SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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|_| Preliminary Proxy Statement |_| Soliciting Material Under Rule
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Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
SHENANDOAH TELECOMMUNICATIONS COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
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SHENANDOAH TELECOMMUNICATIONS COMPANY
124 SOUTH MAIN STREET
EDINBURG, VIRGINIA 22824
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 20, 2004
To our shareholders:
Notice is hereby given that the 2004 annual meeting of shareholders of
Shenandoah Telecommunications Company will be held in the auditorium of the
Company's offices at 500 Mill Road, Edinburg, Virginia, on Tuesday, April 20,
2004, at 11:00 a.m., local time, for the following purposes:
1. to elect three directors to serve until the annual meeting of
shareholders in 2007; and
2. 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 19, 2004
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,
Laurence F. Paxton
Secretary
Dated: March 22, 2004
SHENANDOAH TELECOMMUNICATIONS COMPANY
124 SOUTH MAIN STREET
EDINBURG, VIRGINIA 22824
ANNUAL MEETING OF SHAREHOLDERS
APRIL 20, 2004
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 2004 annual meeting of
shareholders to be held in the auditorium of the Company's offices at 500 Mill
Road, Edinburg, Virginia, on Tuesday, April 20, 2004, 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 124 South Main Street, 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 March 22, 2004.
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. 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, 124 South
Main Street, 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 19, 2004 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 19, 2004, there were 7,604,257 shares of common
stock outstanding.
The holders of 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.
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
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non-vote will not affect whether the proposal to be acted upon at the annual
meeting is approved.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's annual report to shareholders for 2003 accompanies
this proxy statement. The Company is required to file an annual report on Form
10-K for 2003 with the SEC. Shareholders may obtain, free of charge, a copy of
the 2003 Form 10-K, without exhibits, by writing to Shenandoah
Telecommunications Company, 124 South Main Street, P.O. Box 459, Edinburg,
Virginia 22824, Attention: Secretary. The annual report on Form 10-K is also
available through the Company's web site 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, we will send a copy to you if you address
your written request to or call Shenandoah Telecommunications Company, 124 South
Main Street, 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.
SECURITY OWNERSHIP
The following table presents, as of February 1, 2004, 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.
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As of February 1, 2004, there were 7,599,924 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.
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED CLASS
------------------------ ------------ ----------
Douglas C. Arthur .................................... 3,224 *
Noel M. Borden ....................................... 33,512 *
Dick D. Bowman........................................ 93,128 1.23
Ken L. Burch ......................................... 90,294 1.19
Christopher E. French ................................ 594,327 7.82
Grover M. Holler, Jr. ................................ 141,472 1.86
Harold Morrison, Jr. ................................. 39,656 *
Zane Neff ............................................ 16,052 *
James E. Zerkel II ................................... 8,996 *
Earle A. MacKenzie ................................... 5,123 *
David E. Ferguson .................................... 6,741 *
David K. MacDonald ................................... 2,722 *
William L. Pirtle .................................... 4,796 *
All directors and executive officers as a
group (14 persons) ............................... 1,045,374 13.74
-----------------
*Less than 1%.
The percentage of beneficial ownership as to any person as of February 1,
2004 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 February 1, 2004 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
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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. Bowman
include 47,224 shares of common stock owned of record by his spouse. Mr. Bowman
disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. Burch
include 190 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 9,146 shares of common stock owned of record by his spouse, 160,316
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, 372,000 shares
owned of record by a limited liability corporation of which Mr. French is the
managing director, and options exercisable within 60 days of February 1, 2004 to
purchase 3,123 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, 124 South Main Street, 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. MacKenzie
include 1,612 shares of common stock owned of record by his spouse. Mr.
MacKenzie disclaims beneficial ownership of such shares.
The shares of common stock shown as beneficially owned by Mr. Ferguson
include options exercisable within 60 days of February 1, 2004 to purchase 2,159
shares of common stock.
The shares of common stock shown as beneficially owned by Mr. MacDonald
include options exercisable within 60 days of February 1, 2004 to purchase 1,744
shares of common stock.
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The shares of common stock shown as beneficially owned by Mr. Pirtle
include options exercisable within 60 days of February 1, 2004 to purchase 2,042
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
February 1, 2004 to purchase 10,639 shares of common stock.
ELECTION OF DIRECTORS
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 2005 and at the annual meeting of shareholders in
2006, 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.
Christopher E. French, Dale S. Lam and James E. Zerkel II have been
nominated for election to the class with a three-year term that will expire at
the annual meeting of shareholders in 2007. Both Mr. French and Mr. Zerkel are
incumbent directors. Mr. French has served on the board of directors since 1996.
Mr. Zerkel has served on the board of directors since 1985.
Mr. Lam is a nominee to replace the vacancy created by the retirement of
Dick D. Bowman as a director. Mr. Bowman, whose term of office will expire at
the 2004 annual meeting, is not eligible to stand for re-election as a director
due to the Board's mandatory retirement policy. Mr. Lam was nominated for
election by the board of directors and recommended for nomination by Mr. Borden,
Mr. Bowman, Mr. French and Mr. Holler.
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.
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INFORMATION ABOUT NOMINEES AND CONTINUING DIRECTORS
Biographical information concerning each of the nominees and each of the
directors continuing in office is presented below.
NOMINEES FOR ELECTION FOR THREE-YEAR TERM EXPIRING IN 2007
DIRECTOR
NAME AGE SINCE
---- --- --------
Christopher E. French 46 1996
Dale S. Lam 41 New nominee
James E. Zerkel II 59 1985
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.
DIRECTORS WHOSE TERMS EXPIRE IN 2005
DIRECTOR
NAME AGE SINCE
---- --- --------
Douglas C. Arthur 61 1997
Harold Morrison, Jr. 74 1979
Zane Neff 75 1976
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.
Harold Morrison, Jr. has served as Chairman of the Board of Woodstock
Garage, Inc., since 1993, an auto sales and repair firm located in Woodstock,
Virginia.
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Zane Neff is retired. Prior to his retirement in 1998, Mr. Neff served as
Manager of Hugh Saum Company, Inc., a hardware and furniture store located in
Edinburg, Virginia.
DIRECTORS WHOSE TERMS EXPIRE IN 2006
DIRECTOR
NAME AGE SINCE
---- --- --------
Noel M. Borden 67 1972
Ken L. Burch 59 1995
Grover M. Holler, Jr. 83 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 been President of Valley View, Inc., a real
estate development company in Shenandoah County, Virginia, since 1964.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has determined that each of the following incumbent
directors and the director nominee 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
Grover M. Holler, Jr.
Dale S. Lam (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, 124
South Main Street, 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.
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The board of directors held 14 meetings during 2003. During 2003, 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.
Of the Company's nine directors, eight attended the Company's annual
meeting of shareholders in 2003. 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 nominating committee, and a standing personnel committee.
The audit committee, which held five meetings during 2003, consists of Mr.
Holler, who is the Chairman, Mr. Arthur and Mr. Zerkel. The board of directors
intends to appoint Mr. Lam to the audit committee at the time of his proposed
election to the board of directors at the annual meeting. The board of directors
has determined that each current audit committee member meets, and that Mr. Lam
upon his appointment to the audit committee will meet, the independence
requirements applicable to audit committee members under the Marketplace Rules
of the NASD and rules of the SEC. None of the current committee members is an
"audit committee financial expert" as such term is defined in Item 401(h) of
Regulation S-K promulgated by the SEC. The board of directors has determined
that Mr. Lam will qualify as an audit committee financial expert upon his
appointment to the audit committee and will be 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 attached to this proxy statement as
Appendix A and is available on the Company's website at www.shentel.com.
The personnel committee, which held two meetings during 2003, consists of
Mr. Borden, who is 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 recommendation and determination of the
compensation of the Chief Executive Officer and the Company's other executive
officers is exclusively the responsibility of those
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directors who meet the independence requirements prescribed by the Marketplace
Rules of the NASD.
The nominating committee, which was formed by the board of directors on
February 9, 2004, consists of Douglas C. Arthur, 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
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
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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, 124 South Main Street, 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 $800
per month and a cash fee of $800 per each Board of Directors meeting attended.
The Company pays its non-employee directors these fees in arrears on a monthly
basis.
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EXECUTIVE COMPENSATION
The following table shows information about the compensation paid to the
Company's Chief Executive Officer, who is the President, and to each of the
Company's other executive officers for fiscal 2003. The officers listed in the
table are referred to in this proxy statement as the "named executive officers."
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
------------------------ --------------
SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) (2) ($) (3)
-------------------------------------- ------ ---------- --------- --------------- ------------
Christopher E. French................. 2003 223,572 39,610 1,628 9,462
President 2002 200,873 34,419 1,494 10,554
2001 183,792 23,481 1,230 9,444
Earle A. MacKenzie (4) ............... 2003 200,941 14,602 20,000 3,136
Executive Vice President 2002 -- -- -- --
and Chief Financial Officer 2001 -- -- -- --
David E. Ferguson..................... 2003 135,399 15,440 1,016 10,706
Vice President, Customer Services 2002 126,493 13,728 958 9,884
2001 118,938 8,599 868 8,017
David K. MacDonald ................... 2003 131,317 16,006 972 8,826
Vice President, Engineering & 2002 118,064 13,957 856 8,091
Construction 2001 104,031 9,539 682 6,938
William L. Pirtle..................... 2003 133,812 15,917 994 8,564
Vice President, Sales 2002 121,823 13,568 928 7,870
2001 114,144 8,615 796 7,065
---------------------------------------
(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) and Flexible Benefits Plans,
each of which is available to all regular Company employees. The amounts
include the following: (a) for Mr. French, $4,584 in 2003, $6,052 in 2002
and $5,580 in 2001 in matching contributions to the Company's 401(k) Plan;
and $4,878 in 2003, $4,502 in 2002 and $3,864 in 2001 in employer
contributions to the Company's Flexible Benefits Plan; (b) for Mr.
MacKenzie, $3,136 in employer contributions to the Company's Flexible
Benefits Plan in 2003; (c) for Mr. Ferguson, $4,165 in 2003, $3,812 in 2002
and $3,589 in 2001 in matching contributions to the Company's 401(k) Plan;
and $6,540 in 2003, $6,072 in 2002 and $4,428 in 2001 in employer
contributions to the Company's Flexible Benefits Plan; (d) for Mr.
MacDonald, $4,002 in 2003, $3,646 in 2002 and $3,210 in 2001 in matching
contributions to the Company's 401(k) Plan; and $4,824 in 2003, $4,445 in
2002 and $3,728 in 2001 in employer contributions to the Company's Flexible
Benefits Plan; and for Mr. Pirtle, $4,081 in 2003, $3,727 in 2002 and
$3,478 in 2001 in
12
matching contributions to the Company's 401(k) Plan; and $4,483 in 2003,
$4,143 in 2002 and $3,586 in 2001 in employer contributions to the
Company's Flexible Benefits Plan.
(4) Mr. MacKenzie was appointed as Executive Vice President and Chief Financial
Officer on June 2, 2003. He received a one-time signing bonus and
relocation assistance payment of $100,000, which is included in the
"Salary" column above.
STOCK OPTION GRANTS IN 2003
The following table sets forth information concerning all stock options
granted in 2003 to the named executive officers.
INDIVIDUAL GRANTS
-------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
NUMBER TOTAL ANNUAL RATES OF STOCK
OF SHARES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM (4)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED (1) IN FISCAL YEAR ($/SHARE) DATE 5% (5) 10% (5)
------------------------- ------------ --------------- ------------ ----------- ---------- ----------
Christopher E. French .. 1,628 (2) 2.2% $17.98 2/10/2008 $8,083 17,867
Earle A. MacKenzie ..... 20,000 (3) 26.5% 22.01 6/02/2013 121,619 268,747
David E. Ferguson ...... 1,016 (2) 1.3% 17.98 2/10/2008 5,044 11,151
David K. MacDonald ..... 972 (2) 1.3% 17.98 2/10/2008 4,826 10,668
William L. Pirtle ...... 994 (2) 1.3% 17.98 2/10/2008 4,935 10,909
-------------------------
(1) All options granted to the named executive officers were granted under the
Stock Incentive Plan and are exercisable for shares of common stock.
(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-fifth of the shares subject to
the option on each of the third, fourth, fifth, sixth and seventh
anniversaries of the date of grant.
(4) The term of each option may not exceed five years for all named executive
officers except Mr. MacKenzie, whose option term may not exceed ten 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.
13
STOCK OPTION EXERCISES IN 2003
The following table sets forth information concerning all stock options
exercised during fiscal 2003 and unexercised stock options held at the end of
that fiscal year by the named executive officers.
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NAME EXERCISE (#) REALIZED ($) YEAR-END (#) FISCAL YEAR-END ($)(1)
------------------------- ------------- ------------ ---------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Christopher E. French .. 1,058 9,818 3,123 2,375 27,787 18,468
Earle A. MacKenzie ..... -- -- -- 20,000 - 72,400
David E. Ferguson ...... 1,464 14,894 2,159 1,495 19,250 11,629
David K. MacDonald ..... 524 6,828 1,744 1,400 15,506 10,882
William L. Pirtle ...... 658 5,169 2,042 1,458 18,167 11,340
-------------------------
(1) Represents the difference between the exercise price and the $25.63 split
adjusted closing price of the common stock on the Nasdaq Stock Market on
December 31, 2003, which was the last trading day in fiscal 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth the following information as of December
31, 2003 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 AVAILABLE
NUMBER OF SECURTIES TO WEIGHTED FOR FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE AVERAGE EXERCISE PRICE EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OF OUTSTANDING OPTIONS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS (a) WARRANTS AND RIGHTS (b) REFLECTED IN COLUMN (a))(c)
------------------------------------ ----------------------- ----------------------- ----------------------------
Equity compensation plans 172,220 $17.39 226,420
approved by security holders (1)
Equity compensation plans not
approved by security holders -- -- --
Total 172,220 $17.39 226,420
-----------------
(1) The Stock Incentive Plan is the Company's sole equity compensation plan.
PENSION PLANS
The Company's executive officers participate in the Company 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
14
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 the above Summary Compensation Table in specified compensation and
years-of-service classifications. The amounts shown were calculated on a
straight-life basis assuming the employee retires in 2004.
ESTIMATED ANNUAL PENSION
YEARS OF CREDITED SERVICE
FINAL ----------------------------------------------------------------
EARNINGS 15 25 35 45
---------- ----- ----- ----- -----
100,000 28,592 37,229 46,125 49,025
150,000 53,592 61,092 76,092 83,592
200,000 78,592 88,592 108,592 118,592
250,000 103,592 116,092 141,092 153,592
300,000 128,592 143,592 173,592 188,592
350,000 153,592 171,092 206,092 223,592
400,000 178,592 198,592 238,592 258,592
450,000 203,592 226,092 271,092 293,592
500,000 228,592 253,592 303,592 328,592
550,000 253,592 281,092 336,092 363,592
600,000 278,592 308,592 368,592 398,592
Final Earnings include total earnings, including bonuses. The credited
years of service as of January 1, 2004, were as follows: Christopher French-22
years, Earle MacKenzie-1 year, David Ferguson-36 years, David MacDonald-8 years,
and William Pirtle-11 years.
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 deferred compensation 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, executives are paid a normal monthly benefit
for the life of the executive determined as follows: 50% for executives with 20
years or less of credited service, increased by 1% for each additional year of
credited service up to a
15
maximum of 70% with 40 years, times the executive's final annual compensation;
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 THE COMPENSATION COMMITTEE
The personnel committee of the Shenandoah Telecommunications Company board
of directors performs the function of a compensation committee of the board of
directors. The committee offers this report regarding its executive compensation
policy and compensation program in effect for 2003 for the 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 committee is to develop
compensation policies and practices that support the attainment of the Company's
strategic business objectives. The committee reviews industry compensation
surveys and compensation data from public filings by other publicly held
companies in our industry and market region, and uses the services of
independent executive compensation consultants in developing and evaluating
compensation plans to achieve these objectives.
The committee compares 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 generally smaller than those companies
used for the shareholder return performance graph, which includes much larger
publicly traded companies. In reviewing the chief executive officer's
compensation, the committee considers, 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
committee also compares 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 committee believes 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 committee's policy is to
provide that a portion of total executive compensation will be in the form of
periodic stock option awards.
Base Salary. Base salaries of executives 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
16
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 committee based upon, among other things, individual performance and
responsibilities.
Annual Cash Bonuses. The Company pays annual cash bonuses to its executive
officers based upon the achievement of net income and customer service
objectives. These objectives are established at a level that is intended to
assure that, if achieved, the level will represent an improvement in shareholder
value and customer service. Executive officers have the opportunity to earn cash
bonuses equal to a varying percentage of their base salary, depending upon the
extent to which these objectives are attained. All target annual bonuses for a
fiscal year are measured as a percentage of the executive's salary paid for that
fiscal year. Based on performance, individual bonus awards may range from no
award up to a maximum of 2.4 times the targeted amount.
Applying the bonus formula specified for 2003, the committee approved an
annual bonus for the chief executive officer and the other executive officers
equal to 100% of their target annual bonuses.
Long-Term Incentive Compensation. Stock option awards under the Stock
Incentive Plan have been based on a formula relative to each executive's annual
cash compensation, and are granted at market prices at the time of the grant.
The committee in 2003 approved the grant of stock options under the Stock
Incentive Plan for 1,628 shares of common stock to the chief executive officer
and for a total of 5,472 shares of common stock to the executive officers in the
aggregate, including the chief executive officer. In addition, the committee in
2003 approved a special grant of stock options to one executive officer of
20,000 shares under the Stock Incentive Plan as part of his compensation package
upon joining the Company. The grant of stock options to the chief executive
officer and the other executive officers in 2003 were based on the committee's
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 2003 were non-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 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.
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 has been below that limit. In the event executive
employee compensation approaches the limit, the committee's policy 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 committee believes that no compensation for 2003 is at
risk of not being fully deductible.
17
Respectfully submitted,
THE PERSONNEL COMMITTEE
Noel M. Borden
Harold Morrison, Jr.
James E. Zerkel II
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The personnel committee of the board of directors performs the function of
a compensation committee. During 2003, the committee was composed of Noel M.
Borden, who was the Chairman, Harold Morrison, Jr. and James E. Zerkel II. No
member of the compensation committee was an officer or employee of the Company
or any subsidiary of the Company during 2003. There are no interlock
relationships as defined in the applicable SEC rules.
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 and the S&P
Integrated Telecommunications Services index for the periods between December
31, 1998, and December 31, 2003, which was the last trading day in 2003. 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. The graph assumes $100 was
invested on December 31, 1998 in (1) the Company common stock, (2) Nasdaq U.S.
index and (3) the S&P Integrated Telecommunications Services index; and, that
all dividends were reinvested and market capitalization weighting as of December
31, 1999, 2000, 2001, 2002 and 2003.
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Shenandoah Telecommunications Company 100 181 175 218 274 294
NASDAQ U.S. Index 100 185 112 89 61 92
S&P Integrated Telecommunication Services Index 100 108 70 63 44 44
----------------------------------------------------------------------------------------------------------------
18
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG SHENANDOAH TELECOMMUNICATIONS COMPANY, NASDAQ U.S. INDEX AND
S&P INTEGRATED TELECOMMUNICATIONS SERVICES INDEX
[LINE CHART OMITTED]
INDEPENDENT AUDITORS
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, 2004.
Representatives of KPMG 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
2002 and 2003 fiscal years. The following sets forth the aggregate fees billed
by KPMG to the Company for those fiscal years.
2002 2003
-------- --------
Audit services ..................... $180,500 $200,000
Audit-related services ............. 12,200 13,100
Tax services ....................... 39,500 52,100
All other services ................. -- --
---------- ----------
Total ..................... $232,200 $265,200
========== ==========
19
In making its appointment of KPMG LLP as the Company's independent
auditors for the Company's fiscal year ending December 31, 2004, 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 2002 and 2003
fiscal years were incurred principally for services rendered in connection with
the Company's consolidated and statutory audits.
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 2002 and 2003 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
2002 and 2003 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 2002 and 2003 fiscal years.
PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
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,
2003 with the Company's management and the independent auditors. Management is
responsible for
20
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 Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended by Statement on Auditing
Standards No. 90. In addition, the committee has discussed with the independent
auditors the auditor's independence from the Company and its management,
including the matters in the written disclosures required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees.
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, 2003, for filing with the
Securities and Exchange Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
Douglas C. Arthur
Grover M. Holler, Jr.
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. Based solely upon a review of Section 16(a) reports furnished
to the Company for 2003 or written representations that no other reports were
required, the Company believes that the foregoing reporting persons complied
with all filing requirements for fiscal 2003.
SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING IN 2005
Under SEC rules, in order for shareholder proposals to be presented at the
Company's annual meeting of shareholders in 2005, such proposals must be
received by the Secretary of the Company at the Company's principal office in
Edinburg, Virginia, no later than November 23, 2004. The submission by a
shareholder of a proposal for inclusion in the proxy statement is subject to
regulation by the SEC.
21
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.
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,
Laurence F. Paxton
Secretary
Dated: March 22, 2004
22
APPENDIX A
AUDIT COMMITTEE CHARTER
OF SHENANDOAH TELECOMMUNICATIONS COMPANY
A. ORGANIZATION
1. Appointment. The board of directors will appoint an audit committee,
which will be composed of at least three directors. The board of directors also
will appoint a chairman of the audit committee.
2. Qualifications. Each member of the audit committee must satisfy the
requirements of the Nasdaq Stock Market and applicable law relating to
independence, expertise and experience.
B. STATEMENT OF PURPOSE
1. Oversight Responsibility. The purpose of the audit committee is to
oversee the accounting and financial reporting processes of the Company and the
audits of the Company's financial statements. This oversight responsibility
includes oversight relating to (1) the integrity of the Company's financial
statements and financial reporting process and the Company's systems of internal
accounting and financial controls, (2) the performance of the internal audit
function, (3) the annual independent audit of the Company's financial
statements, the engagement of the independent auditors and the evaluation of the
qualifications, independence and performance of the independent auditors, (4)
the Company's compliance with legal and regulatory requirements, including the
Company's disclosure controls and procedures, and (5) the fulfillment of the
other responsibilities set forth in this charter. The audit committee also will
prepare the report of the audit committee required by the rules of the
Securities and Exchange Commission to be included in the Company's annual proxy
statement.
2. Other Matters. It is not the role of the audit committee to plan or
conduct audits, to guarantee the accuracy or quality of the Company's financial
statements or to determine that the financial statements are in accordance with
generally accepted accounting principles and applicable laws and regulations.
These are the responsibilities of management, the independent auditors and the
internal auditors.
C. OPERATION
1. Open Communication. The audit committee will maintain regular and open
communication among the directors, the independent auditors, the internal
auditors and management.
2. Reports to the Board of Directors. The audit committee will review with
the board of directors any issues that arise within the scope of the oversight
responsibility of the audit committee as described above, will report committee
actions
A-1
to the board of directors, and may make appropriate recommendations for action
by the board of directors.
3. Meetings. The audit committee will establish a schedule of meetings to
be held each year and may schedule additional meetings as required. In planning
the annual schedule of meetings, the audit committee will ensure that sufficient
opportunities exist for its members to meet separately, periodically, with the
independent auditors and the head of internal audit (or internal audit service
providers), without management present; to meet separately with management,
without the independent auditors and the head of internal audit (or internal
audit service providers) present; and to meet with only the audit committee
members present.
4. Procedures. The audit committee may adopt such procedures relating to
the conduct of its proceedings as it deems appropriate.
5. Access to Records, Advisors and Others. The audit committee will have
full authority (1) to investigate any matter brought to its attention with full
access to all books, records, facilities and personnel of the Company, (2) to
retain independent legal, accounting or other advisors, as it determines to be
necessary to carry out its duties, to advise the audit committee and (3) to
request any officer or employee of the Company, the Company's external counsel,
the internal auditors or the independent auditors to attend meetings of the
audit committee or to meet with any members of, or advisors to, the audit
committee. The audit committee may retain advisors without seeking approval of
such retention by the board of directors. The Company will provide appropriate
funding, as determined by the audit committee, for payment of the compensation
of the independent auditors and of any independent advisors retained by the
audit committee, as well as ordinary administrative expenses of the audit
committee that are necessary or appropriate in carrying out its duties.
6. Delegation. The audit committee may delegate any of its
responsibilities to a subcommittee composed of one or more members of the audit
committee to the extent permitted by applicable law and listing standards.
7. Performance Evaluation. The audit committee will establish criteria for
evaluating its performance and will conduct such an evaluation on an annual
basis.
D. RESPONSIBILITIES
The following will be the principal responsibilities of the audit
committee:
1. Engagement of Independent Auditors. The independent auditors are
accountable to the audit committee. The audit committee will directly engage the
independent auditors and directly oversee, evaluate and, where appropriate,
replace the independent auditors. The independent auditors will report directly
to the audit committee. Any engagement of the independent auditors by the audit
committee may be subject to stockholder approval or ratification, as determined
by the board of directors.
A-2
2. Pre-Approval of Audit and Non-Audit Services. The audit committee will
approve in advance (1) all audit, review and attest services and all non-audit
services provided to the Company by the independent auditors and (2) all fees
payable by the Company to the independent auditors for such services, all as
required by applicable law or listing standards.
3. Independence of Independent Auditors. The audit committee will consider
matters relating to the independence of the independent auditors. The audit
committee will ensure that the independent auditors submit, on a periodic basis,
to the audit committee formal written statements delineating all relationships
between the independent auditors and the Company, as required by the
Independence Standards Board (or any successor body), will discuss with the
independent auditors any such disclosed relationships and their impact on the
independent auditors' independence and will take appropriate action in response
to the independent auditors' statements to satisfy itself of the independent
auditors' independence.
4. Performance of Independent Auditors. The audit committee will review
the performance of the independent auditors annually. In connection with this
evaluation, the audit committee will consult with management and will obtain and
review a report by the independent auditors describing their internal control
procedures, issues raised by their most recent internal quality control review
or peer review (if applicable) or by any inquiry or investigation by
governmental or professional authorities for the preceding five years, and the
response of the independent auditors to any such review, inquiry or
investigation, including any steps taken to deal with any such issues. The audit
committee will consider whether it is appropriate to adopt a policy of rotating
independent auditors on a periodic basis.
5. Performance of Internal Auditors. The audit committee will annually
review the experience and qualifications of the senior members of the internal
auditors and the quality control procedures of the internal auditors. If the
internal audit services are outsourced, the audit committee will be responsible
for the engagement, evaluation and termination of the internal audit service
providers, and will approve fees paid to the internal audit service providers.
As part of its responsibility to evaluate any internal audit service providers,
the audit committee will review the quality control procedures applicable to the
service providers. The audit committee also will obtain and review not less
frequently than annually a report of the service providers addressing such
service providers' internal control procedures, any material issues raised by
their most recent internal quality control review or by any inquiry or
investigation by governmental or professional authorities for the preceding five
years, and the response of such service providers to any such review, inquiry or
investigation, including any steps taken to deal with any such issues.
6. Audits. The audit committee will discuss with the internal auditors or
internal audit service providers and the independent auditors the overall scope
and plans for their respective audits, including the adequacy of staffing and
other factors that may affect the effectiveness and timeliness of such audits.
In this connection, the audit committee will discuss with management, the
internal auditors or internal audit service providers and the independent
auditors the Company's major risk exposures (whether financial, operating or
otherwise), the adequacy and effectiveness of the
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accounting and financial controls, and the steps management has taken to monitor
and control such exposures and manage legal compliance programs, among other
considerations that may be relevant to their respective audits. The audit
committee will review with management and the independent auditors management's
annual internal control report, including any attestation of such internal
control report by the independent auditors. The audit committee will obtain and
review periodic reviews from management and the internal auditors or internal
audit service providers regarding any significant deficiencies in the design or
operation of the Company's internal controls, material weaknesses in internal
controls and any fraud (regardless of materiality) involving persons having a
significant role in the internal controls, as well as any significant changes in
internal controls implemented by management during the most recent reporting
period of the Company.
7. Review of Disclosure Controls and Procedures. The audit committee will
review with the chief executive officer, the chief financial officer and the
disclosure committee the Company's disclosure controls and procedures and will
review periodically, but no less frequently than quarterly, management's
conclusions about the efficacy of such disclosure controls and procedures,
including any significant deficiencies in, or material non-compliance with, such
controls and procedures.
8. Consultation with Independent Auditors. The audit committee will review
with the independent auditors any problems or difficulties the auditors may have
encountered in connection with the annual audit or otherwise and any management
letter provided by the auditors and the Company's response to that letter. This
review will address any difficulties encountered by the independent auditors in
the course of the audit work, including any restrictions on the scope of
activities or access to required information, any disagreements with management
regarding generally accepted accounting principles and other matters, and any
material adjustments to the financial statements recommended by the independent
auditors, regardless of materiality.
9. Review of Regulatory and Accounting Initiatives. The audit committee
will review with management and the independent auditors the effect of new or
proposed regulatory and accounting initiatives on the Company's financial
statements and other public disclosures.
10. Review of Annual SEC Filings. The audit committee will review and
discuss with management and the independent auditors the audited financial
statements and the other financial information, including the Company's
disclosures under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," to be included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission. The audit committee
also will discuss the results of the annual audit and any other matters required
to be communicated to the audit committee by the independent auditors under
generally accepted auditing standards, applicable law or listing standards,
including matters required to be discussed by Statement on Auditing Standards
No. 61, as amended by Statement on Auditing Standards No. 90. Based on such
review and discussion, the audit committee will make a determination whether to
recommend to the board of directors that the
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audited financial statements be included in the Company's Annual Report on Form
10-K.
11. Review of Quarterly SEC Filings and Other Communications. The audit
committee will review and discuss with management and the independent auditors
the quarterly financial information, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," to be included in the Company's Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission. In connection with this
review, the audit committee will discuss the results of the independent
auditors' review of the Company's quarterly financial information conducted in
accordance with Statement on Auditing Standards No. 71. The audit committee also
will discuss any other matters required to be communicated to the audit
committee by the independent auditors under generally accepted auditing
standards, applicable law or listing standards. The audit committee will discuss
the Company's earnings press releases, as well as financial information and
earnings guidance provided to analysts and ratings agencies, to the extent
required by applicable law or listing standards.
12. Proxy Statement Report. The audit committee will prepare the report
required by the rules of the Securities and Exchange Commission to be included
in the Company's annual proxy statement.
13. Related Party Transactions. The audit committee will conduct an
appropriate review of all related party transactions for potential conflict of
interest situations on an ongoing basis and approve all such transactions. The
related party transactions subject to audit committee review and approval are
transactions required to be disclosed pursuant to Item 404 of Regulation S-K of
the Securities and Exchange Commission.
14. Hiring Guidelines. The audit committee will approve guidelines for the
Company's hiring of former employees of the independent auditors, which will
meet the requirements of applicable law and listing standards.
15. Establishment of Whistleblowing Procedures. The audit committee will
establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls or
auditing matters and the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing matters.
16. Review of Legal and Regulatory Compliance. The audit committee will
periodically review with management, including the internal general counsel (if
any), and the independent auditors any correspondence with, or other action by,
regulators or governmental agencies and any employee complaints or published
reports that raise concerns regarding the Company's financial statements,
accounting or auditing matters or compliance with the Company's code of conduct
and ethics. The Committee also will meet periodically and separately with the
Company's internal general counsel (if any) to review material legal affairs of
the Company and the Company's compliance with applicable law and listing
standards.
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17. Code of Business Conduct and Ethics. The audit committee will consider
and act upon any amendments to the Company's Code of Business Conduct and Ethics
and upon any request by executive officers for waivers under the Code of
Business Conduct and Ethics.
18. Other Responsibilities. The audit committee also will carry out such
other duties that may be delegated to it by the board of directors from time to
time.
E. CHARTER
1. Annual Review. The audit committee will review and reassess the
adequacy of this charter on an annual basis.
2. Inclusion in Proxy Statement. The audit committee will cause a copy of
the charter to be included in the Company's annual proxy statement filed with
the Securities and Exchange Commission as required by applicable law or
regulation.
Adopted by the board of directors on October 20, 2003 and last amended on
February 9, 2004.
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