use of a bank-owned automobile, which
is not reflected in the table.
16
Neither the Company nor Union Bank has any employment or change in control
agreement with any of the three executive officers named above or any other
senior executive or key employee.
Benefit Plans
Union Bankshares, Inc. Incentive Stock Option Plan. The Company's 1998
Incentive Stock Option Plan, adopted by the Board and approved by the
shareholders, is designed to link senior management compensation more
closely to corporate performance and to increases in shareholder value, and
to assist the Company in attracting, retaining and motivating executive
management. The plan is administered by the Compensation Committee, which
consists of three independent, non-employee directors. Eligibility for
awards is limited to those senior officers and other key employees of the
Company or its subsidiary who are in a position to contribute significantly
to the Company's profitability and who are recommended to the Board of
Directors by the Compensation Committee.
Awards under the plan consist of options to purchase shares of the
Company's common stock at a fixed price, at least equal to 100% of the fair
market value of the shares on the day the option is granted. The options
may be exercised for a fixed period of time established by the Board at the
time of the grant, but no longer than ten years from the date of option
grant. The optionholder may pay for the option shares with either cash or
other shares of the Company's common stock (valued at their fair market
value), including shares withheld upon exercise of the option.
Options granted under the plan contain various provisions and limitations
intended to qualify them as incentive stock options under federal income
tax laws. Generally, the optionholder will not recognize gain at the time
the option is granted or exercised, but only upon later sale of the shares
received upon exercise. The total number of shares of the Company's common
stock that could be awarded under the plan is 75,000, subject to standard
adjustments in the case of stock dividends, stock splits, recapitalization
and similar changes in the Company's capitalization. To date, options for
the purchase of 23,050 shares have been granted under the plan, leaving
51,950 shares available for future option grants.
The following table shows information about incentive stock options granted
under the plan during 2004 to the three executive officers named in the
summary compensation table:
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Per Share Option Term (3)
Options/SARs Employees in Exercise or Expiration --------------------
Name Granted (#) Fiscal Year Base Price (1) Date (2) 5% 10%
----------------------------------------------------------------------------------------------------------
Kenneth D. Gibbons 2,000 61.5% $26.60 1/01/09 $14,698 $32,479
Cynthia D. Borck 750 23.1% $26.60 1/01/09 $ 5,512 $12,180
Marsha A. Mongeon 250 7.7% $26.60 1/01/09 $ 1,837 $ 4,060
--------------------
Represents the closing price of the Company's common stock on the
date of grant (January 2, 2004) as reported on AMEX.
(footnotes continued on following page)
17
All options listed in the table (i) were granted on January 2, 2004;
(ii) were subject to a one year vesting period before they became
exercisable; (iii) expire five years after the date of grant; and
(iv) are subject to early termination following the optionholder's
termination of employment during the option period.
Represents the hypothetical value that may be realized by the
optionholder (hypothetical market price less the exercise price)
assuming (i) a beginning per share market value of $26.60 for the
Company's common stock, (ii) the market price increases annually at
the stated rates and (iii) the option is held to its full term (5
years) before exercise.
--------------------
In assessing the grant date values in the above table, readers should keep
in mind that no matter what theoretical value is placed on a stock option
on the date of grant, its ultimate value will be dependent on the market
value of the Company's stock at a future date and that value will in large
part depend, in turn, on the efforts of the Company's management team.
The following table shows certain information about the exercise of
incentive stock options in 2004 and the year-end values of outstanding
options held by the executive officers named in the summary compensation
table.
Aggregated Option/SAR Exercises in Last Fiscal Year,
and FY-End Option/SAR Values
Number of Value of Unexercised
Number of Unexercised In-the-Money
Shares Options/SARs at Options/SARs
Underlying FY-End (2) at FY-End
Options/SARs Exercisable/ Exercisable/
Name Exercised Value Realized (1) Unexercisable Unexercisable (2)
---------------------------------------------------------------------------------------------------
Kenneth D. Gibbons 3,000 $30,300 8,000/2,000 $58,680/0
Cynthia D. Borck 1,000 $ 8,501 500/750 $0/0
Marsha A. Mongeon -0- $ 0 250/250 $0/0
--------------------
Represents the difference between the aggregate option exercise price
and the closing price of the Company's common stock on the date of
exercise as reported on AMEX.
Year-end values are based on the closing price of the Company's
common stock on December 31, 2004 as reported on AMEX ($23.95 per
share), less the applicable option exercise price. Some of the
outstanding stock options were not in-the-money as of such date.
Union Bankshares, Inc. Deferred Compensation Plan. The Company has in
effect a nonqualified deferred compensation plan for directors and
executive officers under which participants are able to defer receipt of
directors fees, salary or bonus. Participation in the plan is limited to
current participants, which include one of the Company's current outside
directors and the three executive officers named in the summary
compensation table. Deferred compensation benefits are calculated based on
the amount deferred, earnings on deferrals and the length of the deferral
period. Payments are generally made in 15 annual installments beginning
after age 55, or on a later date specified by the participant. Payment in a
lump sum is possible in some circumstances. Amounts deferred and benefit
accruals under the plan represent a general unsecured obligation of the
Company, and no assets of the Company have been segregated to meet its
obligations under the plan. However, the Company has purchased life
insurance to fund substantially all of the benefit payments under the plan.
18
The Board and management are evaluating the terms of this plan in light of
recent changes to the tax laws governing deferred compensation
arrangements, enacted as part of the federal American Jobs Creation Act of
2004. It is expected that once the Internal Revenue Service issues rules
implementing the Act, the Board will determine what measures are necessary
for compliance, including possibly amending, freezing or terminating the
plan retroactive to December 31, 2004.
Union Bank Defined Benefit Pension Plan. Union Bank maintains a non-
contributory defined benefit pension plan. All eligible employees of Union
Bank join the plan upon completing at least 1,000 hours of service in a
consecutive twelve-month period. An employee generally becomes 100% vested
in the pension plan after 7 years. Benefits begin on retirement after age
65, although early retirement may be taken after age 55, with an
actuarially reduced benefit.
The following table shows estimated annual pension benefits payable to an
employee of Union Bank under the pension plan upon retirement at age 65 in
2005 under the most advantageous plan provisions available for various
assumed levels of compensation and years of service. Benefit calculations
are subject to the limitations under the Internal Revenue Code on the
amount of the compensation that may be considered in such calculations
($210,000 for 2005) and on the amount of the annual benefit payable under
the plan ($170,000 for 2005). The amounts shown in this table (i) are
calculated on the basis of a straight-life annuity and upon certain other
assumptions regarding Social Security benefits and compensation trends, and
(ii) assume that the individual retires at age 65 during 2005. Covered
compensation for purposes of the benefit calculations includes salary and
cash bonuses, but not other forms of compensation.
Assumed Average
3-year Annual
Compensation Years of Service
------------------------------------------------------------
5 10 15 20
-----------------------------------------
$ 15,000 $ 1,500 $ 3,000 $ 4,500 $ 6,000
$ 25,000 $ 2,500 $ 5,000 $ 7,500 $ 10,000
$ 35,000 $ 3,500 $ 7,000 $10,500 $ 14,000
$ 45,000 $ 4,500 $ 9,000 $13,500 $ 18,000
$ 55,000 $ 5,704 $11,409 $17,114 $ 22,819
$ 65,000 $ 7,029 $14,059 $21,089 $ 28,119
$ 75,000 $ 8,354 $16,709 $25,064 $ 33,419
$ 85,000 $ 9,679 $19,359 $29,039 $ 38,719
$ 95,000 $11,004 $22,009 $33,014 $ 44,019
$105,000 $12,329 $24,659 $36,989 $ 49,319
$125,000 $14,979 $29,959 $44,939 $ 59,919
$150,000 $18,292 $36,584 $54,877 $ 73,169
$175,000 $21,604 $43,209 $64,814 $ 86,419
$200,000 $24,917 $49,834 $74,752 $ 99,669
$225,000 $25,579 $51,159 $76,739 $102,319
$250,000 $25,579 $51,159 $76,739 $102,319
As of December 31, 2004, credited service under the Company's Defined
Benefit Pension Plan for each of the executive officers named in the
summary compensation table were as follows: Mr. Gibbons, 20 years (the
maximum number of years of credited service); Ms. Borck, 17 years; and Ms.
Mongeon, 15 years.
19
Union Bank 401(k) and Profit Sharing Plan. Union Bank maintains a
contributory, tax-qualified Employee Savings (401(k)) Plan covering all
employees who meet certain eligibility requirements. Participants may elect
to contribute up to a specified percentage of eligible compensation to
their 401(k) plan account on a tax deferred basis. The plan provides for
matching contributions by Union Bank, in the sole discretion of the Bank's
Board of Directors. During each of the years 2004, 2003 and 2002, Union
Bank made a discretionary 401(k) matching contribution of fifty cents for
every dollar of compensation deferred by a participant, up to 6% of each
participant's eligible compensation. Discretionary matching contributions
made for the account of the Company's three executive officers during the
preceding three calendar years are shown in the summary compensation table
and footnotes. Although the plan also contains a discretionary profit
sharing component, to date Union Bank has not elected to make a profit
sharing contribution under the plan.
Union Bank Discretionary Bonus Payments. Union Bank's Board of Directors
has ordinarily paid to Mr. Gibbons each year, after the first two quarters
of operations, a discretionary cash bonus based on Union Bank's net income
for such period. This bonus was paid to Mr. Gibbons in each of the past
three years. In January, 2004 and 2003, Ms. Borck and Ms. Mongeon received
discretionary cash bonuses in amounts determined by the Board of Union
Bank, upon recommendation of the Compensation Committee. In addition, Union
Bank's Board has ordinarily paid a discretionary annual cash bonus to all
employees each year (including Mr. Gibbons, Ms. Borck and Ms. Mongeon)
equal to a percentage of base compensation. The applicable percentage for
2002 staff bonuses was 3% and for 2003 and 2004 was 3.5%. All of these
discretionary payments have been a matter of Board practice and are not
embodied in any formal written plan. The Union Bank Board may, in its
discretion and at any time, discontinue some or all of these bonus payment
practices or modify them in any way, including changing the manner in which
bonuses are calculated or time or manner of payment, and changing the
persons or categories of persons to whom the bonuses are paid.
Discretionary cash bonuses paid to the Company's three executive officers
during the preceding three calendar years are shown in the summary
compensation table.
Other Employee Benefit Plans. Except as described in this proxy statement,
neither the Company nor Union Bank maintains any special employee benefit
plans or arrangements for their senior management. However, such
individuals do participate in the Company's medical, dental, life,
accidental death, disability, and salary continuation insurance plans, all
of which are available to Union Bank's officers and employees generally.
INDEPENDENT AUDITORS
Change in Independent Auditor
In April, 2004, the Audit Committee engaged the independent registered
public accounting firm of Urbach Kahn & Werlin LLP ("UKW") as the Company's
external auditors for 2004. However, on June 1, 2004, the partners of UKW
announced that they were joining the independent registered public
accounting firm of UHY LLP ("UHY"), a newly-formed New York limited
liability partnership, organized by the partners of four accounting firms
with offices in seven (7) states. UHY is a legal entity that is separate
from UKW. Following formation of UHY, UKW began the process of ceasing to
provide audit services to public companies, and accordingly, on November
17, 2004 it resigned as the Company's independent auditor. On that same
date, the Audit Committee of the Company's Board of Directors approved the
appointment of UHY as the Company's independent auditor for the year ended
December 31, 2004 and the interim period prior to such year-end, to replace
UKW.
20
Prior to the appointment of UHY, neither the Company nor anyone on its
behalf had consulted with UHY during 2004 or the preceding two fiscal years
regarding the application of accounting principles to any transaction, the
type of audit opinion that might be rendered on the Company's financial
statements, any matter that was the subject of a disagreement or any
reportable event within the meaning of SEC rules. In addition, none of the
reports of UKW on the Company's financial statements for 2003 or 2002
contained an adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles. During
the Company's two fiscal years and subsequent interim periods prior to
their resignation, there were no disagreements between the Company and UKW
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, nor any reportable events
within the meaning of SEC rules. UKW has furnished to the Company a letter
addressed to the SEC stating that it agrees with the statements in this
paragraph.
In April, 2005, the Audit Committee selected UHY as the Company's
independent auditor for 2005.
A representative of UHY will be present at the annual meeting and will be
given the opportunity to make a statement if he so desires and will be
available to respond to appropriate questions.
UHY has a continuing relationship with UHY Advisors NY, Inc. (formerly
called Urbach Kahn & Werlin Advisors, Inc.) ("Advisors") from which it
leases staff who are full time permanent employees of Advisors and through
which the partners of UHY provide non-audit services. While serving as the
Company's independent auditors, UKW maintained a similar continuing
relationship with Advisors. The services referred to in the table below
under "Tax" were provided to the Company by Advisors. As a result of their
arrangement with Advisors, UKW and UHY have no full time employees and,
therefore, all of the services referred to in the table below performed by
UKW or UHY under "Audit" and "Audit Related" were performed for the Company
by UKW or UHY, as the case may be, through permanent, full time employees
of Advisors leased to UKW or UHY. UKW managed and supervised its audit
engagements and the audit staff and is exclusively responsible for the
reports rendered in connection with its audit of the Company's 2002 and
2003 consolidated financial statements. Similarly, UHY manages and
supervises its audit engagement and the audit staff and is exclusively
responsible for the report rendered in connection with its audit of the
Company's 2004 consolidated financial statements.
Audit Fees
Aggregate fees billed for professional services rendered to the Company by
(1) UKW and/or Advisors for the years ended December 31, 2004 and 2003 and
(2) UHY and/or Advisors for the year ended December 31, 2004, were as
follows:
Services Provided 2004 2004 2003
-----------------------------------------------------------------
UHY/Advisors UKW/Advisors UKW/Advisors
Audit $57,696 $8,955 $54,000
Audit Related 7,500 0 18,685
Tax 8,560 0 8,560
All Other 0 0 0
---------------------------------------
Total $73,756 $8,955 $81,245
21
The Audit fees for 2004 and 2003 were for the audits of the annual
consolidated financial statements of the Company included in the Company's
annual report on Form 10-K and review of quarterly financial statements
included in the Company's quarterly reports on Form 10-Q, filed with the
SEC.
The Audit Related fees for 2004 and 2003 were for assurance and related
services relating to Union Bank's trust operations. Audit related fees for
2003 also include fees paid for assistance related to the merger of the
Company's subsidiary banks, assistance relating to implementation of
various provisions of the Sarbanes-Oxley Act of 2002 and assistance in
connection with the 3-for-2 stock split in August, 2003.
Tax fees for 2004 and 2003 were for services related to tax compliance,
including the preparation of tax returns, review of estimates, consulting
and tax planning and tax advice.
Audit Committee Pre-Approval Guidelines
All 2004 and 2003 audit and non-audit services provided by UKW, UHY or
Advisors, as the case may be, were approved by the Audit Committee. The
Audit Committee has adopted Pre-Approval Guidelines relating to the
provision of audit and non-audit services by the Company's external
auditors. Under these Guidelines, the Audit Committee pre-approves both the
type of services to be provided by the external auditor and the estimated
fees related to these services. During the approval process, the Audit
Committee considers the impact of the types of services and the related
fees on the independence of the auditor. The services and fees must be
compatible with the maintenance of the auditor's independence, including
compliance with SEC rules and regulations.
In order to ensure timely review and approval, the Committee has delegated
to the Chair of the Committee the authority to amend or modify the list of
pre-approved services and fees, subject to prompt reporting to the full
Committee of action taken pursuant to such delegated authority.
SHAREHOLDER PROPOSALS
Under SEC rules, management of the Company will be permitted to use its
discretionary authority conferred in the proxy card for the annual meeting
to vote on a shareholder proposal even if the proposal has not been
discussed in the Company's proxy statement, unless the shareholder-
proponent has given timely notice to the Company of his or her intention to
present the proposal at the meeting. In order to be considered timely for
consideration at the 2006 annual meeting, the shareholder-proponent must
have furnished written notice to the Company of the proposal no later than
March 5, 2006. If a shareholder seeks to have his or her proposal included
in the Company's proxy materials for the annual meeting, the notification
deadline is earlier than noted in the preceding paragraph. In order to be
eligible for inclusion in the Company's proxy material for the 2006 annual
meeting, shareholder proposals must be submitted in writing to the
Secretary of the Company no later than December 20, 2005 and must comply in
all respects with applicable SEC rules relating to such inclusion. Any such
proposal will be omitted from or included in the proxy material at the
discretion of the Board of Directors, subject to such SEC rules.
22
OTHER MATTERS
As of the date of this proxy statement, management knows of no business
expected to be presented for action at the annual meeting, except as set
forth above. If, however, any other business should properly come before
the meeting, the persons named in the enclosed proxy form will vote in
accordance with the recommendations of management.
Union Bankshares, Inc.
Morrisville, Vermont
23
PLEASE DETACH HERE
PROXY
UNION BANKSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2005
The undersigned hereby appoints JoAnn A. Tallman and Marsha A. Mongeon, and
each of them individually, as his or her lawful agents and proxies with full
power of substitution in each, to vote all of the common stock of Union
Bankshares, Inc. that the undersigned is (are) entitled to vote at the Annual
Meeting of the Shareholders to be held at the offices of Union Bank, 20 Lower
Main Street, Morrisville, Vermont on Wednesday, May 18, 2005, at 3:00 p.m.,
local time, and at any adjournment thereof.
1. TO FIX THE NUMBER OF DIRECTORS AT EIGHT (OR SUCH LESSER NUMBER AS
CIRCUMSTANCES MAY WARRANT) FOR THE ENSUING YEAR AND TO ELECT THE
NOMINEES LISTED BELOW.
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY
(Except as noted below) AS TO ALL NOMINEES
INSTRUCTION: To withhold authority to vote for any individual nominee
while voting in favor of the others, strike a line through the nominee's
name in the list below:
Cynthia D. Borck Franklin G. Hovey, II Richard C. Sargent
Steven J. Bourgeois Richard C. Marron John H. Steel
Kenneth D. Gibbons Robert P. Rollins
(All terms expire at the next annual meeting.)
In their discretion, the persons named as Proxies are authorized to vote
upon such other business as may properly come before the meeting. If any
such business is presented, it is the intention of the proxies to vote the
shares represented hereby in accordance with the recommendations of management.
(continued, and to be signed on other side)
PLEASE DETACH HERE
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND MAY BE REVOKED AT ANY
TIME BEFORE IT IS EXERCISED. THE BOARD RECOMMENDS A VOTE "FOR" ARTICLE 1.
SHARES WILL BE VOTED AS SPECIFIED. IF THE PROXY IS SIGNED AND DATED, BUT NO
VOTING SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED IN FAVOR OF ARTICLE 1.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY CARD IN THE SPACE PROVIDED AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING IN PERSON.
_____ I/we plan to attend in person. Dated:________________, 2004
(Number of persons attending: _____) Please sign exactly as your
_____ I/we do not plan to attend in person. name(s) appear(s) on this proxy
card. If shares are held jointly,
both holders should sign. When
signing as attorney, executor,
administrator, trustee, guardian,
or representative capacity,
please give full title as such.
If a corporation, please sign in
full corporate name by president
or other authorized officer. If a
partnership or entity, please
sign in partnership or entity
name by authorized person.
______________________________
Signature
______________________________
Signature if held jointly