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
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)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date Filed:
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Union Bankshares, Inc.
20 Lower Main Street
PO Box 667
Morrisville, VT 05661
802-888-6600
April 19, 2004
Dear Shareholder,
The 113th Annual Meeting of the Shareholders of Union Bankshares, Inc. will
be held May 19th 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,
2003. 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.
NOTICE OF
2004 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 19, 2004
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 19, 2004, 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, 2004 as
the record date for the determination of shareholders entitled to notice
of, and to vote at, the meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ Robert P. Rollins
Robert P. Rollins
Secretary
Morrisville, Vermont
April 19, 2004
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
GENERAL INFORMATION 1
The Meeting 1
Solicitation of Proxies 1
Proxy Cards 1
Quorum and Broker Non-Votes 1
Votes Required 2
Record Date and Shares Outstanding 2
SHARE OWNERSHIP INFORMATION 2
Share Ownership of Management and Principal Holders 2
Section 16(a) Beneficial Ownership Reporting Compliance 4
PROPOSAL 1: TO ELECT DIRECTORS 4
Directors' Compensation 5
Attendance at Directors Meetings 6
Director Independence 6
Board Committees and Corporate Governance 6
Audit Committee 6
Compensation Committee 7
Nominating Functions 7
Shareholder Recommendations for Board Nominations 7
Code of Ethics 8
Attendance at Annual Meeting of Shareholders 8
Communicating with the Board 8
Transactions with Management and Directors 9
Compensation Committee Interlocks and Insider Participation 9
Vote Required 9
AUDIT COMMITTEE REPORT 9
COMPENSATION COMMITTEE REPORT 11
STOCK PERFORMANCE GRAPH 13
EXECUTIVE OFFICERS 14
EXECUTIVE COMPENSATION 15
Summary Compensation Table 15
Benefit Plans 16
Union Bankshares, Inc. Incentive Stock Option Plan 16
Union Bankshares, Inc. Deferred Compensation Plan 17
Union Bank Defined Benefit Pension Plan 18
Union Bank 401(k) and Profit Sharing Plan 18
Union Bank Discretionary Bonus Payments 19
Other Employee Benefit Plans 19
INDEPENDENT AUDITORS 19
Audit Fees 20
Audit Committee Pre-Approval Guidelines 20
SHAREHOLDER PROPOSALS 21
OTHER MATTERS 21
AUDIT COMMITTEE CHARTER A-1
GUIDELINES OF THE AUDIT COMMITTEE FOR PRE-APPROVAL OF
AUDIT RELATED SERVICES AND NON-AUDIT SERVICES B-1
UNION BANKSHARES, INC.
20 Lower Main Street
Morrisville, VT 05661
PROXY STATEMENT
Annual Meeting of Shareholders
May 19, 2004
GENERAL INFORMATION
The Meeting
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Union Bankshares, Inc. (the "Company")
for use at the Annual Meeting of Shareholders to be held on Wednesday, May
19, 2004, at 3:00 p.m., local time, at the banking offices of the Company's
wholly-owned subsidiary, Union Bank, 20 Lower Main Street, Morrisville,
Vermont, and at any adjournment of the meeting. This proxy statement and
form of proxy were first sent to shareholders on or about April 19, 2004. A
copy of the Company's Annual Report to Shareholders containing its audited
consolidated financial statements for 2003 accompanies this proxy
statement.
Solicitation of Proxies
This solicitation of proxies by mail may be followed by solicitation either
in person, or by letter or telephone, by officers or employees of the
Company or its wholly-owned banking subsidiary, Union Bank. The Company
will request brokers, banks and other similar agents or fiduciaries to
forward proxy materials to beneficial owners of stock and, if requested,
will reimburse them for their costs. All expenses of this solicitation will
be paid by the Company.
Proxy Cards
Proxy cards duly executed and returned by a shareholder will be voted as
directed on the card. If a duly executed proxy is returned but no choice is
specified, the proxy will be voted FOR setting the number of directors for
the ensuing year at eight (or such lesser number as circumstances may
warrant) and election of the nominees named on the proxy card. If other
matters are voted upon, the persons named in the proxy card will vote in
accordance with the recommendations of the Company's management pursuant to
the discretionary authority conferred in the proxy.
A shareholder may revoke a proxy by written notice to the Secretary of the
Company at any time before the proxy is voted.
Quorum and Broker Non-Votes
In order to constitute a quorum for the transaction of business, shares of
common stock representing a majority of the total voting power must be
present in person or represented by proxy at the annual meeting. Shares
present in person but not voting and shares for which the Company has
received proxies but with respect to which the holders have withheld voting
authority or abstained from voting will be counted as present for purposes
of determining the presence or absence of a quorum. Shares
represented by proxies returned by a broker holding such shares in nominee
or "street" name will be counted for purposes of determining whether a
quorum exists, even if the shares are not voted for any reason, including
where discretionary voting by the broker is not allowed under applicable
securities industry rules ("broker non-votes").
Votes Required
Directors will be elected by a plurality of the votes cast. A plurality
means that the number of persons with the highest "FOR" vote totals for the
number of vacancies being filled will be elected as directors. Withheld
votes, abstentions and broker non-votes, if any, are not treated as votes
cast and, therefore, will have no effect on the election of directors,
assuming there are no other nominees standing for election.
Approval of any other matter would require that more votes are cast in
favor, than are cast against the matter. Abstentions from voting and broker
non-votes, if any, are not treated as votes cast and, therefore, would have
no effect on the vote results on any such other matter. As of the date of
this proxy statement, the Board is not aware of any other matters to be
presented for vote at the annual meeting.
Record Date and Shares Outstanding
The Board of Directors has fixed the close of business on April 1, 2004 as
the record date for determining shareholders entitled to notice of, and to
vote at, the annual meeting. On that date the Company had 4,550,313 shares
of common stock, $2 par value per share, outstanding. Each outstanding
share is entitled to one vote on all matters considered for action by the
shareholders. The Company has no other authorized class of 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 17, 2004 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.
2
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 and/or Executive Officers:
Cynthia D. Borck 5,530 (1) .12
William T. Costa, Jr. 25,942 (2) .57
Kenneth D. Gibbons 57,044 (3) 1.25
Franklin G. Hovey, II 603,928 (4)(9) 13.27
Richard C. Marron 2,865 (5) .06
Marsha A. Mongeon 798 .02
Robert P. Rollins 5,133 .11
Richard C. Sargent 596,443 (6) 13.11
W. Arlen Smith 199,944 (7) 4.39
John H. Steel 4,500 (8) .10
All Directors and Executive Officers as a Group (10): 1,502,127 33.01
Other 5% or more Shareholders:
Genevieve L. Hovey Trust 422,908 (9) 9.29
Susan Hovey Mercia 603,713 (9)(10) 13.27
Walter M. Sargent Revocable Trust 381,336 (11) 8.38
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Ms. Borck has shared voting and investment power over 4,280 of the
shares listed. Includes 1,000 shares Ms. Borck has the right to
acquire under presently exercisable incentive stock options.
Mr. Costa has shared voting and investment power over all shares
listed.
Mr. Gibbons has shared voting and investment power over 22,074 of the
shares listed. Includes 9,000 shares Mr. Gibbons has the right to
acquire under presently exercisable incentive stock options.
Mr. Hovey 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 165 of
the shares listed.
Mr. Richard Sargent has shared voting power over 596,428 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 trust and
disclaims beneficial ownership of all 162,000 shares held by the
trust. The total also includes 381,336 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. Smith has shared voting and investment power over 34,545 of the
shares listed.
Mr. Steel's total includes 1,500 shares held as custodian for his
minor children under the Uniform Transfers to Minors Act.
Mr. Hovey 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 and Ms. Mercia. Each of them disclaims beneficial interest
in one-half of such shares, in which the other has a pecuniary
interest.
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 381,336 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.
3
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 2003 all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
or more shareholders were complied with, except with regard to the
following two late filed reports: On August 1, 2003, Mr. Gibbons exercised
incentive stock options relating to 3,000 shares of the Company's common
stock, and Ms. Borck exercised incentive stock options relating to 450
shares. Form 4 reports relating to these option exercises (due August 6,
2003) were filed with the SEC on August 15, 2003.
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 nine individuals. Long-serving director and former
Chairman, President and CEO W. Arlen Smith has reached the mandatory
retirement age (72) under the Company's bylaws and therefore will retire
from the Boards of the Company and Union Bank as of the 2004 annual
meeting. Accordingly, this year the Board has recommended that the
shareholders 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. Each of the incumbent directors, other than Mr. Smith,
will stand for election to a one-year term.
4
The table below contains certain biographical information about each
incumbent director who is standing for re-election.
Served as
Director
Name and Age Since (1) Principal Occupation for Past Five Years
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Cynthia D. Borck, 53 1995 Vice President-Union Bankshares, Inc. and
Executive Vice President -Union Bank
Morrisville, VT
William T. Costa, Jr., 71 1999 President, Costa Realty, Inc.
St. Johnsbury, VT
(commercial properties)
Kenneth D. Gibbons, 57 1989 President and Chief Executive Officer-
Union Bankshares, Inc. and Union Bank
Morrisville, VT
Franklin G. Hovey, II, 54 1999 President, Hovey Enterprises, Inc.
St. Johnsbury, VT
(real estate)
Richard C. Marron, 66 1998 Owner, Town and Country Motor Lodge
Stowe, VT
Robert P. Rollins, 65 1983 Insurance Agent
Morrisville, VT
Richard C. Sargent, 65 1982 Attorney at Law
Richard Sargent Law Office
Morrisville, VT
John H. Steel, 54 2002 Owner, President and Treasurer,
Steel Construction, Inc.
Stowe, VT
--------------------
Does not include prior service with Union Bank and/or Citizens
Savings Bank and Trust Company (merged into Union Bank in May, 2003).
Each director is also a director of Union Bank.
Directors' Compensation
Directors of the Company, including Mr. Gibbons and Ms. Borck, who are
employees of Union Bank, receive an annual retainer of $6,432 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.
Non-employee directors of Union Bank receive an annual retainer of $4,962
and a per meeting fee of $491, but do not receive any additional fees for
attendance at committee meetings. During 2003, Mr.
5
Gibbons and Ms. Borck were not separately compensated for their service as
directors of Union Bank. However, both of them did receive fees for serving
as directors of the Company's former subsidiary, Citizens Savings Bank and
Trust Company ("Citizens") prior to its merger with Union Bank in May,
2003. All 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."
The independent 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 2003, the Company's Board of Directors held 6 regular meetings and
no special meetings. All incumbent directors attended at least 83% 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 directors also serve on the Board of Directors of Union Bank,
which meets at least twice monthly, and on various committees of the Bank's
Board.
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 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. 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 standards and that Mr. Marron is "financially
sophisticated" within the meaning of the AMEX rules and is an audit
committee financial expert within the meaning of applicable SEC rules.
6
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 report-ing 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. A copy of the Audit Committee's charter, as
revised in 2003, is attached to this proxy statement as Appendix A.
During 2003, the Company's Audit Committee met 9 times. A report of the
Audit Committee on its 2003 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. 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 2003, 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 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 the independent,
non-management directors. In the discharge of their duties in connection
with director nominations, the independent directors this year have
nominated each of the incumbent directors to stand for re-election to a
one-year term, other than Mr. Smith who is retiring from the Board at the
annual meeting.
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.
Shareholder Recommendations for Board Nominations. Shareholders of record
wishing to offer recommendations to the independent directors of
individuals for consideration as possible director
7
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 ability to serve, 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.
Code of Ethics
The Board expects all directors, as well as 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.
President and CEO Kenneth Gibbons and Vice President, Treasurer and Chief
Financial Officer Marsha Mongeon are also subject to a Code of Ethics for
Senior Financial Officers and the Chief Executive Officer, a copy of which
is filed with the SEC as an exhibit to the Company's 2003 Annual Report on
Form 10-K. The Company's annual report on Form 10-K is 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
emergencies and unavoidable business travel. Last year, all nine incumbent
directors/nominees 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.
8
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.
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 2005 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.
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,
which is attached as Appendix A to this proxy statement. The charter was
revised in 2003 to reflect new legal requirements for audit committees of
public companies under the Sarbanes-Oxley Act of 2002 and related
rulemaking by the American Stock Exchange (AMEX) and by the Securities and
Exchange Commission (SEC). 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. The Board of Directors has determined that Mr. Marron is an audit
committee financial expert as defined by the SEC
9
and that all members of the Audit Committee are independent within the
meaning of AMEX listing standards and SEC regulations.
The Committee is aware of the growing importance of their role in the
oversight of the financial reporting obligations of the Company in this
heightened regulatory environment. As such, the Committee has discussed the
requirements of the Sarbanes-Oxley Act of 2002 as they relate to the
Committee's increased responsibilities and has monitored management's
compliance.
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 generally accepted auditing
standards. 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 2003, the
Audit Committee met nine times.
The Audit Committee has reviewed and discussed the Company's December 31,
2003 audited 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 by SAS No. 90 (including significant accounting policies,
alternative accounting treatments and estimates, judgments and
uncertainties). 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, Urbach Kahn & Werlin LLP ("UKW"), or Urbach Kahn & Werlin
Advisors, Inc., is compatible with maintaining that firm's independence in
connection with serving as the Company's independent public accounts. A
description of the fees paid to the independent auditors in 2003 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 financial statements be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003
for filing with the SEC.
The Committee has approved the selection of UKW as the Company's
independent auditors for 2004.
Submitted by the Union Bankshares Audit Committee
Robert P. Rollins (Chair)
Franklin G. Hovey, II
Richard C. Marron
10
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 2003, 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 2003, the same individuals served as directors
of the Company and Union Bank.
In addition to serving as President and CEO and a director of the Company
and Union Bank throughout 2003, Mr. Gibbons served as Interim President of
Citizens Savings Bank and Trust Company ("Citizens") between February 15,
2003 and May 16, 2003, when Citizens was merged into Union Bank. As in
prior years, Mr. Gibbons also served as a director of Citizens in 2003, but
upon becoming its Interim President, he became an employee-director and
therefore no longer qualified for payment of Citizens director fees. Mr.
Gibbons did not receive any additional compensation for services rendered
in his capacity as Interim President of Citizens.
Salary and performance reviews for executive officers are normally done on
an annual basis in January of each year. However, an additional mid-year
adjustment was made during 2003 to the annual salary rate of President and
CEO Gibbons and Vice President Cynthia Borck. In July, each received a lump
sum payment ($4,665 for Mr. Gibbons and $1,116 for Ms. Borck), and their
annual salary rates were increased prospectively by $11,755, to compensate
for the reduction in the amount of their overall compensation resulting
from the loss of fee income they had previously received as directors of
Citizens.
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 in their peer groups 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 2003, 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 2003 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).
11
In January, 2003, 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 $167,648 to $174,348,
representing an increase of approximately 4.0%. In July, Mr. Gibbons'
salary was increased from an annual rate of $174,348 to $186,103,
representing an increase of approximately 6.7% over his annual salary
established in January 2003. As noted above, this 6.7% mid-year increase
was granted to compensate Mr. Gibbons for the loss of directors fees from
Citizens due to its merger into Union Bank. Additionally, in August Mr.
Gibbons was awarded a discretionary cash bonus of 1% of the net income
earned by Union Bank in the first six months of 2003 ($19,187). Consistent
with the practice of Union Bank's Board in prior years, this discretionary
1% bonus was 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 employees receive a percentage of their base salary as determined
by Union Bank's Board of Directors. For 2003 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 $25.30 a share, which was the per share
market price of the Company's common stock on the date of the award
(December 17, 2003). The award represented approximately 66.7% of the total
3,000 shares optioned under the Plan in 2003 to four executive officers of
the Company and/or Union Bank.
In determining Mr. Gibbons' 2003 salary level, the Board of Directors of
Union Bank and the Committee considered the Bank's financial performance
for 2002. Return on average equity of 16.1%, return on average assets of
1.81% (89th percentile in national peer group), and an efficiency ratio of
56% 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
($6,184) and as director of Citizens ($11,755, which ended on February 15,
2003 when Mr. Gibbons became interim President of Citizens until its merger
with Union Bank) 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 Ms. Borck and Ms. Marsha
Mongeon, Treasurer and Chief Financial Officer, in a manner designed to
reflect the executive's individual performance and contributions to the
overall profitability of the Company. 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
William T. Costa, Jr.
Robert P. Rollins
Richard C. Sargent (Chair)
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.
12
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 reinvestment of dividends at the frequency with which
dividends were paid (quarterly) during the applicable years.
Union Bankshares, Inc.
Period Ending
--------------------------------------------------------
Index 07/13/00 12/31/00 12/31/01 12/31/02 12/31/03
--------------------------------------------------------------------------------------
Union Bankshares, Inc. 100.00 112.98 161.39 180.52 300.89
NASDAQ-Total US 100.00 58.56 46.45 32.11 48.37
SNL $250M-$500M Bank Index 100.00 104.43 148.37 191.32 276.43
Source: SNL Financial LC, Charlottesville, VA
13
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company.
Position(s) with the Company and Subsidiaries
Name and Age and Occupation for the Past Five Years (1)
--------------------------------------------------------------------------------------
Kenneth D. Gibbons, 57 President, Chief Executive Officer and Director,
Union Bankshares, Inc. and Union Bank
Morrisville, VT
Cynthia D. Borck, 53 Vice President and Director, Union Bankshares, Inc. and
Executive Vice President and Director, Union Bank
Morrisville, VT
Marsha A. Mongeon, 48 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).
14
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 2003 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)
---------------------------------------------------------------------------------------------------------
Kenneth D. Gibbons 2003 $184,633 $25,550 2,000 shs. $14,072
President, Chief Executive 2002 167,004 22,923 3,000 shs. 22,949
Officer and Director of the 2001 162,650 24,374 3,000 shs. 18,706
Company and Union Bank
Cynthia D. Borck 2003 $ 99,268 $ 6,392 500 shs. $14,470
Vice President and Director 2002 88,579 2,678 750 shs. 20,681
of the Company and 2001 84,602 2,494 750 shs. 16,070
Executive Vice President
and Director of Union Bank
Marsha A. Mongeon 2003 $ 98,904 $ 6,399 250 shs. $ 3,123
Vice President, Treasurer 2002 94,837 2,777 375 shs. 2,893
and Chief Financial Officer 2001 89,380 2,658 0 shs. 2,737
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 and 2001 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, 2003-$6,170; 2002-$5,010; and 2001-
$5,260; and Ms. Borck, 2003-$3,140; 2002-$2,742; and 2001-$2,624. All
of the amounts disclosed in the table under "All Other Compensation"
for Ms. Mongeon consist solely of matching employer contributions
under the Union Bank 401(k) plan.
Mr. Gibbons' and Ms. Borck's totals include directors fees, as
follows: Union Bankshares - for each of Mr. Gibbons and Ms. Borck,
2003-$6,432; 2002-$6,184; and 2001-$5,946. Citizens - Mr. Gibbons,
2003-$1,470; 2002-$11,755; and 2001-$7,500. Ms. Borck, 2003-$4,898;
2002-$11,755; and 2001-$7,500. Mr. Gibbons also has use of a bank-
owned automobile, which is not reflected in the table.
15
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 (including options for 3,250 shares granted
in January, 2004) 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 2003 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 66.7% $25.30 12/16/08 $13,980 $30,900
Cynthia D. Borck 500 16.7% $25.30 12/16/08 $ 3,495 $ 7,725
Marsha A. Mongeon 250 8.3% $25.30 12/16/08 $ 1,748 $ 3,863
--------------------
Represents the closing price of the Company's common stock on the
date of grant (December 17, 2003) as reported on AMEX.
(footnotes continued on following page)
16
All options listed in the table (i) were granted on December 17,
2003; (ii) are subject to a one year vesting period before they
become exercisable; and (iii) have a five year term and 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 $25.30 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 2003 and the year-end values of outstanding
options held by the executive officers named in the summary compensation
table. All option and share amounts in the table have been restated to
reflect the 3-for-2 stock split effective in August, 2003.
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 $24,180 9,000/2,000 $112,530/$2,300
Cynthia D. Borck 1,250 $12,322 1,000/500 $11,323/$575
Marsha A. Mongeon 375 $ 3,611 0/250 $0/$288
--------------------
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, 2003 as reported on AMEX ($26.45 per
share), less the applicable option exercise price. All of the stock
options were in-the-money as of December 31, 2003.
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 two 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.
17
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.
Effective January 1, 2004, employees of Union Bank who were formerly
employees of Citizens became eligible to participate in the Union Bank
Defined Benefit Pension Plan, with credit for years of service with
Citizens.
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
2004 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
($205,000 for 2004) and on the amount of the annual benefit payable under
the plan ($165,000 for 2004). 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 2004. 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 $ 5,783 $11,566 $17,349 $ 23,133
$ 65,000 $ 7,108 $14,216 $21,324 $ 28,433
$ 75,000 $ 8,433 $16,866 $25,299 $ 33,733
$ 85,000 $ 9,758 $19,516 $29,274 $ 39,033
$ 95,000 $11,083 $22,166 $33,249 $ 44,333
$105,000 $12,408 $24,816 $37,224 $ 49,633
$125,000 $15,058 $30,116 $45,174 $ 60,233
$150,000 $18,370 $36,741 $55,112 $ 73,483
$175,000 $21,683 $43,366 $65,049 $ 86,733
$200,000 $24,995 $49,991 $74,987 $ 99,983
$225,000 $25,216 $50,433 $75,649 $100,866
$250,000 $25,216 $50,433 $75,649 $100,866
As of December 31, 2003, 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; Ms.
Borck, 16 years; and Ms. Mongeon, 14 years.
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
18
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 2003, 2002 and 2001, 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.
Prior to its merger into Union Bank in May, 2003, Citizens maintained a
tax-qualified Savings and Retirement Plan covering all employees who met
certain eligibility requirements. Participants could elect to contribute up
to a specified percentage of eligible compensation to their 401(k) plan
account on a tax-deferred basis. Like the Union Bank Plan, the Citizens
plan provided for matching employer contributions and included features of
a profit sharing plan. Upon Citizens' merger into Union Bank, Union Bank
assumed the obligations of Citizens under the plan. Effective January 1,
2004, the Citizens plan was merged into the Union Bank 401(k) and Profit
Sharing Plan. None of the executive officers listed in the summary
compensation table participated in the Citizens 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 of approximately 1% of Union
Bank's net income for such period. This bonus was paid to Mr. Gibbons in
each of the past three years. In January, 2003, six executive officers of
Union Bank, including Ms. Borck and Ms. Mongeon (but not including Mr.
Gibbons) received a discretionary cash bonus of varying amounts, as
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 and 2001 staff bonuses was
3% and for 2003 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 and footnotes.
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
The independent certified public accounting firm of Urbach Kahn & Werlin
LLP ("UKW") served as the Company's external auditors for 2003 and the
Audit Committee has selected UKW as the Company's external auditors for
2004. A representative of UKW 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.
19
UKW has a continuing relationship with Urbach Kahn & Werlin Advisors, Inc.
("Advisors") from which it leases staff who are full time permanent
employees of Advisors and through which UKW's partners provide non-audit
services. The services referred to in the table below under "Tax" were
provided to the Company by Advisors. As a result of UKW's arrangement with
Advisors, UKW has no full time employees and, therefore, all of the
services referred to in the table below under "Audit" and "Audit Related"
were performed for the Company by UKW through permanent, full time
employees of Advisors leased to UKW. UKW manages and supervises the audit
engagement 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.
Audit Fees
Aggregate fees for professional services rendered to the Company by UKW
and/or Advisors for the years ended December 31, 2003 and 2002 were as
follows:
Services Provided 2003 2002
---------------------------------------
Audit $54,000 $54,000
Audit Related 18,685 6,800
Tax 8,560 8,560
All Other 0 0
------------------
Total $81,245 $69,360
The Audit fees for 2003 and 2002 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 2003 and 2002 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 2003 and 2002 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 2003 and 2002 audit and non-audit services provided by UKW 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.
20
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.
A copy of the Pre-Approval Guidelines is attached to this proxy statement
as Appendix B.
SHAREHOLDER PROPOSALS
Under the rules and regulations of the SEC, 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 2005 annual meeting, the
shareholder-proponent must have furnished written notice to the Company of
the proposal no later than March 7, 2005.
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 2005 annual meeting,
shareholder proposals must be submitted in writing to the Secretary of the
Company no later than December 19, 2004 and must comply in all respects
with applicable rules and regulations of the SEC 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 rules
and regulations.
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
21
APPENDIX A
Union Bankshares, Inc
Audit Committee Charter
PURPOSE
The Audit Committee shall assist the Board of Directors with its oversight
of (i) the integrity of the Company's financial statements, (ii) the
Company's compliance with legal and regulatory requirements, (iii) the
independent auditor's qualifications and independence, and (iv) the
performance of the Company's internal audit function and independent
auditors.
Although the Committee has the oversight responsibilities and powers set
forth in this Charter, it does not have a duty to prepare financial
statements, to conduct audits, or determine that the Company's financial
statements and disclosures are complete and accurate and in accordance with
Generally Accepted Accounting Principles (GAAP) or laws and regulations.
Those are the duties and responsibilities of management and the independent
auditors.
COMPOSITION
The Audit Committee shall consist of at least three directors appointed
annually by a resolution passed by a majority of the Board of Directors and
each of whom shall satisfy the independence and qualification requirements
established by the Securities and Exchange Commission (SEC) and the
American Stock Exchange (AMEX). At least one member of the Committee shall
qualify as a "financial expert" within the meaning of SEC Rule 10A 3. The
Committee shall meet at least quarterly, or more frequently as necessary,
shall keep minutes of its proceedings, and shall report regularly to the
Board of Directors.
DUTIES AND RESPONSIBILITIES
In carrying out its purposes, the Committee shall have the following
duties, responsibilities and authority:
Financial Reporting
* Review with management and the independent auditor the Company's Form
10-K prior to filing with the SEC, including the annual financial
statements and disclosures contained therein, as well as any
certification, report, opinion or review rendered by management or the
independent auditor in connection with the foregoing.
* Review with management and the independent auditor the Company's
quarterly report on Form 10-Q prior to filing with the SEC, including
the financial statements and disclosures contained therein, as well as
any certification, report, opinion or review rendered by management or
the independent auditor in connection with the preparation and
certification of the foregoing.
* Prepare the report that is required of the Committee by the rules of
the SEC to be included in the Company's annual proxy statement.
A-1
* Prior to filing the Company's annual report with the SEC, review with
the independent auditor (i) critical accounting and financial reporting
policies and practices used by the Company; (ii) alternative treatments
of financial information as permitted by Generally Accepted Accounting
principles (GAAP) that have been discussed with the management of the
Company, including the ramifications of such alternative treatments and
the proper disclosure thereof, as well as any treatment of such
financial information that may have been preferred by the independent
auditors and (iii) other material written communications between the
independent auditor and management.
* Meet separately, at least annually, or more frequently as appropriate,
with management, the internal auditor, and the external auditor.
The Independent Auditor
* Appoint, compensate and oversee the work of the independent auditor for
the Company in connection with the preparation and issuance of any
audit report or related work including a review of the proposed scope
of such work; and review and resolve any disputes between management
and the independent auditor. The Committee shall also have the
authority to terminate the engagement of the independent auditor as it
deems necessary or appropriate. The independent auditor shall report
directly to the Audit Committee.
* Serve as the channel of communication between the independent auditor
and the Board.
* Review the qualifications and performance of the independent auditor,
and evaluate the independence of the independent auditor, including any
potential conflicts of interest that may exist between the Company and
the independent auditor. The Committee shall obtain annually a written
statement from the independent auditor consistent with Independence
Standards Board Standard 1 disclosing all relationships with, and
services provided to, the Company by the independent auditor and/or its
affiliates. The Committee will discuss such relationships with the
independent auditor and take appropriate actions where needed.
* The Bank shall have policies governing the hiring of individuals who
are or have been a part of the independent audit engagement team.
* Review any significant written communication between the management of
the Company and the independent auditor including, without limitation,
the independent auditor's observation on internal control matters,
management letters, and schedule of unadjusted differences, if any, or
any other audit problems or difficulties as well as management's
response.
* Pre-approve any non-audit services performed on behalf of the Company
by the independent auditor that are not prohibited by law or regulation
and ensure that such services are properly disclosed by the Company.
Internal Audit
* Oversee the selection of the internal auditor and review his/her
performance and compensation annually. The internal auditor shall
report functionally to the Committee and administratively to the Chief
Executive Officer.
A-2
* Oversee the internal audit department's staffing, training, and budget.
* Annually review and approve the internal audit plan and any material
changes to audit methodology.
* Review significant findings of the internal audit department, and
management's responses to those findings, including the risk attributed
to unresolved issues.
Internal Controls and Procedures
* Annually review with management and the independent auditor, the basis
for disclosures made in the annual report to stockholders regarding the
control environment of the Company.
* At least annually consider, in consultation with management, the
independent auditor, and the internal auditor, the adequacy of the
Company's internal controls including the resolution of identified
material weaknesses and reportable conditions, if any.
* Review deficiencies, if any, identified by management in the design and
operation of internal controls which may be referred to in the Chief
Executive Officer and Chief Financial Officer certifications required
by the Sarbanes-Oxley Act of 2002.
* Periodically, as appropriate, review policies and procedures with
respect to risk assessment and risk management.
Other Duties
* Establish and ensure that procedures are in place for (i) the receipt,
retention and treatment of complaints received by the Company from any
source, either internally or externally, in connection with any
accounting, internal accounting controls, or audit matters, and (ii)
the submission by employees of the Company, on a confidential and
anonymous basis, of communications involving any employee concerns
regarding questionable accounting or auditing matters.
* Review any related party transactions, as required by AMEX rules.
* Annually review the adequacy of this Charter and recommend any proposed
changes to the Board for approval.
* The Committee shall have such other duties as the Board may delegate to
the Committee from time to time.
RESOURCES AND AUTHORITY
The Committee shall also have the authority to direct an investigation into
any matter related to the Company's business and affairs. The Committee may
also retain without approval from the Board or management its own outside
counsel and any other advisors that the Committee deems necessary in
connection with carrying out its duties. This does not preclude advice from
internal counsel or the Company's outside counsel. The Committee shall
determine, in its sole discretion, the level of funding to compensate the
independent auditor and any counsel or advisor employed by the Committee
and the Company shall be obligated to make such funding available.
A-3
APPENDIX B
GUIDELINES OF THE UNION BANKSHARES, INC. AUDIT COMMITTEE
FOR PRE-APPROVAL OF AUDIT RELATED SERVICES
AND NON-AUDIT SERVICES
All audit services must be approved in advance by the Audit Committee. That
approval will generally occur as part of the annual engagement process for
selection of the Company's external auditor, which will include a detailed
description of the scope of the proposed audit services and cost of such
services. This Policy is intended to provide pre-approval by the Audit
Committee of the performance of certain audit-related and non-audit
services by the Company's external auditors.
The Audit Committee has adopted the following guidelines regarding the
engagement of the Company's independent auditor to perform audit-related
and non-audit services for the Company:
At least annually, the Internal Auditor, in conjunction with Company
management, will submit to the Committee for approval a detailed list of
any audit-related and non-audit services that it recommends the Committee
engage the independent auditor to provide for the fiscal year ("Covered
Services"). The description of each Covered Service on the list will
contain sufficient detail and be supported by sufficient documentation to
establish clearly the nature and scope of the service. No service listed in
Appendix 1 may be performed by the independent auditor.
In addition to a detailed description of the services to be provided, the
list of Covered Services will also contain or be accompanied by a budget
estimating the cost of each Covered Service and the aggregate estimated
cost for all Covered Services for the fiscal year. Both the list of Covered
Services and the budget for such Services will require approval by the
Committee. The Internal Auditor will regularly inform the Committee as to
the Covered Services actually provided by the independent auditor pursuant
to this pre-approval process and on the comparison of actual expenditures
to budget for such services.
To ensure prompt handling of unexpected matters, the Committee delegates to
the Chair the authority to amend or modify the list of pre-approved Covered
Services and fees. The Chair will report to the Committee at the next
Committee meeting any action taken under delegated authority.
Neither the Chair nor the Committee will delegate any authority to the
Company's management to modify the list of Covered Services, nor to approve
or pre-approve any new or additional categories of audit-related or non-
audit services.
Any audit-related or non-audit services not pre-approved by the Committee
under the process outlined above must be separately approved by the
Committee in advance and must be otherwise permissible under applicable
law. Requests or applications to provide services that require separate
approval by the Committee must be submitted to the Committee by both the
independent auditor and the Company's management and must include a joint
statement as to whether, in their view, the request or application is
consistent with applicable rules on auditor independence.
The independent auditor and management must ensure that all audit-related
and non-audit services provided to the Company have been approved by the
Committee.
B-1
APPENDIX 1
PROHIBITED NON-AUDIT SERVICES
Prohibited Non-Audit Services. The independent auditor may not provide any
of the following services under any circumstances:
* management functions;
* human resources functions;
* broker-dealer, investment adviser, or investment banking services;
* legal services; and
* expert services unrelated to the audit.
* bookkeeping services;
* financial information systems design and implementation;
* appraisal or valuation services, fairness opinions or contribution-in-
kind reports;
* actuarial services; and
* internal audit outsourcing services.
B-2
PLEASE DETACH HERE
PROXY
UNION BANKSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 2004
The undersigned hereby appoints JoAnn Tallman and David Silverman, 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 19, 2004, 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 [ ] AGAINST [ ] ABSTAIN
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
William T. Costa, Jr. 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.
(Number of persons attending: _____) Dated:_________________, 2004
_____ I/we do not plan to attend in person. Please sign exactly as your
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