UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Shenandoah Telecommunications Company
(Name of Registrant as Specified In Its Charter)
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SHENANDOAH TELECOMMUNICATIONS COMPANY
500 Shentel Way
Edinburg, Virginia 22824
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 3, 2005
------------------------------
To our shareholders:
Notice is hereby given that the 2005 annual meeting of shareholders of
Shenandoah Telecommunications Company will be held in the auditorium of the
Company's offices at 500 Shentel Way, Edinburg, Virginia, on Tuesday, May 3,
2005, at 11:00 a.m., local time, for the following purposes:
1. to consider and vote upon a proposal to elect three directors to
serve until the annual meeting of shareholders in 2008;
2. to consider and vote upon a proposal to approve the 2005 Shenandoah
Telecommunications Company Stock Incentive Plan; and
3. to transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 22, 2005
will be entitled to notice of, and to vote at, the annual meeting or any
adjournment or postponement thereof.
All shareholders are cordially invited to attend this meeting. Lunch will
be provided.
Your vote is very important to us. Whether or not you plan to attend the
meeting in person, your shares should be represented and voted. To vote, you
should complete, sign, date and promptly return the proxy in the self-addressed
envelope that we have included for your convenience. No postage is required if
the proxy is mailed in the United States. Submitting the proxy before the annual
meeting will not preclude you from voting in person at the annual meeting if you
should decide to attend.
By Order of the Board of Directors,
/s/ Laurence F. Paxton
Laurence F. Paxton
Secretary
Dated: April 4, 2005
SHENANDOAH TELECOMMUNICATIONS COMPANY
500 Shentel Way
Edinburg, Virginia 22824
Annual Meeting of Shareholders
May 3, 2005
----------------------
PROXY STATEMENT
----------------------
GENERAL INFORMATION
Proxy Solicitation
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of Shenandoah Telecommunications Company for
use at Shenandoah Telecommunications Company's 2005 annual meeting of
shareholders to be held in the auditorium of the Company's offices at 500
Shentel Way, Edinburg, Virginia, on Tuesday, May 3, 2005, at 11:00 a.m., local
time. The purpose of the annual meeting and the matters to be acted upon are set
forth in the accompanying notice of annual meeting.
The Company will pay the cost of this proxy solicitation. In addition to
the solicitation of proxies by use of the mails, officers and other employees of
the Company may solicit proxies by personal interview, telephone, e-mail and
telegram. None of these individuals will receive compensation for such services,
which will be performed in addition to their regular duties. The Company also
has made arrangements with brokerage firms, banks, nominees and other
fiduciaries to forward proxy solicitation material for shares held of record by
them to the beneficial owners of such shares. The Company will reimburse such
persons for their reasonable out-of-pocket expenses in forwarding such material.
A list of shareholders entitled to vote at the annual meeting will be open
to the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours for a period of ten days before the meeting at
the Company's offices at 500 Shentel Way, Edinburg, Virginia 22824, and at the
time and place of the meeting during the whole time of the meeting.
This proxy statement and the enclosed proxy card are first being mailed to
the Company's shareholders on or about April 4, 2005.
Voting and Revocability of Proxies
A proxy for use at the annual meeting and a return postage-paid envelope
are enclosed.
Shares of the Company's common stock represented by a properly executed
proxy, if such proxy is received in time and not revoked, will be voted at the
annual meeting in accordance with the instructions indicated in such proxy. If
no instructions are indicated, such shares will be voted FOR the election of the
three director nominees to the Company's board of directors and FOR approval of
the 2005 Shenandoah Telecommunications Company Stock Incentive Plan.
Discretionary authority is provided in the proxy as to any matters not
specifically referred to in the proxy. Management is not aware of any other
matters that are
likely to be brought before the annual meeting. If any other matter is properly
presented at the annual meeting for action, including a proposal to adjourn or
postpone the annual meeting to permit the Company to solicit additional proxies
in favor of any proposal, the persons named in the accompanying proxy will vote
on such matter in their own discretion.
A shareholder executing a proxy card may revoke the proxy at any time
before it is exercised by giving written notice revoking the proxy to the
Company's Secretary, by subsequently filing another proxy bearing a later date
or by attending the annual meeting and voting in person. Attending the annual
meeting will not automatically revoke the shareholder's proxy. All written
notices of revocation or other communications with respect to revocation of
proxies should be addressed to Shenandoah Telecommunications Company, 500
Shentel Way, P.O. Box 459, Edinburg, Virginia 22824, Attention: Secretary.
Voting Procedure
All holders of record of the common stock at the close of business on
March 22, 2005 will be eligible to vote at the annual meeting. Each holder of
common stock is entitled to one vote at the annual meeting for each share held
by such shareholder. As of March 22, 2005, there were 7,644,538 shares of common
stock outstanding.
A majority of the shares of common stock issued and outstanding and
entitled to vote at the annual meeting, present in person or represented by
proxy, will constitute a quorum at the annual meeting. Votes cast in person or
by proxy at the annual meeting will be tabulated by the inspectors of election
appointed for the annual meeting, who will determine whether or not a quorum is
present. Abstentions and any broker non-votes, which are described below, will
be counted for purposes of determining the presence of a quorum at the annual
meeting.
The election of directors requires a plurality of the votes cast for the
election of directors. Accordingly, the directorships to be filled at the annual
meeting will be filled by the nominees receiving the highest number of votes. In
the election of directors, votes may be cast in favor of or withheld with
respect to any or all nominees. Votes that are withheld will be excluded
entirely from the vote and will have no effect on the outcome of the vote.
For Virginia law purposes, the 2005 Shenandoah Telecommunications Company
Stock Incentive Plan will be approved if the number of votes cast in favor of
approval of the plan exceed the number of votes cast against approval of the
plan. Under the rules of the Nasdaq Stock Market, on which the Company's common
stock is listed, this proposal must be approved by a majority of the votes cast.
Abstentions and broker non-votes will have no effect on the outcome of the vote
for Virginia law purposes or for purposes of the rules of the Nasdaq Stock
Market.
Broker-dealers who hold their customers' shares in street name may, under
the applicable rules of the exchanges and other self-regulatory organizations of
which the broker-dealers are members, vote the shares of their customers on
routine proposals, which under such rules typically include the election of
directors, when they have not received instructions from the customer. Under
these rules, brokers may not vote shares of their customers on non-routine
matters without instructions from their customers. A broker non-vote occurs with
respect to any proposal when a broker holds shares of a customer in its name and
is not permitted to vote on that proposal without instruction from the
beneficial owner of the shares and no instruction is given. A broker non-vote
will not affect whether any proposal to be acted upon at the annual meeting is
approved.
2
Annual Report to Shareholders
A copy of the Company's annual report to shareholders for 2004 accompanies
this proxy statement. The Company is required to file an annual report on Form
10-K for 2004 with the SEC. Shareholders may obtain, free of charge, a copy of
the 2004 Form 10-K, without exhibits, by writing to Shenandoah
Telecommunications Company, 500 Shentel Way, P.O. Box 459, Edinburg, Virginia
22824, Attention: Secretary. The annual report on Form 10-K is also available
through the Company's website at http://www.shentel.com. The annual report to
shareholders and the Form 10-K are not proxy soliciting materials.
Important Notice Regarding Delivery of Shareholder Documents
If you and other residents at your mailing address own common stock in
street name, your broker or bank may have sent you a notice that your household
will receive only one annual report to shareholders and proxy statement for each
company in which you hold shares through that broker or bank. This practice of
sending only one copy of an annual report to shareholders and proxy statement is
known as "householding." If you did not respond that you did not want to
participate in householding, you were deemed to have consented to the process.
If the foregoing procedures apply to you, your broker has sent one copy of our
annual report to shareholders and proxy statement to your address. If you did
not receive an individual copy of our annual report to shareholders or this
proxy statement, and wish to do so, the Company will send a copy to you if you
address your written request to or call Shenandoah Telecommunications Company,
500 Shentel Way, P.O. Box 459, Edinburg, Virginia 22824, Attention: Corporate
Secretary, or call us at 540-984-5200. If you are receiving multiple copies of
our annual report to shareholders and proxy statement, you can request
householding by contacting our corporate secretary in the same manner.
3
SECURITY OWNERSHIP
The following table presents, as of March 22, 2005, information based upon
the Company's records and filings with the SEC regarding beneficial ownership of
the common stock by the following persons:
o each person known to the Company to be the beneficial owner of more
than 5% of the common stock;
o each director and each nominee to the board of directors;
o each executive officer of the Company named in the summary
compensation table under the "Executive Compensation" section of
this proxy statement; and
o all directors and executive officers of the Company as a group.
As of March 22, 2005, there were 7,644,538 shares of common stock
outstanding.
The information presented below regarding beneficial ownership of the
Company's common stock has been presented in accordance with rules of the SEC
and is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of the
security or the power to dispose or direct the disposition of the security. A
person is also deemed to be the beneficial owner of any security as to which a
person has the right to acquire sole or shared voting or investment power within
60 days through the conversion or exercise of any convertible security, warrant,
option or other right. More than one person may be deemed to be a beneficial
owner of the same securities.
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership Class (%)
------------------------ --------- ---------
Douglas C. Arthur ................................ 3,229 *
Noel M. Borden ................................... 33,886 *
Ken L. Burch ..................................... 90,343 1.18
Tracy Fitzsimmons................................. 100 *
Christopher E. French ............................ 452,736 5.92
Grover M. Holler, Jr. ............................ 141,472 1.85
Dale S. Lam....................................... 200 *
Harold Morrison, Jr. ............................. 39,656 *
Zane Neff ........................................ 14,532 *
William A. Truban, Jr. ........................... 2,508 *
James E. Zerkel II ............................... 8,996 *
Earle A. MacKenzie ............................... 5,164 *
David K. MacDonald ............................... 4,659 *
William L. Pirtle ................................ 6,845 *
Alan R. Prusak.................................... 500 *
All directors, nominees and executive officers as
a group (20 persons) ......................... 820,513 10.71
-----------------------------
*Less than 1%.
4
The percentage of beneficial ownership as to any person as of March 22,
2005 is calculated by dividing the number of shares beneficially owned by such
person, which includes the number of shares as to which such person has the
right to acquire voting or investment power within 60 days, by the sum of the
number of shares outstanding as of March 22, 2005 plus the number of shares as
to which such person has the right to acquire voting or investment power within
60 days. Consequently, the denominator used for calculating such percentage may
be different for each beneficial owner. Except as otherwise indicated below and
under applicable community property laws, the Company believes that the
beneficial owners of the Company's common stock listed in the table have sole
voting and investment power with respect to the shares shown.
The shares of common stock shown as beneficially owned by Mr. Arthur
include 350 shares of common stock owned of record by his spouse. Mr. Arthur
disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. Borden
include 4,000 shares of common stock owned of record by his spouse. Mr. Borden
disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. Burch
include 189 shares of common stock owned of record by his spouse. Mr. Burch
disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. French
include 9,746 shares of common stock owned of record by his spouse, 200,251
shares owned of record by 14 trusts for benefit of Mr. French's minor children
and other family members for which Mr. French serves as trustee, 186,000 shares
owned of record by a limited liability company of which Mr. French is the
managing director, and options exercisable within 60 days of March 22, 2005 to
purchase 5,251 shares of common stock. Mr. French disclaims beneficial ownership
of the shares owned of record by his spouse. Mr. French's address is c/o
Shenandoah Telecommunications Company, 500 Shentel Way, P.O. Box 459, Edinburg,
Virginia 22824.
The shares of common stock shown as beneficially owned by Mr. Holler
include 70,720 shares of common stock owned of record by his spouse. Mr. Holler
disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. Morrison
include 22,424 shares of common stock owned of record by a trust for benefit of
his spouse, for which Mr. Morrison serves as trustee.
The shares of common stock shown as beneficially owned by Mr. Truban,
include 1,508 shares of common stock owned of record by a family LLC, of which
Mr. Truban is a voting member.
The shares of common stock shown as beneficially owned by Mr. MacKenzie
include 1,633 shares of common stock owned of record by his spouse. Mr.
MacKenzie disclaims beneficial ownership of such shares.
5
The shares of common stock shown as beneficially owned by Mr. MacDonald
include options exercisable within 60 days of March 22, 2005 to purchase 3,043
shares of common stock.
The shares of common stock shown as beneficially owned by Mr. Pirtle
include options exercisable within 60 days of March 22, 2005 to purchase 3,262
shares of common stock.
The shares of common stock shown as beneficially owned by Mr. Prusak do
not include any options exercisable within 60 days of March 22, 2005 to purchase
shares of common stock.
The shares of common stock shown as beneficially owned by all directors
and executive officers as a group includes options exercisable within 60 days of
March 22, 2005 to purchase 17,688 shares of common stock.
6
ELECTION OF DIRECTORS
(Proposal 1)
Nominees for Election as Directors
The Company's certificate of incorporation provides that the board of
directors is to be divided into three classes of directors, with the classes to
be as nearly equal in number as possible. The terms of office of the three
current classes of directors expire at this annual meeting, at the annual
meeting of shareholders in 2006 and at the annual meeting of shareholders in
2007, respectively. Upon the expiration of the term of office of each class, the
nominees for such class will be elected for a term of three years to succeed the
directors whose terms of office expire.
Douglas C. Arthur, Tracy Fitzsimmons and William A. Truban, Jr. have been
nominated for election to the class with a three-year term that will expire at
the annual meeting of shareholders in 2008. Mr. Arthur is an incumbent who has
served on the board of directors since 1997.
Dr. Fitzsimmons and Mr. Truban have been nominated to fill the vacancies
created by the retirement of Harold Morrison, Jr. and Zane Neff as directors.
Mr. Morrison and Mr. Neff, whose terms of office will expire at the 2005 annual
meeting, are not eligible to stand for re-election as directors under the
board's mandatory retirement policy. All three nominees were nominated for
election by the board of directors and recommended for nomination by the
nominating committee, which consists of Mr. Arthur, Grover M. Holler, Jr. and
James E. Zerkel II.
Approval of Nominees
Approval of the nominees requires the affirmative vote of a plurality of
the votes cast at the annual meeting. Unless authority to do so is withheld, it
is the intention of the persons named in the proxy to vote such proxy FOR the
election of each of the nominees. In the event that any nominee should become
unable or unwilling to serve as a director, the persons named in the proxy
intend to vote for the election of such substitute nominee for director as the
board of directors may recommend. It is not anticipated that any nominee will be
unable or unwilling to serve as a director.
The board of directors unanimously recommends that the shareholders of the
Company vote FOR the election of the nominees to serve as directors.
Information About Nominees and Continuing Directors
Biographical information concerning each of the nominees and each of the
directors continuing in office is presented below.
7
Nominees for Election for Three-Year Term Expiring in 2008
Director
Name Age Since
---- --- ---------
Douglas C. Arthur 62 1997
Tracy Fitzsimmons 38 --
William A. Truban, Jr. 39 --
Douglas C. Arthur has been an attorney-at-law since 1967, and currently
maintains his legal practice in Strasburg, Virginia. He is a member of the Board
of Directors of First National Corporation and a member of the Shenandoah County
School Board.
Tracy Fitzsimmons has served as Vice President for Academic Affairs of
Shenandoah University, Winchester, Virginia since July 2002. She previously held
the position of Dean of the College of Arts and Sciences from July 2001 to June
2002. From August 1995 to June 2001, Dr. Fitzsimmons served as Associate
Professor of Government and Chair of the College of Arts & Sciences Faculty, as
well as President of the Academic Assembly, at the University of Redlands,
Redlands, California. Dr. Fitzsimmons also currently serves as a professor of
political science at Shenandoah University. Dr. Fitzsimmons received a PhD
degree from Stanford University and a B.A. degree from Princeton University.
William A. Truban, Jr. has been an attorney-at-law since 1991. Mr. Truban
is a member of the law firm of Owen and Truban, PLC, which is located in
Winchester, Virginia. Mr. Truban's area of legal practice include tax, business
and estate planning.
Directors Whose Terms Expire in 2006
Director
Name Age Since
---- --- ---------
Noel M. Borden 68 1972
Ken L. Burch 60 1995
Grover M. Holler, Jr. 84 1952
Noel M. Borden is Vice Chairman of the Board of the Company. Mr. Borden is
retired. Prior to his retirement in 2001, Mr. Borden served as President of H.
L. Borden Lumber Company, a retail building materials firm located in Strasburg,
Virginia. He also serves as Chairman and Director of First National Corporation.
Ken L. Burch is a farmer who operates a farm located in Shenandoah
Caverns, Virginia.
Grover M. Holler, Jr. has served as President of Valley View, Inc., a real
estate development company in Shenandoah County, Virginia, since 1964.
Directors Whose Terms Expire in 2007
Director
Name Age Since
---- --- -----
Christopher E. French 47 1996
Dale S. Lam 42 2004
James E. Zerkel II 60 1985
8
Christopher E. French has served as President and Chief Executive Officer
of the Company and its subsidiaries since 1988. Prior to his appointment as
President, he held a variety of positions with the Company, including Executive
Vice President and Vice President-Network Service. Mr. French also serves on the
Board of Directors of First National Corporation.
Dale S. Lam has served as Chief Financial Officer and member of the Board
of Directors of ComSonics, Inc., a cable television equipment manufacturer and
repair operation located in Harrisonburg, Virginia, since April 2001. He is also
a Certified Public Accountant. From December 1997 to March 2001, Mr. Lam served
in a variety of positions with WLR Foods, Inc., a publicly traded poultry
processor, including Controller, Chief Financial Officer and Vice President of
Finance.
James E. Zerkel II has served as Vice President of James E. Zerkel, Inc.,
a hardware firm located in Mt. Jackson, Virginia, since 1970. Mr. Zerkel also
serves on the Board of Directors of the Shenandoah Valley Electric Cooperative.
Board of Directors and Committees of the Board of Directors
The board of directors has determined that each of the following incumbent
directors and director nominees identified below is or (in the case of such
nominee) will be an "independent director" as that term is defined in
Marketplace Rule 4200(a)(15) of the National Association of Securities Dealers
("NASD"):
Douglas C. Arthur
Ken L. Burch
Tracy Fitzsimmons (nominee)
Grover M. Holler, Jr.
Dale S. Lam
William A. Truban, Jr. (nominee)
James E. Zerkel II
The board of directors welcomes communications from its shareholders, and
has adopted a procedure for receiving and addressing those communications.
Shareholders may send written communications to either the full board of
directors or the non-management directors as a group by writing to the board of
directors or the non-management directors at the following address: Board of
Directors/Non-Management Directors, Shenandoah Telecommunications Company, 500
Shentel Way, P.O. Box 459, Edinburg, Virginia 22824, Attn: Secretary.
Communications by e-mail should be addressed to corpsec@shentel.net and marked
"Attention: Corporate Secretary" in the "Subject" field. The Secretary will
review and forward all shareholder communications to the intended recipient,
except for those shareholder communications that are outside the scope of board
matters or duplicative of other communications by the applicable shareholder
previously forwarded to the intended recipient.
The board of directors held 15 meetings during 2004. During 2004, each
director attended at least 75% of the aggregate of the total number of meetings
of the board of directors and of each committee of the board of directors on
which such director served.
9
All of the Company's nine directors attended the Company's annual meeting
of shareholders in 2004. The board of directors has adopted a policy that all
directors should attend the annual meeting of shareholders.
The board of directors currently has a standing audit committee, a
standing personnel committee, and a standing nominating committee.
The audit committee, which held 11 meetings during 2004, consists of Mr.
Holler, who is the Chairman, Mr. Arthur, Mr. Lam, and Mr. Zerkel. The board of
directors has determined that each current audit committee member meets the
independence requirements applicable to audit committee members under the
Marketplace Rules of the NASD and rules of the SEC. The board of directors has
determined that Mr. Lam is an "audit committee financial expert," as such term
is defined in Item 401(h) of Regulation S-K promulgated by the SEC, and is
independent of management. The audit committee is responsible, among its other
duties, for engaging, overseeing, evaluating and replacing the Company's
independent auditors, pre-approving all audit and non-audit services by the
independent auditors, reviewing the scope of the audit plan and the results of
each audit with management and the independent auditors, reviewing the adequacy
of the Company's system of internal accounting controls and disclosure controls
and procedures, reviewing the financial statements and other financial
information included in the Company's annual and quarterly reports filed with
the SEC, and exercising oversight with respect to the Company's code of conduct
and other policies and procedures regarding adherence with legal requirements.
The audit committee's duties are set forth in the committee's charter, which was
last amended on February 9, 2004. A copy of the charter is available on the
Company's website at www.shentel.com.
The personnel committee, which held three meetings during 2004, consists
of Mr. Borden, who is the Chairman, Mr. Morrison and Mr. Zerkel. Neither Mr.
Borden nor Mr. Morrison is an "independent director" as that term is defined in
Marketplace Rule 4200(a)(15) of the NASD. The personnel committee is
responsible, among its other duties, for considering and making recommendations
to the board of directors with respect to programs for human resource
development and management organization and succession, for considering and
making recommendations to the board of directors with respect to compensation
matters and policies and the Company's employee benefit and incentive plans,
including the Company's Stock Incentive Plan, and for administering such plans.
In accordance with the Marketplace Rules of the NASD, the compensation of the
chief executive officer and the Company's other executive officers is determined
by the board of directors upon the recommendation of a majority of the directors
who meet the independence requirements prescribed by the Marketplace Rules of
the NASD.
The nominating committee, which held five meetings during 2004, consists
of Douglas C. Arthur, who is the Chairman, Grover M. Holler, Jr. and James E.
Zerkel II, all of whom meet the independence requirements prescribed by the
Marketplace Rules of the NASD. The committee is responsible for recommending
candidates for election to the board of directors for approval and nomination by
the board of directors. The committee is also responsible for making
recommendations to the board of directors or otherwise acting with respect to
corporate governance matters, including board size and membership
qualifications, new director orientation, committee structure and membership,
non-employee director compensation, communications with shareholders, and board
and committee self-evaluations. The charter of the nominating committee is
available on the Company's website at www.shentel.com.
Director Nomination Process
10
The board of directors has, by resolution, adopted a director nominations
policy. The purpose of the nominations policy is to describe the process by
which candidates for possible inclusion in the Company's recommended slate of
director nominees are selected. The nominations policy is administered by the
nominating committee of the board of directors.
The board of directors does not currently prescribe any minimum
qualifications for director candidates. Consistent with the criteria for the
selection of directors approved by the board of directors, the nominating
committee will take into account the Company's current needs and the qualities
needed for board service, including experience and achievement in business,
finance, technology or other areas relevant to the Company's activities;
reputation, ethical character and maturity of judgment; diversity of viewpoints,
backgrounds and experiences; absence of conflicts of interest that might impede
the proper performance of the responsibilities of a director; independence under
SEC and NASD Marketplace Rules; service on other boards of directors; sufficient
time to devote to board matters; and ability to work effectively and collegially
with other board members. In the case of incumbent directors whose terms of
office are set to expire, the nominating committee will review such directors'
overall service to the Company during their term, including the number of
meetings attended, level of participation, quality of performance, and any
transactions of such directors with the Company during their term. For those
potential new director candidates who appear upon first consideration to meet
the board's selection criteria, the nominating committee will conduct
appropriate inquiries into their background and qualifications and, depending on
the result of such inquiries, arrange for in-person meetings with the potential
candidates.
The nominating committee may use multiple sources for identifying director
candidates, including its own contacts and referrals from other directors,
members of management, the Company's advisors, and executive search firms. The
nominating committee will consider director candidates recommended by
shareholders and will evaluate such director candidates in the same manner in
which it evaluates candidates recommended by other sources. In making
recommendations for director nominees for the annual meeting of shareholders,
the nominating committee will consider any written recommendations of director
candidates by shareholders received by the Secretary of the Company not later
than 120 days before the anniversary of the previous year's annual meeting of
shareholders. Recommendations must include the candidate's name and contact
information and a statement of the candidate's background and qualifications,
and must be mailed to Shenandoah Telecommunications Company, 500 Shentel Way,
P.O. Box 459, Edinburg, Virginia 22824, Attn: Secretary.
The nominations policy is intended to provide a flexible set of guidelines
for the effective functioning of the Company's director nominations process. The
nominating committee intends to review the nominations policy at least annually
and anticipates that modifications may be necessary from time to time as the
Company's needs and circumstances evolve, and as applicable legal or listing
standards change. The nominating committee may amend the nominations policy at
any time, in which case the most current version will be available on the
Company's website at www.shentel.com.
Director Compensation
Directors who are not employees of the Company receive a cash fee of
$1,000 per month and a cash fee of $800 for each board of directors meeting
attended. Committee members are paid cash fees of $200 for each committee
meeting attended in person or $100 for each committee meeting in which they
participate by
11
conference call when such meetings are not held in conjunction with a board of
directors meeting. The Company pays its non-employee directors these fees in
arrears on a monthly basis. All directors are reimbursed for the out-of-pocket
expenses they incur in attending director education programs.
12
EXECUTIVE COMPENSATION
The following table shows information about the compensation paid to
the Company's Chief Executive Officer, who is the President, and to each of the
Company's four other most highly compensated executive officers for fiscal 2004.
The officers listed in the table are referred to in this proxy statement as the
"named executive officers."
Summary Compensation Table
Annual Long Term
Compensation (1) Compensation
--------------------------- -----------------
Securities All Other
Fiscal Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options (#) (2) ($) (3)
- -------------------------------------- -------- ------------- ----------- ----------------- --------------
Christopher E. French ................ 2004 254,082 70,857 1,798 13,655
President 2003 223,572 39,610 1,628 9,462
2002 200,873 34,419 1,494 10,554
Earle A. MacKenzie (4) ............... 2004 195,145 45,903 -- 11,873
Executive Vice President 2003 200,941 14,602 20,000 3,136
and Chief Financial Officer 2002 -- -- -- --
David K. MacDonald ................... 2004 146,907 32,050 1,067 9,959
Vice President, Operations 2003 131,317 16,006 972 8,826
2002 118,064 13,957 856 8,091
William L. Pirtle .................... 2004 148,870 29,995 1,089 9,669
Vice President, Sales 2003 133,812 15,917 994 8,564
2002 121,823 13,568 928 7,870
Alan R. Prusak (5) ................... 2004 182,907 15,988 10,000 2,646
Vice President, Technology 2003 -- -- -- --
2002 -- -- -- --
- ---------------------------------------
(1) In accordance with SEC rules, information about other compensation in the
form of perquisites and other personal benefits has been omitted because
such perquisites and other personal benefits constituted less than the
lesser of $50,000 or 10% of the total annual salary and bonus for the
named executive officers.
(2) The options were granted under the Stock Incentive Plan.
(3) The amounts shown in the "All Other Compensation" column consist of
amounts contributed by the Company under its 401(k) plan and its Flexible
Benefits Plan, each of which is available to all regular Company
employees. The amounts include the following: (a) for Mr. French, $7,652
in 2004, $4,584 in 2003 and $6,052 in 2002 in matching contributions to
the Company's 401(k) Plan; and $6,003 in 2004, $4,878 in 2003 and $4,502
in 2002 in employer contributions to the Company's Flexible Benefits Plan;
(b) for Mr. MacKenzie, $2,769 in matching contributions to the Company's
401(k) Plan in 2004; and $6,914 in 2004 and $3,136 in 2003 in employer
contributions to the Company's Flexible Benefits Plan; (c) for Mr.
MacDonald, $4,407 in 2004, $4,002 in 2003 and $3,646 in 2002 in matching
contributions to the Company's 401(k) Plan; and $5,552 in 2004, $4,824 in
2003 and $4,445 in 2002 in employer contributions to the Company's
Flexible Benefits Plan; (d) for Mr. Pirtle, $4,478 in 2004, $4,081 in 2003
and $3,727 in 2002 in matching contributions to the Company's 401(k) Plan;
and $5,191 in 2004, $4,483 in 2003 and $4,143 in 2002 in employer
contributions to the Company's Flexible Benefits Plan; and (e) for Mr.
Prusak, $2,646 in employer contributions to the Company's Flexible
Benefits Plan in 2004.
(4) Mr. MacKenzie was appointed as Executive Vice President and Chief
Financial Officer on June 2, 2003. He received a one-time signing bonus,
which included a relocation assistance payment, of $100,000, which is set
forth in the 2003 amount in the "Salary" column above.
(5) Mr. Prusak was appointed as Vice President, Technology on April 26, 2004.
He received a one-time signing bonus, which included a relocation
assistance payment, of $75,000, which is set forth in the "Salary" column
above.
13
Stock Option Grants in 2004
The following table sets forth information concerning all stock options
granted in 2004 to the named executive officers.
Individual Grants
---------------------------------------------------------------
Percentage of Potential Realizable Value
Total at Assumed Annual Rates
Number Options of Stock Price
of Shares Granted Appreciation for Option
Underlying to Employees Exercise Term (4)
Options in Fiscal Year Price Expiration --------------------------
Name Granted (1) (%) ($/Share) Date 5% (5) 10% (5)
- ------------------------ ------------ -------------- ------------ ------------ ----------- -----------
Christopher E. French .. 1,798 (2) 1.7 $24.25 3/8/2009 $12,046 26,619
Earle A. MacKenzie ..... -- -- -- -- -- --
David K. MacDonald ..... 1,067 (2) 1.0 24.25 3/8/2009 7,149 15,797
William L. Pirtle ...... 1,089 (2) 1.0 24.25 3/8/2008 7,296 16,123
Alan R. Prusak.......... 10,000 (3) 9.2 25.64 5/10/2011 104,381 243,251
- -------------------------
(1) All options granted to the named executive officers were granted under the
Stock Incentive Plan and are exercisable for shares of common stock. These
options include an equal number of Tandem Stock Appreciation Rights (SARs)
allowing the holder, upon exercise of the related option, to receive a
payment in either cash or shares based on the excess of the fair market
value of a share on the date of settlement over the exercise price of the
option.
(2) These options will vest with respect to one-half of the shares subject to
the option on each of the first and second anniversaries of the date of
grant.
(3) These options will vest with respect to one-fourth of the shares subject
to the option on each of the third, fourth, fifth and sixth anniversaries
of the date of grant.
(4) The term of each option may not exceed five years for all named executive
officers except Mr. Prusak, whose option term may not exceed seven years.
(5) The potential realizable value is calculated based on the fair market
value on the date of grant, which is equal to the exercise price of the
option, assuming that the shares appreciate in value from the option grant
date compounded annually until the end of the option term at the rate
specified, 5% or 10%, and that the option is exercised and sold on the
last day of the option term for the appreciated share price. Potential
realizable value is net of the option exercise price. The assumed rates of
appreciation are specified in the rules and regulations of the SEC and do
not represent the Company's estimate or projection of future prices of the
shares. There is no assurance provided to any named executive officer or
any other holder of common stock that the actual stock price appreciation
over the term of the applicable options will be at the assumed 5% and 10%
levels or at any other defined level.
14
Stock Option Exercises in 2004
The following table sets forth information concerning all stock options
exercised during fiscal 2004 and unexercised stock options held at the end of
that fiscal year by the named executive officers.
Shares Number of Securities
Acquired on Value Underlying Unexercised Value of Unexercised
Exercise Realized Options/SARs at Fiscal In-the-Money Options/SARs at
Name (#) ($) Year-End (#) Fiscal Year-End ($)(1)
- ------------------------ ----------- ---------- ---------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Christopher E. French .. 1,146 10,641 3,538 2,612 45,630 19,996
Earle A. MacKenzie ..... -- -- -- 20,000 -- 158,800
David K. MacDonald...... 634 6,844 2,024 1,553 26,057 11,902
William L. Pirtle ...... 1,538 21,195 2,221 1,586 28,693 12,159
Alan R. Prusak.......... -- -- -- 10,000 -- 43,100
- -------------------------
(1) Represents the difference between the exercise price and the $29.95
closing price of the common stock on the Nasdaq Stock Market on December
31, 2004, which was the last trading day in fiscal 2004.
Equity Compensation Plan Information
The following table sets forth the following information as of December
31, 2004 for (1) all compensation plans previously approved by the Company's
shareholders and (2) all compensation plans not previously approved by the
Company's shareholders:
o number of securities to be issued upon the exercise of outstanding
options, warrants and rights;
o the weighted average exercise price of such outstanding options,
warrants and rights; and
o other than securities to be issued upon the exercise of such
outstanding options, warrants and rights, the number of securities
remaining available for future issuance under the plans.
Number of securities remaining
Number of securities to be Weighted average available for future issuance
issued upon exercise of exercise price of under equity compensation
outstanding options, outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan category (a) (b) (c)
- ------------------------------------ -------------------------- --------------------- ------------------------------
Equity compensation plans
approved by security holders (1) 238,811 $ 21.96 122,610
Equity compensation plans not
approved by security holders -- -- --
Total 238,811 $21.96 122,610
- -----------------
(1) The Stock Incentive Plan was the Company's sole equity compensation plan
as of December 31, 2004.
Pension Plans
The Company's executive officers participate in the Company's Retirement
Plan, a noncontributory defined benefit pension plan that is qualified under
Section 401 of the Internal Revenue Code, and the Supplemental Executive
Retirement Plan, an unfunded, nonqualified plan. The annual pension benefit
under the plans, taken together, is largely determined by the years of service
multiplied by a percentage of the participant's final earnings.
The following table illustrates the approximate annual benefits payable at
retirement at age 65 under these two retirement plans to the individuals named
in
15
the Summary Compensation Table above in specified compensation and
years-of-service classifications. The amounts shown were calculated on a
straight-life basis assuming the employee retires in 2005.
Estimated Annual Pension
Years of Credited Service
Final ----------------------------------------------------------
Earnings 15 25 35 45
----------- ---- ---- ---- ----
100,000 27,512 36,837 45,654 48,554
150,000 52,512 60,012 75,012 82,512
200,000 77,512 87,512 107,512 117,512
250,000 102,512 115,012 140,012 152,512
300,000 127,512 142,512 172,512 187,512
350,000 152,512 170,012 205,012 222,512
400,000 177,512 197,512 237,512 257,512
450,000 202,512 225,012 270,012 292,512
500,000 227,512 252,512 302,512 327,512
550,000 252,512 280,012 335,012 362,512
600,000 277,512 307,512 367,512 397,512
Final earnings consist of total earnings, including bonuses. The credited
years of service as of January 1, 2005, were as follows: Christopher French-23
years; Earle MacKenzie-2 years; David MacDonald-9 years; William Pirtle-12
years; and Alan R. Prusak-1 year.
Supplemental Executive Retirement Plan
Effective May 12, 2003, the board of directors adopted a nonqualified
supplemental executive retirement plan, or SERP, for selected key employees who
are participants in the Retirement Plan. The purpose of the SERP is to provide
retirement benefits in addition to those provided under the Retirement Plan. The
SERP is intended to be a plan that is unfunded and maintained primarily for the
purpose of providing additional retirement benefits for a "select group of
management or highly compensated employees" (as such phrase is used in the
Employee Retirement Income Security Act of 1974). The SERP must be administered
and construed in a manner that is consistent with that intent. Accordingly, the
Company makes no contribution to the SERP, but records an expense for an
associated net periodic pension cost which includes service, interest and prior
service components. All named executive officers have been selected by the board
of directors to participate in the SERP.
Under the terms of the SERP, the normal form of benefits for executives
completing at least ten years of service, is a monthly benefit for the life of
the executive determined as follows: 50% for executives with 20 years or less of
credited service, which is increased by 1% for each additional year of credited
service up to a maximum of 70% with 40 years, times the executive's final annual
earnings, less the accrued monthly benefit payable at age 65 to the executive
under the Retirement Plan on that date, less the executive's estimated monthly
Primary Social Security Benefit payable at age 65.
Report of Independent Directors on Executive Compensation
In accordance with the Marketplace Rules of the NASD, all components of
compensation for the Company's chief executive officer and other executive
officers are determined by the board of directors upon the recommendation of a
majority of the Company's directors who meet the independence requirements
prescribed by those rules. The Company's independent directors offer this report
regarding the executive compensation policy and compensation program in effect
for 2004 for the
16
Company's chief executive officer, who is the president, and the Company's other
executive officers. This report, as well as the performance graph in this proxy
statement, are not soliciting materials, are not deemed filed with the SEC and
are not incorporated by reference in any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date of this proxy statement and irrespective of any general
incorporation language in any such filing.
Compensation Policy. The overall goal of the independent directors is to
develop compensation policies and practices that support the attainment of the
Company's strategic business objectives. The independent directors review
industry compensation surveys and compensation data from public filings by other
publicly held companies in the Company's industry and market region, and in past
years has used the services of independent executive compensation consultants in
developing and evaluating compensation plans to achieve these objectives.
The independent directors compare executive compensation levels for the
chief executive officer and the Company's other executive officers to the
compensation of executives employed by companies considered to be in the
Company's peer group. These peer group companies are smaller than many of the
companies included in the indices used for the shareholder return performance
graph, which include some much larger publicly traded companies. In reviewing
the chief executive officer's compensation, the independent directors consider,
in addition to the factors described below, the chief executive officer's
individual contribution to the Company's performance and his efforts to manage
the Company's long-term growth. The independent directors also compare the
Company's short-term and long-term results to the performance of comparable
companies.
The Company's executive compensation program includes a base salary,
annual cash bonuses and long-term incentive compensation in the form of stock
option awards. Overall, these programs are intended to link executive
compensation to the Company's performance. The independent directors believe
that a portion of cash compensation should be tied to performance-based
objectives. To encourage equity ownership by the Company's executives and to
link executive compensation with increases in shareholder value, the
compensation policy provides that a portion of total executive compensation will
be in the form of periodic stock option awards.
Base Salary. Base salaries of the Company's executive officers are
initially determined by evaluating the responsibilities of the position, the
experience and knowledge of the executive, and the competitive marketplace for
executive talent, including a comparison to base salaries for comparable
positions at public companies considered to be in the Company's peer group. Base
salaries for executive officers are reviewed annually by the independent
directors based upon, among other things, individual performance and
responsibilities.
Annual Cash Bonuses. The Company pays annual cash bonuses to the executive
officers under a cash incentive plan. Under the cash incentive plan, each
participant is assigned a "target bonus" expressed as a percentage of the
participant's regular salary. For 2004, the target bonus for the chief executive
officer of the Company was 30% of salary paid, the target bonus for the
executive vice president of the Company was 25% of salary paid, and the target
bonus for other executive officers was 20% of salary paid. The maximum cash
bonus payable to any executive officer in any fiscal year could be up to 200% of
the target bonus. Of the bonus amount payable to executive officers, 60% is
based on the achievement of company-wide performance goals relating to net
income and service measures (which included customer turnover or "churn," bad
debt expense and service complaints) and 40% upon individual objectives
established by management and, in
17
the case of the chief executive officer and chief financial officer, the
independent directors. Individual objectives for other executive officers
included goals relating to Sarbanes-Oxley compliance; sales, revenue and
customer growth; and deployment of new technologies and services.
Based upon the achievement of the company-wide performance goals for 2004
and evaluation by the independent directors, the independent directors
recommended for approval annual bonuses for the chief executive officer and the
chief financial officer of 94% of their target bonuses. Annual cash bonuses for
2004 for the other executive officers ranged from 74% to 124% of their target
bonuses.
Long-Term Incentive Compensation. Stock option awards under the Stock
Incentive Plan are based on a formula that takes into account each executive's
annual cash compensation. The independent directors in 2004 recommended for
approval the grant of stock options under the Stock Incentive Plan for 1,798
shares of common stock to the chief executive officer and for a total of 51,039
shares of common stock to the executive officers in the aggregate, including the
chief executive officer. In addition, the independent directors in 2004
recommended for approval special grants of stock options to four executive
officers of 45,000 shares under the Stock Incentive Plan as part of their
compensation packages awarded upon commencement of their employment with the
Company. The grant of stock options to the chief executive officer and the other
executive officers in 2004 were based on an assessment of both the past
contributions of the executive officers and their anticipated role in increasing
shareholder value.
All stock options granted to executive officers in 2004 were qualified
stock options with an exercise price that was equal to the fair market value of
the Company's common stock on the date of grant. The options increase in value
only to the extent of appreciation in the common stock, thereby providing a
clear link to enhancement of shareholder value. To emphasize the long-term
incentive provided by these stock options, the formula-based options are not
fully exercisable until two years after the date of the grant, and remain
exercisable until the fifth anniversary date of the grant, and the special
grants are not fully exercisable until six years after the date of the grant,
and remain exercisable until the seventh anniversary date of the grant.
Potential Effect of Section 162(m) of the Internal Revenue Code. Section
162(m) of the Internal Revenue Code of 1986 generally sets a limit of $1 million
on the amount of compensation paid to executive employees (other than enumerated
categories of compensation, including performance-based compensation) that may
be deducted by a publicly traded company. The compensation levels of the
Company's executive employees have been below that limit. In the event executive
employee compensation approaches the limit, the policy of the independent
directors will be to seek to qualify executive compensation for deductibility to
the extent that such a policy is consistent with the Company's overall
objectives and executive compensation policy. The independent directors believe
that no compensation for 2004 is at risk of not being fully deductible.
Respectfully submitted,
Douglas C. Arthur
Ken L. Burch
Grover M. Holler, Jr.
Dale S. Lam
James E. Zerkel II
18
Compensation Committee Interlocks and Insider Participation
The Company's directors who meet the independence requirements prescribed
by the Marketplace Rules of the NASD recommend to the board of directors for
determination all components of compensation for the Company's chief executive
officer and other executive officers. There are no interlock relationships as
defined in the applicable SEC rules.
Related Party Transactions
On November 30, 2004, the Company acquired the 83.9% of the outstanding
equity interests of NTC Communications, LLC that it did not previously own
pursuant to an Interest Purchase Agreement dated November 30, 2004 with NTC
Communications, LLC and certain holders of NTC interests. Mr. French, Mr.
Morrison and an investment entity owned by members of the French family, owned
approximately 0.35%, 0.18% and 1.66%, respectively, of interests in NTC
Communications, LLC and were paid $34,577, $17,324, and $182,951, respectively,
for their interests.
Shareholder Return Performance Graph
The following graph and table show the cumulative total shareholder return
on the Company's common stock compared to the Nasdaq U.S. Index, the Nasdaq
Telecommunications Index and the S&P Integrated Telecommunications Services
Index for the periods between December 31, 1999 and December 31, 2004, which was
the last trading day in 2004. The S&P Integrated Telecommunications Services
Index is composed of the following public companies: Alltel Corporation; AT&T
Corporation; BellSouth Corporation; CenturyTel, Inc.; Qwest Communications
International Inc.; SBC Communications Inc.; Sprint FON Group; and, Verizon
Communications. This is the first year in which the Company is using the Nasdaq
Telecommunications Index. The Company has determined that, starting with the
proxy statement for the next annual meeting of shareholders, it will use the
Nasdaq Telecommunications Index instead of the S&P Integrated Telecommunications
Services Index. Unlike the S&P Integrated Telecommunications Services Index,
which consists solely of the eight large telecommunications companies named
above, the Nasdaq Telecommunications Index includes over 240 companies, which
represent a wider mix of telecommunications service and equipment providers and
also includes other Sprint affiliates and smaller carriers that offer similar
products and serve similar markets. The graph assumes $100 was invested on
December 31, 1999 in (1) the Company's common stock, (2) the Nasdaq U.S. Index
(3) the Nasdaq Telecommunications index and (4) the S&P Integrated
Telecommunications Services Index, and, that all dividends were reinvested and
market capitalization weighting as of December 31, 2000, 2001, 2002, 2003, and
2004.
19
Comparison of Cumulative Total Return
Among Shenandoah Telecommunications Company, Nasdaq U.S. Index,
Nasdaq Telecommunications and
S&P Integrated Telecommunications Services Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------------------------------------------
Shenandoah Telecommunications Company 100 97 121 152 163 192
Nasdaq U.S. Index 100 60 48 33 49 54
Nasdaq Telecommunications Index 100 43 28 13 22 23
S&P Integrated Telecommunication Services Index 100 64 58 41 41 46
------------------------------------------------------------------------------------------------------------------
20
PROPOSAL TO APPROVE 2005 SHENANDOAH
TELECOMMUNICATIONS COMPANY STOCK INCENTIVE PLAN
(Proposal 2)
The shareholders of the Company are asked to consider and vote on a
proposal to approve the 2005 Shenandoah Telecommunications Company Stock
Incentive Plan (the "2005 Plan") to comply with the shareholder approval
requirements of the Marketplace Rules of the NASD and so that awards granted
under the plan may qualify as "qualified performance-based compensation" under
Section 162(m) of the Internal Revenue Code and stock options granted under the
plan may qualify as incentive stock options under the Internal Revenue Code. The
2005 Plan was unanimously adopted by the board of directors on February 21,
2005, subject to the approval of shareholders. The 2005 Plan permits the grant
of options, stock appreciation rights ("SARs"), stock awards and performance
shares.
The Company currently has in effect the Stock Incentive Plan (the "1996
Plan") under which 480,000 shares may be issued upon the exercise of stock
options and stock appreciation rights and the grant of restricted stock. The
1996 Plan was approved by the Company's shareholders on April 16, 1996. As of
March 22, 2005, 56,737 shares remained available for grant under the 1996 Plan.
The term of the 1996 Plan will expire in February 2006.
The Board believes that the 2005 Plan will benefit the Company by (1)
assisting in recruiting and retaining the services of individuals with high
ability and initiative, (2) providing greater incentives for employees and other
individuals who provide valuable services to the Company and its subsidiaries
and (3) associating the interests of those persons with those of the Company and
its shareholders.
The following summary of the material provisions of the 2005 Plan is
qualified in its entirety by reference to the 2005 Plan, a copy of which is
attached to this proxy statement as Appendix A.
Administration
The 2005 Plan will be administered by the Personnel Committee of the board
of directors or another committee of the board appointed by the board (the
"Committee"). However, awards to non-employee directors are subject to final
approval by the board of directors. The Committee will have the authority to
select the individuals who will participate in the 2005 Plan ("Participants")
and to make awards upon such terms (not inconsistent with the terms of the 2005
Plan) as the Committee considers appropriate. The Committee will have complete
authority to interpret the provisions of the 2005 Plan, to prescribe the forms
of agreement evidencing awards and to make all determinations necessary or
advisable for the administration of the 2005 Plan.
The Committee may delegate its authority to administer the 2005 Plan to
one or more officers of the Company to the extent permitted by law. The
Committee may not delegate its authority to make awards, however, with respect
to individuals who are subject to Section 16 of the Securities Exchange Act of
1934. This summary uses the term "Administrator" to refer to the Committee and
any delegate of the Committee.
Share Authorization
A maximum of 480,000 shares may be issued under the 2005 Plan. If an
option, SAR, stock award or performance share award is terminated or forfeited,
the
21
number of shares subject to the termination or forfeiture shall be available for
other awards under the Plan. The shares shall be authorized, but unissued
shares.
The share authorization, the terms of outstanding awards and the
individual grant limitations will be proportionately adjusted as the
Administrator determines is appropriate if the Company has a stock split, stock
dividend, combination, undergoes a merger or reclassification of shares or
similar change in its capitalization as determined by the Administrator.
Eligibility
Any employee of the Company, any employee of any of its affiliates and any
person who provides services to the Company or an affiliate (including members
of the board of directors) are eligible to participate in the 2005 Plan. Because
the granting of future awards under the 2005 Plan is within the discretion of
the Administrator, the Company is not able to determine the nature or amounts of
awards that may be made to individuals who may participate in the 2005 Plan. In
2004, under the 1996 Plan, approximately 190 individuals were granted options
and related SARs for a total of 108,178 shares (including options and related
SARs for 1,798 shares to Christopher E. French, for 1,067 shares to David K.
MacDonald, for 1,089 shares to William L. Pirtle, and for 10,000 shares to Alan
R. Prusak, and 51,039 shares for all current executive officers as a group).
Non-executive directors and nominees were not eligible for awards under the 1996
Plan. As of the date of this proxy statement, ten executive officers, eight
non-employee directors and approximately 356 employees will be eligible to
participate in the 2005 Plan.
Nature of Awards
Options. Options granted under the 2005 Plan may be incentive stock
options ("ISOs") or nonqualified stock options. A stock option entitles the
holder to purchase shares of common stock from the Company at the option price.
The option price will be fixed by the Administrator on the date the option is
granted, but the price cannot be less than the fair market value of a share of
common stock on the date of grant. Except for adjustments related to stock
dividends, stock splits or similar events (as described below), the exercise
price of an outstanding option may not be reduced without shareholder approval.
The option will be exercisable at the times and subject to the conditions
prescribed by the Administrator. The option price may be paid in cash or, if
permitted by the terms of the option agreement, by the surrender of common
stock. The option term will be set by the Administrator, but may not exceed ten
years in the case of an ISO. The 2005 Plan provides that no Participant may be
granted options in any calendar year and the four preceding calendar years for
more than 75,000 shares.
The fair market value of the common stock with respect to any grant date
or other date of determination under the plan will be the closing price of a
share of common stock reported on any stock market on the most recent trading
date immediately preceding such grant date or other date of determination on
which a closing price was reported. For these purposes, a stock market means the
Nasdaq Stock Market, the OTC Bulletin Board and any established national or
regional stock exchange on which the Company's common stock is listed or
admitted to trading. The common stock is currently traded on the National Market
System of the Nasdaq Stock Market. If the shares of common stock are listed or
admitted to trading on more than one stock market, the fair market value of the
shares will be the closing price of a share reported on the stock market that
trades the largest volume of shares of common stock on the applicable trading
date. If the common stock is not at the time listed or admitted to trading on a
stock market, fair market value will be the mean between the lowest reported bid
price and highest reported
22
asked price of a share of common stock on the applicable trading date in the
over-the-counter market, as such prices are reported in publication of general
circulation selected by the board of directors and regularly reporting the
market price of the common stock in such market. If the common stock is not
listed or admitted to trading on any stock market or traded in the
over-the-counter market, fair market value will be determined in good faith by
the board of directors.
SARs. The 2005 Plan also permits the grant of SARs. A stock appreciation
right or SAR generally entitles the holder to receive a payment equal to the
excess, if any, of the fair market value of the common stock on the date of
exercise over the fair market value of the common stock on the date of grant.
The amount payable upon the exercise of an SAR may be settled in cash, with
shares of common stock or a combination of cash and common stock as the
Administrator determines in its discretion. SARs may be exercised at such times
and subject to such conditions as the Administrator may establish. The maximum
term of a SAR will be prescribed by the Administrator, except that the maximum
term of a SAR that is granted in conjunction with an ISO is ten years. SARs may
be granted alone or in conjunction with an option (in which case the exercise of
the option reduces the number of shares that remain subject to the SAR and vice
versa). The 2005 Plan provides that no Participant may be granted SARs in any
calendar year and the four preceding calendar years for more than 75,000 shares.
Stock Awards. The 2005 Plan permits the grant of stock awards. A "stock
award" is an award of common stock. Stock awards may be nontransferable or
subject to forfeiture, or both, unless and until conditions prescribed by the
Administrator are satisfied. The conditions may include, for example, a
requirement that the Participant complete a stated period of service or that
certain performance objectives be achieved. The objectives may be based on
performance goals that are stated with reference to the performance criteria
described below. The 2005 Plan provides that no Participant may receive stock
awards in any calendar year and the four preceding calendar years for more than
75,000 shares.
Performance Shares. The 2005 Plan permits the grant of performance shares.
A "performance share" is an award, stated in terms of a specified number of
shares of common stock, that is earned if conditions prescribed by the
Administrator are satisfied. The conditions may include, for example, a
requirement that the Participant complete a stated period of service or that
certain performance objectives be achieved. The objectives may be based on
performance goals that are stated with reference to the performance criteria
described below. Performance shares that are earned may be settled in cash, by
the issuance of a stock award or a combination of cash and a stock award. The
2005 Plan provides that no Participant may be granted performance shares in any
calendar year and the four preceding calendar years for more than 75,000 shares
of Common Stock.
Section 162(m) of the Internal Revenue Code
The 2005 Plan contains provisions required for awards under the plan to
qualify under the exception to Section 162(m) of the Internal Revenue Code for
"qualified performance-based compensation" if the requirements of the exception
are otherwise satisfied. Section 162(m) generally provides that no federal
income tax business expense deduction is allowed for annual compensation in
excess of $1 million paid by a publicly traded corporation to its chief
executive officer and the four other most highly compensated officers. However,
there is no limitation under the Internal Revenue Code on the deductibility of
"qualified performance-based compensation." To satisfy this definition:
23
o the compensation must be paid solely on account of the
attainment of one or more preestablished, objective
performance goals;
o the performance goal under which compensation is paid must be
established by a compensation committee composed solely of two
or more directors who qualify as "outside directors" for
purposes of the exception;
o the material terms under which the compensation is to be paid
must be disclosed to and subsequently approved by stockholders
of the corporation in a separate vote before payment is made;
and
o the compensation committee must certify in writing before
payment of the compensation that the performance goals and any
other material terms were satisfied.
In the case of compensation attributable to stock options, the performance
goal requirement is deemed satisfied, and the certification requirement is
inapplicable, if:
o the grant or award is made by the compensation
committee;
o the plan under which the option is granted states the
maximum number of shares with respect to which options
may be granted to an employee during a specified period;
and
o under the terms of the option, the amount of
compensation is based solely on an increase in the value
of the stock after the date of grant.
Under the Internal Revenue Code, a director is an "outside director" if
the director is not a current employee of the corporation, is not a former
employee who receives compensation for prior services (other than under a
qualified retirement plan), has not been an officer of the corporation, and does
not receive, directly or indirectly (including amounts paid to an entity that
employs the director or in which the director has at least a 5% ownership
interest), remuneration from the corporation in any capacity other than as a
director.
In the case of compensation attributable to other types of awards under
the 2005 Plan, the performance goal requirement is deemed satisfied if vesting
of such awards is subject to achievement of performance objectives based on
objective business criteria. The business criteria specified in the 2005 Plan
include the following: fair market value of the common stock; net income; sales;
revenue; revenue growth; bad debt; expenses; service measures (e.g., dropped
calls, trouble reports or churn); return on equity; earnings per share; total
earnings; earnings growth; and return on capital. Performance may be measured
with respect to either the Company as a whole or one or more subsidiaries,
operating units, divisions, departments or functions.
The Committee is authorized to determine the specific performance goals
that will apply and the manner in which such goals are calculated. The Committee
may grant awards with vesting based upon criteria other than those specified
above, but such awards would not qualify for the exclusion from the $1 million
limitation of deductible compensation under Section 162(m).
Transferability
24
Awards under the 2005 Plan are nontransferable other than by will or the
laws of descent and distribution.
Amendment and Termination
The board of directors may terminate or suspend the 2005 Plan, in whole or
in part, at any time. The board also may amend the 2005 Plan, but the amendment
must be approved by shareholders if the amendment (1) increases the number of
shares that may be issued under the 2005 Plan, (2) changes the class of
individuals who may participate in the 2005 Plan or (3) modifies the 2005 Plan
in any other way that would require shareholder approval under any rules of a
stock exchange on which the common stock is listed.
No awards may be granted under the 2005 Plan after February 21, 2015.
Awards made before that date (or before the earlier termination of the 2005
Plan) will remain valid in accordance with their terms. No amendment of the 2005
Plan may adversely affect a Participant's rights without the Participant's
consent.
25
Resales of Shares by Participants
Shares of common stock issued pursuant to the 2005 Plan will be eligible
for sale by the Participants in the public market without restriction under the
Securities Act of 1933, except that any shares purchased by an "affiliate" of
the Company (as that term is defined in Rule 144 under the Securities Act)
generally will be subject to the resale limitations of Rule 144.
A Participant that is an affiliate of the Company may sell in the public
market the shares issued to such participant only in accordance with the
limitations and conditions of Rule 144 other than the holding period condition.
In general, Rule 144 provides that any such person (or persons whose shares are
aggregated) is entitled to sell within any three-month period the number of
shares that does not exceed the greater of (1) 1% of the then-outstanding shares
of common stock and (2) the reported average weekly trading volume of the
then-outstanding shares of common stock during the four calendar weeks
immediately preceding the date on which a notice of sale is filed with the SEC.
Sales under Rule 144 by affiliates also are subject to certain provisions
relating to the manner and notice of sale and the availability of current public
information about the Company.
Federal Tax Consequences
Incentive Stock Options. The grant of an option will not be a taxable event for
the Participant or for the Company. A Participant will not recognize taxable
income upon exercise of an incentive stock option (except that the alternative
minimum tax may apply), and any gain realized upon a disposition of our shares
received pursuant to the exercise of an incentive stock option will be taxed as
long-term capital gain if the Participant holds the shares of shares for at
least two years after the date of grant and for one year after the date of
exercise (the "holding period requirement"). The Company will not be entitled to
any business expense deduction with respect to the exercise of an incentive
stock option, except as discussed below.
For the exercise of an option to qualify for the foregoing tax treatment,
the Participant generally must be an employee of the Company or an employee of a
subsidiary from the date the option is granted through a date within three
months before the date of exercise of the option.
If all of the foregoing requirements are met except the holding period
requirement mentioned above, the Participant will recognize ordinary income upon
the disposition of the shares in an amount generally equal to the excess of the
fair market value of the shares at the time the option was exercised over the
option exercise price (but not in excess of the gain realized on the sale). The
balance of the realized gain, if any, will be capital gain. The Company will be
allowed a business expense deduction to the extent the Participant recognizes
ordinary income, subject to its compliance with Section 162(m) of the Internal
Revenue Code and to certain reporting requirements.
Non-Qualified Options. The grant of an option will not be a taxable event for
the Participant or the Company. Upon exercising a non-qualified option, a
Participant will recognize ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the shares on the date
of exercise. Upon a subsequent sale or exchange of shares acquired pursuant to
the exercise of a non-qualified option, the Participant will have taxable
capital gain or loss, measured by the difference between the amount realized on
the disposition and the tax basis of the shares of shares (generally, the amount
paid for the shares plus the amount treated as ordinary income at the time the
option was exercised).
26
If the Company complies with applicable reporting requirements and with
the restrictions of Section 162(m) of the Internal Revenue Code, it will be
entitled to a business expense deduction in the same amount and generally at the
same time as the Participant recognizes ordinary income.
Stock Award. A Participant who is awarded a stock award will not recognize any
taxable income for federal income tax purposes in the year of the stock award,
provided that the shares of shares are subject to restrictions (that is, the
stock award is nontransferable and subject to a substantial risk of forfeiture).
However, the Participant may elect under Section 83(b) of the Internal Revenue
Code to recognize compensation income in the year of the award in an amount
equal to the fair market value of the shares on the date of the award (less the
purchase price, if any), determined without regard to the restrictions. If the
Participant does not make such a Section 83(b) election, the fair market value
of the shares on the date the restrictions lapse (less the purchase price, if
any) will be treated as compensation income to the Participant and will be
taxable in the year the restrictions lapse and dividends paid while the shares
is subject to restrictions will be subject to withholding taxes. If the Company
complies with applicable reporting requirements and with the restrictions of
Section 162(m) of the Internal Revenue Code, it will be entitled to a business
expense deduction in the same amount and generally at the same time as the
Participant recognizes ordinary income.
Performance Shares. There are no immediate tax consequences of receiving an
award of performance shares under the 2005 Plan. A Participant who is awarded
performance shares will be required to recognize ordinary income in an amount
equal to the fair market value of shares issued to such Participant at the end
of the restriction period or, if later, the payment date. If the Company
complies with applicable reporting requirements and with the restrictions of
Section 162(m) of the Internal Revenue Code, it will be entitled to a business
expense deduction in the same amount and generally at the same time as the
Participant recognizes ordinary income.
Stock Appreciation Rights. There are no immediate tax consequences of receiving
an award of stock appreciation rights under the 2005 Plan, as long as such award
complies with Section 409A of the Internal Revenue Code. Upon exercising a stock
appreciation right, a Participant will recognize ordinary income in an amount
equal to the difference between the exercise price and the fair market value of
the shares on the date of exercise. If the Company complies with applicable
reporting requirements and with the restrictions of Section 162(m) of the
Internal Revenue Code, it will be entitled to a business expense deduction in
the same amount and generally at the same time as the Participant recognizes
ordinary income.
Vote Required
For Virginia law purposes, the 2005 Plan will be approved if the number of
votes cast in favor of approval of the 2005 Plan exceed the number of votes cast
against approval of the 2005 Plan. Under the rules of the Nasdaq Stock Market,
on which the Company's common stock is listed, this proposal must be approved by
the holders of a majority of the votes cast.
The board of directors unanimously recommends that the shareholders of the
Company vote FOR approval of the 2005 Plan.
INDEPENDENT AUDITORS
27
The audit committee of the board of directors has appointed KPMG LLP as
the Company's independent auditors for the Company's fiscal year ending December
31, 2005.
Representatives of KPMG LLP are expected to attend the annual meeting, and
will have the opportunity to make a statement, if they so desire, and will be
available to respond to appropriate questions from shareholders.
KPMG LLP served as the Company's independent auditors for the Company's
fiscal years ended December 31, 2003 and 2004. The following sets forth the
aggregate fees billed by KPMG to the Company for those fiscal years.
2003 2004
-------- --------
Audit services ..................... $200,000 $440,000
Audit-related services ............. 13,100 13,400
Tax services ....................... 52,100 48,950
All other services ................. -- --
---------------------------
Total ..................... $265,200 $502,350
===========================
In making its appointment of KPMG LLP as the Company's independent
auditors for the Company's fiscal year ending December 31, 2005, the audit
committee considered whether KPMG LLP's provision of non-audit services is
compatible with maintaining KPMG LLP's independence.
Audit Fees
Audit services include services performed by KPMG LLP to comply with
generally accepted auditing standards related to the audit and review of the
Company's financial statements. The audit fees shown above for the 2003 and 2004
fiscal years were incurred principally for services rendered in connection with
the Company's consolidated and statutory audits, and in 2004 included KPMG LLP's
audit of internal controls over financial reporting.
Audit-Related Fees
Audit-related services include assurance and related services that are
traditionally performed by independent auditors. The audit-related fees shown
above for the 2003 and 2004 fiscal years were incurred in connection with audits
of the Company's employee benefit plans.
Tax Fees
Tax services include services performed by KPMG LLP's tax department,
except those services related to the audit. The tax fees shown above for the
2003 and 2004 fiscal years were incurred in connection with the preparation of
the Company's tax returns and corporate tax consultations.
All Other Fees
There were no other services provided by KPMG LLP which would be
classified as "all other fees" for the 2003 and 2004 fiscal years.
Pre-Approval of Audit and Permissible Non-Audit Services
28
The audit committee is responsible for appointing, setting compensation
for and overseeing the work of the independent auditor. The audit committee,
acting as a whole, pre-approves all audit and permissible non-audit services
provided by the independent auditor. For both types of pre-approval, the audit
committee considers whether such services are consistent with the rules of the
SEC on auditor independence.
Report of the Audit Committee
The audit committee reviews the Company's financial reporting process on
behalf of the board of directors. In fulfilling its responsibilities, the
committee has reviewed and discussed the audited financial statements contained
in the Company's Annual Report on SEC Form 10-K for the year ended December 31,
2004 with the Company's management and the independent auditors. Management is
responsible for the financial statements and the reporting process, including
the system of internal controls. The independent auditors are responsible for
expressing an opinion on the conformity of those audited financial statements
with accounting principles generally accepted in the United States.
The committee discussed with the independent auditors the matters required
to be discussed by the Nasdaq Stock Market, the Securities and Exchange
Commission, Statement on Auditing Standards No. 61, Communication with Audit
Committee, as amended by Statement on Auditing Standards No. 90, Audit Committee
Communications. In addition, the committee has received from the independent
auditors the written disclosures required by Independence Standards Board
Standard No. 1, Independence Discussions with the Audit Committees, and
discussed with the independent auditors the auditor's independence from the
Company and its management.
In reliance on the review and discussions referred to above, the committee
recommended to the board of directors, and the board of directors has approved,
the inclusion of the audited financial statements in the Company's Annual Report
on SEC Form 10-K for the year ended December 31, 2004, for filing with the
Securities and Exchange Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
Grover M. Holler, Jr., Chairman
Douglas C. Arthur
Dale S. Lam
James E. Zerkel II
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than 10% of
a registered class of the Company's equity securities to file with the SEC
initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of the Company. The reporting persons are required
by rules of the SEC to furnish the Company with copies of all Section 16(a)
reports they file. On April 2, 2004, Christopher E. French, David E. Ferguson,
David K. MacDonald, Laurence F. Paxton, and William L. Pirtle, all of whom are
executive officers, filed Form 4
29
reports to correct an inadvertent failure to timely report the grant of stock
options on March 3, 2004. On April 29, 2004, Zane Neff, a director, filed a Form
4 report to correct an inadvertent failure to timely report the sale of 820
shares of common stock on April 22, 2004. Based solely upon a review of Section
16(a) reports furnished to the Company for 2004 or written representations that
no other reports were required, the Company believes that, except for the
above-mentioned reports, the foregoing reporting persons complied with all
filing requirements for fiscal 2004.
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING IN 2006
Under SEC rules, in order for shareholder proposals to be presented at the
Company's annual meeting of shareholders in 2006, such proposals must be
received by the Secretary of the Company at the Company's principal office in
Edinburg, Virginia, no later than November 21, 2005. The submission by a
shareholder of a proposal for inclusion in the proxy statement is subject to
regulation by the SEC.
In addition, the Company's bylaws require that notice of proposals by
shareholders to be brought before any annual meeting generally must be delivered
to the Company not less than 120 days before the meeting. The notice under the
bylaws must include the following information: shall set forth as to each matter
the shareholder proposes to bring before the annual meeting: (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (b) the name and
record address of the shareholder proposing such business; (c) the class, series
and number of shares of the Company's stock that are beneficially owned by the
shareholder proposing such business; and (d) any material interest of the
shareholder in such business.
The provisions in the Company's bylaws concerning notice of proposals by
stockholders are not intended to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8
under the Securities Exchange Act of 1934.
OTHER MATTERS
The board of directors does not intend to present to the meeting any other
matters not referred to above and does not presently know of any matters that
may be presented to the meeting by others. If other matters are properly brought
before the meeting, the persons named in the enclosed proxy will vote on such
matters in their own discretion.
By Order of the Board of Directors,
/s/ Laurence F. Paxton
Laurence F. Paxton
Secretary
Dated: April 4, 2005
30
APPENDIX A
2005 SHENANDOAH TELECOMMUNICATIONS COMPANY
STOCK INCENTIVE PLAN
ARTICLE I.
DEFINITIONS
1.01. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company.
1.03. Agreement means a written agreement (including any amendment or supplement
thereto) between the Company and a Participant specifying the terms and
conditions of a Stock Award, an award of Performance Shares, an Option or a SAR
granted to such Participant.
1.04. Board means the Board of Directors of the Company.
1.05. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.06. Committee means the Personnel Committee of the Board, or such other
committee of the Board appointed by the Board to administer the Plan.
1.07. Common Stock means the common stock of the Company.
1.08. Company means Shenandoah Telecommunications Company.
1.09. Corresponding SAR means a SAR that is granted in relation to a particular
Option and that can be exercised only upon the surrender to the Company,
unexercised, of that portion of the Option to which the SAR relates.
1.10. Fair Market Value means, on any given date, the closing price of a share
of Stock of Common Stock reported on the Stock Exchange on the most recent
trading date immediately preceding such date of determination on which a closing
price was so reported. Notwithstanding the foregoing, in the event that the
shares of Common Stock are listed or admitted to trading on more than one Stock
Exchange, Fair Market Value means the closing price of a share of Common Stock
reported on the Stock Exchange that trades the largest volume of shares of
Common Stock on the applicable trading date. If the Common Stock is not at the
time listed or admitted to trading on a Stock Exchange, Fair Market Value means
the mean between the lowest reported bid price and highest reported asked price
of a share of Common Stock on the applicable trading date in the
over-the-counter market, as such prices are reported in a publication of general
circulation selected by the Board and regularly reporting the market price of
the Common Stock in such market. If the Common Stock is not listed or admitted
to trading on any Stock Exchange or traded in the over-the-counter market, Fair
market Value shall be determined by the Administrator using any reasonable
method in good faith.
1.11. Initial Value means, with respect to a SAR, the Fair Market Value of one
share of Common Stock on the date of grant.
1.12. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock at the price set forth in an
Agreement.
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1.13. Participant means an employee of the Company or an Affiliate, a member of
the Board, or an individual who provides services to the Company or an Affiliate
and who satisfies the requirements of Article IV and is selected by the
Administrator to receive a Stock Award, an award of Performance Shares, an
Option, a SAR, or a combination thereof.
1.14. Performance Criteria means performance goals established by the
Administrator including but not limited to one or more of the following: net
income, return on equity, earnings per share, total earnings, earnings growth,
sales, revenue, revenue growth, return on capital, return on assets, bad debt,
expenses, service measures (e.g., dropped calls, trouble reports or churn) or
Fair Market Value in each case relating to the Company or, as applicable, an
Affiliate or operating unit.
1.15. Performance Shares means an award that, in accordance with and subject to
the terms of an Agreement, will entitle the Participant (or his estate or
beneficiary in the event of the Participant's death), to receive cash or Common
Stock or a combination thereof.
1.16. Plan means the 2005 Shenandoah Telecommunications Company Stock Incentive
Plan.
1.17. SAR means a stock appreciation right that entitles the holder to receive,
with respect to each share of Common Stock encompassed by the exercise of such
SAR, the amount determined by the Administrator and specified in an Agreement.
In the absence of such a determination, the holder shall be entitled to receive,
with respect to each share of Common Stock encompassed by the exercise of such
SAR, the excess of the Fair Market Value on the date of exercise over the
Initial Value. References to "SARs" include both Corresponding SARs and SARs
granted independently of Options, unless the context requires otherwise.
1.18. Stock Award means Common Stock awarded to a Participant under Article IX.
1.19. Stock Exchange means the NASDAQ Stock market, Inc, the OTC Bulletin Board
and any established national or regional stock exchange on which the Common
Stock is listed or admitted to trading.
1.20. Ten Percent Shareholder means any individual owning more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an Affiliate. An individual shall be considered to own any voting stock
owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
ARTICLE II.
PURPOSES
The Plan is intended to assist the Company and its Affiliates in recruiting and
retaining individuals with ability and initiative by enabling such persons to
participate in its future success and to associate their interests with those of
the Company and its shareholders. The Plan is intended to permit the grant of
Stock Awards, the grant of Performance Shares, the grant of SARs, and the grant
of both Options qualifying under Section 422 of the Code ("incentive stock
options") and Options not so qualifying. No Option that is intended to be an
incentive stock option shall be invalid for failure to qualify as an incentive
stock option. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.
ARTICLE III.
ADMINISTRATION
The Plan shall be administered by the Administrator; provided, however, that
each award made to a member of the Board who is not also an employee of the
Company or an Affiliate shall be subject to final
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approval by the Board. The Administrator shall have authority to grant Stock
Awards, Performance Shares, Options and SARs upon such terms (not inconsistent
with the provisions of this Plan) as the Administrator may consider appropriate.
Such terms may include conditions (in addition to those contained in this Plan)
on the exercisability of all or any part of an Option or SAR or on the
transferability or forfeitability of a Stock Award or a Performance Share.
Notwithstanding any such conditions, the Administrator may, in its discretion,
accelerate the time at which any Option or SAR may be exercised, the time at
which a Stock Award may become transferable or nonforfeitable, or the time at
which an award of Performance Shares may be settled. In addition, the
Administrator shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this Plan.
The express grant in the Plan of any specific power to the Administrator shall
not be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator in connection with the
administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement, Option, SAR, Stock
Award or Performance Share. All expenses of administering this Plan shall be
borne by the Company.
The Committee, in its discretion, may delegate to one or more officers of the
Company, all or part of the Committee's authority and duties with respect to
grants and awards to individuals who are not subject to the reporting and other
provisions of Section 16 of the Securities Exchange Act of 1934, as in effect
from time to time. The Committee may revoke or amend the terms of a delegation
at any time but such action shall not invalidate any prior actions of the
Committee's delegate or delegates that were consistent with the terms of the
Plan.
ARTICLE IV.
ELIGIBILITY
4.01. General. Any employee of the Company or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of this Plan), a member
of the Board or an individual who provides services to the Company or an
Affiliate (including a corporation that becomes an Affiliate after the adoption
of this Plan), is eligible to participate in this Plan. The Administrator will
select the individuals who will participate in this Plan.
4.02. Grants. The Administrator will designate individuals to whom Stock Awards
and Performance Shares are to be awarded and to whom Options and SARs are to be
granted and will specify the number of shares of Common Stock subject to each
award or grant. An Option may be granted with or without a related SAR. A SAR
may be granted with or without a related Option. All Stock Awards, Performance
Shares, Options and SARs granted under this Plan shall be evidenced by
Agreements which shall be subject to the applicable provisions of this Plan and
to such other provisions as the Administrator may adopt. No Participant may be
granted incentive stock options or related SARs (under all incentive stock
option plans of the Company and its Affiliates) that are first exercisable in
any calendar year for stock having an aggregate Fair Market Value (determined as
of the date an Option is granted) that exceeds $100,000. The preceding annual
limitation shall not apply with respect to Options that are not incentive stock
options.
ARTICLE V.
STOCK SUBJECT TO PLAN
5.01. Aggregate Limit. Upon the grant of Stock Awards and the settlement of
Performance Shares, the Company may issue shares of Common Stock from its
authorized but unissued Common Stock. Upon the exercise of any Option or SAR,
the Company may deliver to the Participant (or the Participant's broker if the
Participant so directs), shares of Common Stock from its authorized but unissued
Common Stock. The maximum aggregate number of shares of Common Stock that may be
issued pursuant to the exercise of Options and SARs, the settlement of
Performance Shares and the grant of Stock Awards under this Plan is 480,000
shares. The maximum aggregate number of shares of Common Stock that may be
issued under
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this Plan shall be subject to adjustment as provided in Article XI. If an option
is terminated, in whole or in part, for any reason other than its exercise or
the exercise of a Corresponding SAR, the number of shares of Common Stock
allocated to the terminated portion of the Option may be reallocated to other
Options, SARs, Performances Shares and Stock Awards to be granted under this
Plan. If a SAR is terminated, in whole or in part, for any reason other than its
exercise or the exercise of a related Option, the number of shares of Common
Stock allocated to the terminated portion of the SAR may be reallocated to other
Options, SARs, Performance Shares and Stock Awards to be granted under this
Plan. If a Stock Award is terminated, in whole or in part, the number of shares
of Common Stock allocated to the terminated portion of the Stock Award may be
reallocated to other Options, SARs, Performance Shares and Stock Awards to be
granted under this Plan. If a Performance Share award is terminated, in whole or
in part, the number of shares of Common Stock allocated to the terminated
portion of the Performance Share award may be reallocated to other Options,
SARs, Performance Shares and Stock Awards to be granted under this Plan.
5.02. Individual Limits. No Participant may be granted Options in any five
calendar year period for more than 75,000 shares of Common Stock. No Participant
may be granted SARs in any five calendar year period for more than 75,000 shares
of Common Stock. No Participant may be granted Stock Awards or Performance
Shares in any five calendar year for more than 75,000 shares of Common Stock.
These limits on the number of shares of Common Stock that may be issued to an
individual under this Plan shall be subject to adjustment as provided in Article
XI.
ARTICLE VI.
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an Option
shall be determined by the Administrator on the date of grant; provided,
however, that the price per share for Common Stock purchased on the exercise of
any Option shall not be less than the Fair Market Value on the date the Option
is granted and provided further that the price per share shall not be less than
110% of such Fair Market Value in the case of an incentive stock option granted
to a Participant who is a Ten Percent Shareholder on the date such incentive
stock option is granted. The exercise price per share of an outstanding Option
may not be reduced except in accordance with Article XI.
ARTICLE VII.
EXERCISE OF OPTIONS AND SARS
7.01. Maximum Option or SAR Period. The maximum period in which an option or SAR
may be exercised shall be determined by the Administrator on the date of grant,
except that no Option that is an incentive stock option or its Corresponding SAR
shall be exercisable after the expiration of ten years from the date such Option
or Corresponding SAR was granted. In the case of an incentive stock option or
its Corresponding SAR that is granted to a Participant who is a Ten Percent
Shareholder on the date of grant, such Option and Corresponding SAR shall not be
exercisable after the expiration of five years from the date of grant. The terms
of any Option that is an incentive stock option or Corresponding SAR may provide
that it is exercisable for a period less than such maximum period.
7.02. Nontransferability. Any Option or SAR granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option and any Corresponding SAR must be
transferred to the same person or persons. During the lifetime of the
Participant to whom the Option or SAR is granted, the Option or SAR may be
exercised only by the Participant. No right or interest of a Participant in any
Option or SAR shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
7.03. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive stock options), or in the event that the
terms of any Option or SAR provide that it may be exercised only during
employment or continued service or within a specified period of time after
termination of employment or service, the Administrator may decide to what
extent leaves of absence for
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governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment or service.
ARTICLE VIII.
METHOD OF EXERCISE
8.01. Exercise. Subject to the provisions of Articles VII and XII, an Option or
SAR may be exercised in whole at any time or in part from time to time at such
times and in compliance with such requirements as the Administrator shall
determine; provided, however, that a Corresponding SAR that is related to an
incentive stock option may be exercised only to the extent that the related
Option is exercisable. An Option or SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the Option or SAR could be exercised. A partial exercise of an Option or SAR
shall not affect the right to exercise the Option or SAR from time to time in
accordance with this Plan and the applicable Agreement with respect to the
remaining shares subject to the Option or related to the SAR. The exercise of
either an Option or Corresponding SAR shall result in termination of the other
to the extent of the number of shares with respect to which the Option or
Corresponding SAR is exercised.
8.02. Payment and Withholding. Unless otherwise provided by the Agreement,
payment of the Option price shall be made in cash or a cash equivalent
acceptable to the Administrator. If the Agreement provides, payment of all or
part of the Option price may be made by surrendering shares of Common Stock to
the Company. If Common Stock is used to pay all or part of the Option price, the
cash, cash equivalent and any shares surrendered must have a Fair Market Value
(determined as of the day preceding the date of exercise) that is not less than
the Option price for the number of shares the Option is being exercised. The
Agreement may specify the manner in which the withholding obligation shall be
satisfied with respect to the particular type of Award.
8.03. Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR.
At the Administrator's discretion, the amount payable as a result of the
exercise of a SAR may be settled in cash, Common Stock, or a combination of cash
and Common Stock. No fractional share shall be deliverable upon the exercise of
a SAR but a cash payment will be made in lieu thereof.
8.04. Shareholder Rights. No Participant shall have any rights as a stockholder
with respect to shares subject to his Option or SAR until the date of exercise
of such Option or SAR.
ARTICLE IX.
STOCK AWARDS
9.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom a Stock Award is to be made and will
specify the number of shares of Common Stock covered by the award.
9.02. Vesting. The Administrator, on the date of the award, may, but shall not
be required to, prescribe that a Participant's rights in the Stock Award shall
be forfeitable or otherwise restricted for a period of time set forth in the
Agreement. By way of example and not of limitation, the restrictions may
postpone transferability of the shares or may provide that the shares will be
forfeited if the Participant separates from the service of the Company and its
Affiliates before the expiration of a stated term or if the Company, an
Affiliate, an operating unit or the Participant fails to achieve stated
objectives, including objectives stated with respect to Performance Criteria. If
the vesting or transferability of a Stock Award is conditioned upon the
achievement of objectives stated with respect to Performance Criteria, the Stock
Award shall become vested, transferable or both only if the Committee determines
that such objectives have been achieved.
9.03. Shareholder Rights. Prior to their forfeiture (in accordance with the
terms of the Agreement and while the shares are forfeitable or nontransferable),
a Participant will have all rights of a shareholder with respect to the Stock
Award, including the right to receive dividends and vote the shares; provided,
however,
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that while the shares are forfeitable or nontransferable (i)i a Participant may
not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the
Stock Award, (ii)ii the Company shall retain custody of the certificates
evidencing the Stock Award, and (iii)iii the Participant will deliver to the
Company a stock power, endorsed in blank, with respect to each Stock Award. The
limitations set forth in the preceding sentence shall not apply after the shares
are nonforfeitable and transferable.
9.04. Employee Status. If the terms of a Stock Award provide that the Stock
Award will become nonforfeitable, transferable or both only if the Participant
completes a stated period of employment or continued service, the Administrator
may decide to what extent leaves of absence for governmental or military
service, illness, temporary disability or other reasons shall not be deemed
interruptions of continuous employment or service.
ARTICLE X.
PERFORMANCE SHARE AWARDS
10.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate individual to whom an award of Performance Shares is to be
granted and will specify the number of shares of Common Stock covered by the
award.
10.02. Earning the Award. The Administrator, on the date of the grant of an
award, may prescribe that the Performance Shares, or portion thereof, will be
earned, and the Participant will be entitled to receive payment pursuant to the
award of Performance Shares, only upon satisfaction of criteria stated with
respect to Performance Criteria or such other criteria as may be prescribed by
the Administrator. With respect to Performance Shares that are earned based upon
the achievement of objectives stated with respect to Performance Criteria, a
payment will be made pursuant to such Performance Shares only to the extent that
the Committee determines that such performance objectives have been achieved.
10.03. Payment. In accordance with the Agreement, the amount payable when an
award of Performance Shares is earned may be settled in cash, a Stock Award or a
combination of cash and a Stock Award. A fractional share shall not be
deliverable when an award of Performance Share is earned, but a cash payment
will be made in lieu thereof.
10.04. Shareholder Rights. No Participant shall, as a result of receiving an
award of Performance Shares, have any rights as a shareholder until and to the
extent that the Performance Shares are earned and settled with a Stock Award. To
the extent that an award of Performance Shares is earned and settled with a
Stock Award, a Participant will have all the rights of a shareholder with
respect to those shares.
10.05. Nontransferability. A Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of a Performance Share award or the
right to receive a payment thereunder other than by will or the laws of descent
and distribution.
10.06. Employee Status. If the terms of a Performance Share award provide that a
payment will be made thereunder only if the Participant completes a stated
period of employment or continued service, the Administrator may decide to what
extent leaves of absence for governmental or military service, illness,
temporary disability or other reasons shall not be deemed interruptions of
continuous employment or service.
ARTICLE XI.
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares (as set forth in Section 5.01 and 5.02) as to which
Stock Awards may be granted and as to which Options, SARs and Performance Shares
may be granted under this Plan shall be proportionately adjusted, and the terms
of outstanding Stock Awards, Performance Shares, Options and SARs shall be
adjusted, as the Committee shall determine to be equitably required in the event
that (a) the
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Company (i)i effects one or more stock dividends, stock split-ups, subdivisions
or consolidations of shares or (ii)ii engages in a transaction to which Section
424 of the Code applies or (b) there occurs any other event (e.g. extraordinary
cash dividend or other distribution) that, in the judgment of the Committee,
necessitates such action. Any determination made under this Article XI by the
Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, outstanding
Stock Awards, Performance Shares, Options or SARs.
The Committee may award Stock Awards, Performance Shares, Options or SARs in
substitution for stock awards, stock options, stock appreciation rights, or
similar awards held by an individual who is or becomes an employee of the
Company or an Affiliate in connection with a transaction described in the first
paragraph of this Article XI. Notwithstanding any provision of the Plan (other
than the limitation of Section 5.01), the terms of such substituted Stock
Awards, Performance Shares, Options or SARs shall be as the Committee, in its
discretion, determines is appropriate.
ARTICLE XII.
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which the Company is a party, and the
rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock for
which Stock Awards are granted (including the settlement of Performance Shares)
or for which an Option or SAR is exercised may bear such legends and statements
as the Administrator may deem advisable to assure compliance with federal and
state laws and regulations. No Option or SAR shall be exercisable, no Stock
Awards or Performance Shares shall be granted, no Common Stock shall be issued,
no certificate for shares shall be delivered, and no payment shall be made under
this Plan until the Company has obtained such consent or approval as the
Administrator may deem advisable from regulatory bodies having jurisdiction over
such matters.
ARTICLE XIII.
GENERAL PROVISIONS
13.01. Effect on Employment. Neither the adoption of this Plan, its operation,
nor any document describing or referring to this Plan (or any part thereof)
shall confer upon any individual any right to continue in the employ or service
of the Company or an Affiliate or in any way affect any right and power of
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the Company or an Affiliate to terminate the employment or service of any
individual at any time with or without assigning a reason therefor.
13.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
13.03. Disposition of Stock. A Participant shall notify the Administrator of any
sale or other disposition of Common Stock acquired pursuant to an Option that
was an incentive stock option if such sale or disposition occurs (i)i within two
years of the grant of an Option or (ii)ii within one year of the issuance of the
Common Stock to the Participant. Such notice shall be in writing and directed to
the Secretary of the Company.
13.04. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or success of such provision of law.
13.05. Section 409A Compliance. To the extent that the Administrator determines
that a Participant would be subject to the additional 20% tax imposed on certain
deferred compensation arrangements pursuant to Section 409A of the Internal
Revenue Code of 1986, as amended (the "Code"), as a result of any provision of
any Stock Award, Performance Share Award, SAR or Option granted under this Plan,
such provision shall be deemed amended to the minimum extent necessary to avoid
application of such additional tax. If an amendment to an Option granted in
tandem with a SAR is required by reason of the previous sentence and unless the
Administrator determines that such an amendment is not practical, the amendment
shall be to treat the SAR as if had never been granted.
ARTICLE XIV.
AMENDMENT
The Board may amend or terminate this Plan from time to time; provided, however,
that no amendment may become effective until shareholder approval is obtained if
(i)i the amendment increases the aggregate number of shares of Common Stock that
may be issued under the Plan, (ii)ii the amendment changes the class of
individuals eligible to become Participants, or (iii)iii the amendment must be
approved by shareholders under the rules of a stock exchange on which the Common
Stock is listed. No amendment shall, without a Participant's consent, adversely
affect any rights of such Participant under any outstanding Stock Award,
Incentive Award, Performance Share, Option or SAR outstanding at the time such
amendment is made.
ARTICLE XV.
DURATION OF PLAN
No Stock Awards, Options, SARs or Performance Shares may be granted under this
Plan more than ten years after the earlier of the date that the Plan is adopted
by the Board or the date that the Plan is approved by shareholders as provided
in Article XVI. Stock Awards, Performance Shares, Options and SARs granted
before that date shall remain invalid in accordance with their terms.
ARTICLE XVI.
EFFECTIVE DATE OF PLAN
Stock Awards, Options, SARs and Performance Shares may be granted under this
Plan upon its adoption by the Board, provided that no Stock Award, Option, SAR
or Performance Share will be effective unless this Plan is approved by a
majority of the votes entitled to be cast by the Company's shareholders, voting
either in person or by proxy, at a duly held shareholders' meeting within twelve
months of such adoption.
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Shenandoah Telecommunications Company PROXY
500 Shentel Way
Edinburg, VA 22824 This proxy is solicited on behalf of the Board of Directors
- ---------------------------------------------------
The undersigned hereby appoints Noel M. Borden, Christopher E. French, and
Grover M. Holler, Jr., and each of them, as Proxies with full power of
substitution, to vote all common stock of Shenandoah Telecommunications Company
held of record by the undersigned as of March 22, 2005, at the Annual Meeting of
Shareholders to be held on May 3, 2005, and at any and all adjournments and
postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE THREE DIRECTORS
AND FOR THE APPROVAL OF THE 2005 SHENANDOAH TELECOMMUNICATIONS COMPANY STOCK
INCENTIVE PLAN.
1. Election of Directors [Vote for three]
|_| FOR ELECTION AS A DIRECTOR
Douglas C. Arthur, Tracy Fitzsimmons, and William A. Truban, Jr.
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name listed above.
|_| Withhold authority to vote for all nominees listed above.
2. Approval of 2005 Shenandoah Telecommunications Company Stock Incentive
Plan
|_| FOR APPROVAL |_| AGAINST APPROVAL |_| ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES AND FOR APPROVAL OF THE 2005 SHENANDOAH
TELECOMMUNICATIONS COMPANY STOCK INCENTIVE PLAN.
Please mark, sign exactly as name appears below, date, and return this proxy
card promptly, using the enclosed envelope, whether or not you plan to attend
the meeting.
- --------------------------------------------------------------------------------
When signing as attorney, executor,
administrator, trustee, guardian, or agent,
please give full title as such. If a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated ____________________, 2005
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SIGNATURE
______I plan to attend the meeting
______Number of persons attending
--------------------------------------------
ADDITIONAL SIGNATURE (if held jointly)
______I cannot attend the meeting