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
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UNION BANKSHARES, INC.
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(Name of Registrant as Specified in Its Charter)
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Union Bankshares, Inc.
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Union Bankshares, Inc.
20 Lower Main Street
PO Box 667
Morrisville, VT 05661
(802) 888-6600
April 14, 2006
Dear Shareholder,
The 115th Annual Meeting of the Shareholders of Union Bankshares, Inc. will
be held May 17th 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,
2005. 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
2006 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 17, 2006
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 17, 2006, 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 March 31, 2006 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 14, 2006
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 in person at the meeting instead of voting by proxy? 2
What does it mean if I receive more than one proxy card? 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? 3
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 4
Share Ownership of Management and Principal Holders 4
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 10
COMPENSATION COMMITTEE REPORT 12
STOCK PERFORMANCE GRAPH 14
EXECUTIVE OFFICERS 15
EXECUTIVE COMPENSATION 15
Summary Compensation Table 16
Benefit Plans 17
Union Bankshares, Inc. Incentive Stock Option Plan 17
Union Bank Discretionary Bonus Payments 18
Union Bankshares, Inc. Deferred Compensation Plan 19
Union Bank Defined Benefit Pension Plan 19
Union Bank 401(k) and Profit Sharing Plan 20
Other Employee Benefit Plans 20
INDEPENDENT AUDITORS 21
Audit Fees 22
Audit Committee Pre-Approval Guidelines 22
SHAREHOLDER PROPOSALS 22
OTHER MATTERS 23
UNION BANKSHARES, INC.
20 Lower Main Street
Morrisville, VT 05661
(802) 888-6600
PROXY STATEMENT
Annual Meeting of Shareholders
May 17, 2006
INFORMATION ABOUT THE MEETING
Why have I received these materials?
We are sending this proxy statement and proxy card on behalf of the Board
of Directors to solicit your vote on matters to be voted on 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 17, 2006, 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, 2005, which contains the Company's audited consolidated financial
statements. These materials were first sent to our shareholders on or about
April 14, 2006. 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?
Only holders of record of the Company's common stock, $2.00 par value per
share, as of the close of business on March 31, 2006 (the record date for
the meeting), will be entitled to vote at the annual meeting. On March 31,
2006, there were 4,540,837 shares of the Company's common stock
outstanding, and each such share 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, 20 Lower Main Street, Morrisville, VT 05661. 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 (the "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 her at (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 in person 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.
If you hold your shares through a bank, broker or other nominee, you must
obtain a legal proxy from the bank, broker or nominee in order to vote your
shares at the meeting.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered
differently in more than one account (for example, "John Doe" and "J.
Doe"). To ensure that all your shares are voted, you should complete, sign
and return all proxy cards. We encourage you to register all your accounts
in the same name and address. You may do so by contacting Assistant
Corporate Secretary JoAnn Tallman at Union Bank, 20 Lower Main Street,
Morrisville, VT 05661, or by calling her at (802) 888-6600.
What is a broker non-vote?
Under stock exchange rules and 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.
Election of directors at the annual meeting is considered to be a routine
matter for purposes of a broker's discretionary voting authority.
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 (including proxies
containing broker non-votes) will be treated as present at the meeting for
purposes of determining a quorum but will not be counted as votes cast.
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If a matter is considered to be routine (such as an uncontested election of
directors), broker non-votes are counted for determining a quorum on that
matter, since the broker is entitled to vote those shares under its
discretionary authority. On any matter considered to be non-routine, broker
non-votes would not be considered shares entitled to be voted by the broker
without voting instructions from the beneficial owner, and therefore would
not be counted in determining a quorum.
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 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 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. On some non-routine
matters, such as charter amendments, the applicable vote required to
approve the matter may be based on a specified percentage of the
outstanding shares. In such a case, broker non-votes would have the same
effect as a vote against the matter.
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 FOR the entire slate
of directors, and in accordance with the recommendations of the Board of
Directors on any other matters that may be presented for vote of
shareholders at the meeting.
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.
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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 10, 2006 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.
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
Kenneth D. Gibbons 60,944 (3) 1.34
Franklin G. Hovey, II 603,928 (4)(9) 13.30
Richard C. Marron 3,965 (5) .09
Marsha A. Mongeon 1,333 (6) .03
Robert P. Rollins 7,133 .16
Richard C. Sargent 594,843 (7) 13.10
John H. Steel 5,500 (8) .12
All Directors, Nominees and Executive Officers as a Group (9): 1,285,563 28.31
Other 5% or more Shareholders:
Genevieve L. Hovey Trust 422,908 (9) 9.31
Susan Hovey Mercia 603,713 (9)(10) 13.29
Walter M. Sargent Revocable Trust 379,736 (11) 8.36
(footnotes on following page)
4
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. Gibbons has shared voting and investment power over 27,672 of the
shares listed. Includes 7,000 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 665 of
the shares listed. Includes 650 shares held in an Individual
Retirement Account (IRA) for the benefit of Mr. Marron's wife, as to
which shares he disclaims beneficial ownership.
Includes 500 shares Ms. Mongeon has the right to acquire under
presently exercisable incentive stock options.
Mr. Sargent has shared voting power over 594,828 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 379,736 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. Mr. Hovey and Ms.
Mercia share voting and investment power over the shares held by the
trust and all such shares 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.
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 379,736 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 2005 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 and 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. Each of the incumbent directors will stand for
election to a one-year term.
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The table below contains certain biographical information about each of the
incumbent directors standing for re-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, 55 1995 Vice President, Union Bankshares, Inc. and
Executive Vice President, Union Bank
Morrisville, VT
Steven J. Bourgeois, 57 2005 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, 59 1989 President and Chief Executive Officer,
Union Bankshares, Inc. and Union Bank
Morrisville, VT
Franklin G. Hovey, II, 56 1999 President, Hovey Enterprises, Inc.
St. Johnsbury, VT (real estate)
Richard C. Marron, 68 1998 Owner, Town and Country Motor Lodge
Stowe, VT
Robert P. Rollins, 67 1983 Retired Insurance Agent;
Investments and real estate holdings
Morrisville, VT
Richard C. Sargent, 67 1982 Attorney at Law
Richard Sargent Law Office
Morrisville, VT
John H. Steel, 56 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 incumbent director is also a director of Union
Bank.
Directors' Compensation
All directors of the Company receive an annual retainer of $7,024, but do
not receive any fees for attendance at regular or special meetings of the
Board. Directors who serve on the Company's Compen-
6
sation and Audit Committees 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.
Each director of the Company also serves as a director of Union Bank. Non-
employee directors of Union Bank receive an annual retainer of $5,418 and a
per meeting fee of $537. Non-employee directors of the Bank who serve on
the Bank's Trust Committee (the Bank Board's only committee) receive an
annual retainer of $1,000 but do not receive any per meeting fees.
During 2005, Mr. Gibbons and Ms. Borck, who are full-time employees of the
Bank, served as directors of both the Company and Union Bank, and received
the annual retainer fee for serving on the Company's Board. Mr. Gibbons and
Ms. Borck were not separately compensated for their service as directors of
Union Bank nor, in the case of Ms. Borck, for her service as a member of
the Bank's Trust Committee. All Company director fees paid to Mr. Gibbons
and Ms. Borck are disclosed in the summary compensation table and footnotes
contained elsewhere in this proxy statement under the caption "EXECUTIVE
COMPENSATION--Summary Compensation Table."
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 2005, the Company's Board of Directors held 14 regular meetings and
no special meetings. All incumbent directors attended at least 79% 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, which 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 has two
standing committees, the Audit Committee and the Compensation Committee.
The Company does not have a standing nominating committee; rather, all
independent directors on the Board serve the function of such a committee.
Audit Committee. The Audit Committee comprises directors Robert Rollins
(Chair), Steven Bourgeois 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
7
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
standards and that both Mr. Bourgeois and Mr. Marron are "financially
sophisticated" within the meaning of the AMEX rules and each is an "audit
committee 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 2005, the Company's Audit Committee met 9 times. A report of the
Audit Committee on its 2005 activities is included elsewhere in this proxy
statement under the caption "AUDIT COMMITTEE REPORT."
Compensation Committee. The Compensation Committee comprises directors
Richard Sargent (Chair), Franklin Hovey, II 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 2005, 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.
8
In reviewing the composition of the Board and potential Board nominees, the
directors are also mindful of the requirement that at least a majority of
the directors must be independent under AMEX criteria for listed companies,
and of the requirement under SEC rules and AMEX listed company criteria
that at least one member of the Audit Committee must have the
qualifications and skills necessary to be considered an "audit committee
financial expert."
Shareholder Recommendations for Board Nominations. Shareholders of record
wishing to recommend individuals to the independent directors 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 2005 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 2005 Annual Report on Form 10-K. The
Company's Annual Reports on Form 10-K and other periodic reports 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
emergencies and unavoidable business travel. Last year, all eight incumbent
directors attended the annual meeting.
9
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 the Bank, and it is anticipated that they
will continue to do business with the 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.
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 2007 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. 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.
10
The Audit Committee consists of Mr. Rollins (Chair), Mr. Marron and Mr.
Bourgeois. The Board of Directors has determined that both Mr. Marron and
Mr. Bourgeois are audit committee financial experts 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 the
Company's 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. While the Company is not yet subject to the Sarbanes-Oxley
Act of 2002, Section 404 governing internal controls, management has
discussed compliance requirements and the time frame for adherence with the
Audit Committee and the Company's independent auditors. Additionally, 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 2005, the Audit Committee met nine times.
The Audit Committee has reviewed and discussed the Company's December 31,
2005 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 2005 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,
2005 for filing with the SEC.
The Committee has approved the selection of UHY LLP as the Company's
independent auditors for 2006.
Submitted by the Union Bankshares Audit Committee
Robert P. Rollins (Chair)
Steven J. Bourgeois
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, Franklin Hovey, 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 2005, 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 2005, 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 2005.
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 benefit 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 2002 and continuing in 2005, 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 2005 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, 2005, 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 $193,547 to $203,147,
representing an increase of approximately 5.0%. In January 2005, Mr.
Gibbons and certain other senior Union Bank officers were awarded a cash
bonus based on the Bank's and their individual performances for 2004. Mr.
Gibbons' bonus totaled $5,000. In July, Mr. Gibbons was awarded a
discretionary cash bonus of .75% of the net income earned by Union Bank in
the first six months of 2005 ($22,000). 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' 2005 mid-year bonus represents a similar percentage of
Union Bank's net income for the first six months of 2004. 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 2005 this amounted to 4.0% 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 $23.30 a share, which was the per share market
price of the Company's common stock on the date of the award (December 23,
2005). The award represented approximately 61.5% of the total of 3,250
shares optioned under the Plan in 2005 to four executive officers of the
Company and/or Union Bank.
In determining Mr. Gibbons' 2005 salary level, the Board of Directors of
Union Bank and the Committee considered the Bank's financial performance
for 2004. Return on average equity of 14.75%, return on average assets of
1.70% (84th percentile in national peer group), and an efficiency ratio of
57.45% 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 ($7,024) 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)
Franklin G. Hovey II
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 for the last five calendar years 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. All of these
cumulative returns are computed assuming the investment of $100 on
December 31, 2000 and the reinvestment of dividends at the frequency with
which dividends were paid (quarterly) during the applicable years.
Union Bankshares, Inc.
[GRAPH]
Period Ended
----------------------------------------------------------------------
Index 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/2005
----------------------------------------------------------------------------------------------------
Union Bankshares, Inc. 100.00 142.85 159.78 266.32 250.34 253.02
NASDAQ Composite 100.00 79.18 54.44 82.09 89.59 91.54
SNL $250M-$500M Bank Index 100.00 142.07 183.20 264.70 300.43 318.97
--------------------
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, 59 President, Chief Executive Officer and Director,
Union Bankshares, Inc. and Union Bank
Morrisville, VT
Cynthia D. Borck, 55 Vice President and Director, Union Bankshares, Inc. and
Executive Vice President and Director, Union Bank
Morrisville, VT
Marsha A. Mongeon, 50 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).
EXECUTIVE COMPENSATION
Summary Compensation Table
The executive officers of the Company did not receive separate compensation
during 2005 and prior years for services rendered to the Company (other
than, for Mr. Gibbons and Ms. Borck, in their capacity as Company
directors), but did receive compensation for services rendered in their
capacities as executive officers of Union Bank.
15
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 2005 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 2005 $203,147 $35,067 2,000 shs. $13,324
President, Chief Executive 2004 193,547 27,334 2,000 shs. 12,499
Officer and Director of the 2003 184,633 25,550 2,000 shs. 14,072
Company and Union Bank
Cynthia D. Borck 2005 $113,545 $ 8,511 750 shs. $10,687
Vice President and Director 2004 108,325 6,771 750 shs. 11,009
of the Company and 2003 99,268 6,392 500 shs. 14,470
Executive Vice President and
Director of Union Bank
Marsha A. Mongeon 2005 $108,000 $ 7,289 250 shs. $ 3,459
Vice President, Treasurer 2004 102,905 6,580 250 shs. 3,527
and Chief Financial Officer 2003 98,904 6,399 250 shs. 3,453
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).
Includes matching employer contributions under Union Bank's 401(k)
plan, as follows: Mr. Gibbons, 2005-$6,300; 2004-$5,447; and 2003-
$6,170; Ms. Borck, 2005-$3,663; 2004-$3,571; and 2003-$3,140; and Ms.
Mongeon, 2005-$3,459; 2004-$3,159; and 2003-$3,123.
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 and 2003-$330.
There were no deferrals in 2005 and, therefore, no accruals.
Mr. Gibbons' and Ms. Borck's totals include directors fees, as
follows: Union Bankshares - for each of Mr. Gibbons and Ms. Borck,
2005-$7,024; 2004-$6,690; and 2003-$6,432; Citizens - Mr. Gibbons,
2003-$1,470 and Ms. Borck, 2003-$4,898. Mr. Gibbons also has use of a
bank-owned automobile, which is not reflected in the table.
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.
16
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 26,300 shares have been granted under the plan, leaving
48,700 shares available for future option grants.
The following table shows information about incentive stock options granted
under the plan during 2005 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% $23.30 12/22/10 $12,880 $28,440
Cynthia D. Borck 750 23.1% 23.30 12/22/10 4,830 10,665
Marsha A. Mongeon 250 7.7% 23.30 12/22/10 1,610 3,555
--------------------
Represents the closing price of the Company's common stock on the
date of grant (December 23, 2005) as reported on AMEX.
All options listed in the table (i) were granted on December 23,
2005; (ii) are subject to a one year vesting period before they
become 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.
(footnotes continued on following page)
17
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 $23.30 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 2005 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 $25,590 7,000/2,000 $21,390/0
Cynthia D. Borck 0 0 1,250/750 0/0
Marsha A. Mongeon 0 0 500/250 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, 2005 as reported on AMEX ($22.80 per
share), less the applicable option exercise price. Some of the
outstanding stock options were not in-the-money as of such date.
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 each of the last three years, Ms. Borck and Ms. Mongeon
received discretionary cash bonuses in January in amounts determined by the
Board of Union Bank, upon recommendation of the Compensation Committee. Mr.
Gibbons also received a discretionary cash bonus from Union Bank in
January, 2005, but not in the prior years. 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 2005 staff
bonuses was 4% 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.
18
Union Bankshares, Inc. Deferred Compensation Plan. The Company has in
effect a nonqualified deferred compensation plan for directors and
executive officers under which participants were able to defer receipt of
directors fees, salary or bonus, prior to December 31, 2004. 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 previously 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.
New deferrals under the plan were suspended as of December 31, 2004,
following passage of the federal American Jobs Creation Act of 2004, which
contained tax provisions affecting deferred compensation arrangements. The
Board is evaluating the impact on the plan of the Internal Revenue Service
rules implementing the Act, which were adopted late in 2005, and will
determine prior to year end 2006 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
2006 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
($220,000 for 2006) and on the amount of the annual benefit payable under
the plan ($175,000 for 2006). 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 2006. Covered
compensation for purposes of the benefit calculations includes salary and
cash bonuses, but not other forms of compensation.
19
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 5,621 11,243 16,865 22,487
65,000 6,946 13,893 20,840 27,787
75,000 8,271 16,543 24,815 33,087
85,000 9,596 19,193 28,790 38,387
95,000 10,921 21,843 32,765 43,687
105,000 12,246 24,493 36,740 48,987
125,000 14,896 29,793 44,690 59,587
150,000 18,209 36,418 54,627 72,837
175,000 21,521 43,043 64,565 86,087
200,000 24,834 49,668 74,502 99,337
225,000 26,380 52,760 79,140 105,520
250,000 26,380 52,760 79,140 105,520
As of December 31, 2005, 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, 18 years; and Ms.
Mongeon, 16 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 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 2005, 2004 and 2003, 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.
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.
20
INDEPENDENT AUDITORS
The independent registered accounting firm of UHY LLP ("UHY") has served as
the Company's independent auditor since its first appointment by the Audit
Committee on November 17, 2004, following the resignation on that date of
the Company's predecessor independent auditor, Urbach Kahn & Werlin LLP
("UKW"). That resignation occurred in connection with the announcement
earlier that year that the partners of UKW were joining UHY, a new
independent registered public accounting firm organized by the partners of
four accounting firms with offices in seven states. UHY is a legal entity
that is separate from UKW.
Prior to the appointment of UHY to replace UKW, 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 two fiscal years prior to its resignation (2002 and 2003) contained an
adverse opinion or disclaimer of opinion, or was qualified or modified as
to uncertainty, audit scope or accounting principles. During 2002 and 2003
and subsequent interim periods in 2004 prior to UKW's 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. In accordance with SEC rules governing changes in independent
auditors, following its resignation as the Company's auditor in 2004 UKW
furnished to the Company a letter addressed to the SEC stating that it
agrees with the foregoing statements.
The Audit Committee has selected UHY as the Company's independent auditor
for 2006.
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. ("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, UHY and UKW do not have full
time employees and, therefore, all of the services referred to in the table
below performed by UHY or UKW under "Audit" and "Audit Related" were
performed for the Company by UHY or UKW, as the case may be, through
permanent, full time employees of Advisors leased to UHY or UKW. UHY
manages and supervises its audit engagement and audit staff and is
exclusively responsible for the reports rendered in connection with its
audit of the Company's 2004 and 2005 consolidated financial statements.
Similarly, while serving as the Company's independent auditor, UKW managed
and supervised its audit engagements and audit staff and is exclusively
responsible for the reports rendered in connection with its audits of the
Company's consolidated financial statements.
21
Audit Fees
Aggregate fees billed for professional services rendered to the Company by
(1) UHY and/or Advisors for the years ended December 31, 2004 and 2005, and
(2) UKW and/or Advisors for the year ended December 31, 2004 were as
follows:
Services Provided 2005 2004 2004
-----------------------------------------------------------------
UHY/Advisors UKW/Advisors UKW/Advisors
Audit $71,750 $57,696 $8,955
Audit Related 11,350 7,500 0
Tax 10,810 8,560 0
All Other 0 0 0
--------------------------------------
Total $93,910 $73,756 $8,955
The Audit fees for each of the two years shown in the table 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 each of the two years shown in the table were
for assurance and related services relating to Union Bank's trust
operations. Audit related fees for 2005 also include fees paid for
assistance relating to implementation of various provisions of the
Sarbanes-Oxley Act of 2002 and attendance at shareholder and disclosure
control committee meetings.
Tax fees for each of the two years shown in the table 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 audit and non-audit services provided by UKW, UHY or Advisors, as the
case may be, during the preceding two fiscal years were approved in advance
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
22
considered timely for consideration at the 2007 annual meeting, the
shareholder-proponent must have furnished written notice to the Company of
the proposal no later than March 5, 2007.
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 2007 annual meeting,
shareholder proposals must be submitted in writing to the Secretary of the
Company no later than December 19, 2006 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.
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 17, 2006
The undersigned hereby appoints JoAnn 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 17,
2006, 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:_____________________, 2006
(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