That's two different scenes at the time of the vertical squeeze.
Program a SCALE effect with the "keep aspect ratio" box unchecked. Start with a keyframe at the head. Move the scrubber (red line) to where you want the effect to start and move the vertical slider to the left. When satisfied, click the small green + to create a second keyframe.
Here's an example with the effected video on track 2 and a grey gradient clip on track one, which is revealed when the effect takes place.
http://help.nchsoftware.com/help/en/videopad/win/effects_animating.html
Squeeze.wmv